Inspector review may delay Canada-U.S. oil pipeline

WASHINGTON Mon Nov 7, 2011 5:50pm EST

WASHINGTON (Reuters) - The U.S. State Department's inspector general has opened a "special review" of the department's handling of permitting for the Canada-to-Texas Keystone XL oil sands pipeline, which could delay the final decision on the line into 2012 or later.

Howard Geisel, the State Department's inspector general, said in a memo sent to Senator Bernie Sanders that the review will determine to what extent the department and all other parties involved complied with federal laws and regulations relating to the permitting process on TransCanada Corp's proposed $7 billion Keystone XL pipeline.

"The review will include interviews of appropriate officials and an assessment of pertinent documents," said the memo.

Sanders, one of the Senate's most liberal members, and 13 Democratic lawmakers late last month asked President Barack Obama in a letter to delay a decision on the pipeline until State's inspector general investigated alleged conflicts of interest over the project.

The State Department has the power to issue the permit for the line because it crosses the national border, but Obama said last week he would have heavy influence on the final decision.

The pipeline has been a headache for Obama ahead of next year's election, and the inspector general's announcement came a day after thousands of the pipeline's opponents formed a ring around the White House in a protest.

Environmentalists, who are part of Obama's voter base, say oil sands petroleum releases large amounts of carbon dioxide and the line could leak into a crucial central U.S. aquifer.

On the other hand, the pipeline could create thousands of temporary jobs, and a decision to approve the line could support Obama's goal of boosting employment and diversifying energy sources.

The inspector general's office refused to estimate how long the review would take. "We do appreciate the urgency of the matter," said Doug Welty, public affairs officer for the department's inspector general officer, who added that the review is not an investigation.

While the review does not halt the permitting process, the department could decide to hold off on making a decision until the inspector general's office is finished.

The review, to be conducted at three or more State Department offices, will look at the agency's environmental review of the project issued in August and its ongoing examination of whether the pipeline is in the national interest.

The State Department has said it hopes to decide by the end of the year whether the project can go forward. But late last month it opened the door to missing that target citing the need for a thorough review.

DECISION SEEN IN 2012 OR LATER

Sanders and other opponents of the pipeline have expressed concern that Cardno Entrix, a company the State Department hired to conduct environmental impact statements on the pipeline, had financial ties to TransCanada.

Environmentalists have also complained that Paul Elliott, a lobbyist for TransCanada, is too close to the State Department, a charge the agency has rejected. Elliott served as the national deputy campaign manager for Secretary of State Hillary Clinton during her 2008 run for president.

Bill McKibben, an environmental writer who organizes Keystone protests, said the special review will encourage people across America to step up their fight against the oil sands. "Since the State Department didn't even bother to study the global warming question, the only real answer is to send this back for a whole new review," he said.

A Congressional aide familiar with the Keystone project said the inspector's review could lead to major delays.

"The chances of them making a decision before the end of the year are pretty much impossible at this point," the aide told Reuters. "The decision is definitely going to come in 2012 if not later."

TransCanada's chief executive Russ Girling said this month an extended delay would threaten the project because it could lead oil shippers and refiners to abandon support for the line.

On Monday, a TransCanada spokesman said the company would develop a response once it gets a sense of what it is dealing with. He also said the company was confident the review will reflect TransCanada acted in a fair, open, and transparent manner, and welcomed the chance for the latest claims against the project to be refuted.

The State Department's environmental assessments of the Keystone are also being challenged by another lawmaker, whose committee has oversight of such reviews. Barbara Boxer, the chairman of the Senate Environment Committee, asked Secretary of State Hillary Clinton on Friday to answer a series of questions about the environmental assessment by November 14, probing whether the firm had a conflict of interest.

Boxer asked whether the Keystone decision will be delayed until the State Department knows the results of an independent engineering evaluation of spill detection measures and valves.

The State Department did not immediately respond to a request for comments on that letter.

(Additional reporting Roberta Rampton and Jeffrey Jones in Calgary; Editing by Marguerita Choy and Bob Burgdorfer)