-- Robert Campbell is a Reuters market analyst. The views expressed are his own. --
By Robert Campbell
NEW YORK Nov 10 (Reuters) - Despite what you may think, the delay or even cancellation of the Keystone XL pipeline project from Canada to the United States does not ensure that China will become the go-to customer for Canada's vast oil sands.
U.S. President Barack Obama has opted to avoid a tough decision by allowing the government to take more time to study changes to the proposed Keystone XL route to avoid environmentally sensitive areas.
But any delays could kill the project if customers grow impatient and seek release from their binding shipping commitments or if the cost of the line goes up substantially.
Doubtless this theme will be dredged up by Keystone's backer, TransCanada and other oil industry lobbyists in Washington with an eye to fanning Americans' fears about oil supply security should the Obama Administration opt for further study of fresh routes for the pipeline.
But the simple fact is that this claim is at best a huge exaggeration. If anything a pipeline from Alberta across the mountainous province of British Colombia is likely to face more scrutiny from environmental groups than Keystone XL.
Aboriginal groups in Canada whose lands lie across the route have already signaled their opposition. One only has to look at the saga of the as yet unbuilt Mackenzie Valley natural gas pipeline to get an idea of the sort of delays that aboriginal opposition can help to create in the Canadian pipeline regulatory process.
But even if a new pipeline to the Pacific Coast is built --Enbridge does not expect its latest proposal, the 500,000 barrels per day Northern Gateway pipeline, to enter service until 2016 at the earliest.
And 500,000 bpd, while impressive, would be less than a fifth of projected Western Canadian oil output.
Moreover, that line will not even be needed. The combined processing capacity of Western Canada's oil refineries and existing major export pipelines from the region will exceed oil production forecasts until sometime early in the next decade, according to the Canadian Association of Petroleum Producers.
So it is not the case that Canadian output will be shut down any time soon if Keystone XL dies on a bureaucratic battlefield.
The issue will remain the same as it is today: a shortage of transportation capacity in the northern U.S. Midwest that makes it hard to get oil from that part of the country to other centers of demand.
Some of this could be solved by Enbridge's 400,000 bpd Flanagan South Pipeline, that would boost take-away capacity from the Chicago region to Cushing.
Combined with now-unused space on the nearby Spearhead pipeline, some 450,000 bpd extra will be moved out of Chicago to Cushing by the middle of the decade at the latest, assuming Enbridge is successful in securing customer commitments.
Combined with the 800,000 bpd Wrangler line, it would likely be enough in the medium term to prevent a massive imbalance in the region.
Of course what Keystone XL would have provide would be up to 700,000 bpd in capacity that would bypass the Midwest and alleviate a number of bottlenecks.
But given the relatively short time to build pipelines, there is still plenty of time for alternative solutions to come to fruition should Keystone XL die.
The major bottleneck at Cushing has already shown the appetite of North American pipeline companies to find a profitable solution.
Mothballed proposals to expand Chicago-to-Cushing capacity, such as BP's ill-fated plan to reverse its No. 1 pipeline would be easy to resurrect, for instance.
The larger issue is whether or not the delay and possible defeat of the proposal represents a turning point for the environmental movement in its fight against oil sands taking a greater share of the U.S. oil market.