UPDATE 2-Canada defiant after U.S. oil pipeline rebuff

Thu Nov 10, 2011 6:33pm EST

Related Topics

* Will push tar sands crude as ethical and safe

* Ottawa fights EU bid to label oils sands crude as dirty

* Opposition to proposed Pacific pipeline is growing

By David Ljunggren, Randall Palmer and Jeffrey Jones

OTTAWA/CALGARY, Nov 10 (Reuters) - Canada will keep promoting crude from the tar sands of northern Alberta as a secure source of energy despite a U.S. decision to delay approval of a pipeline to carry the oil from Alberta to Texas, officials said on Thursday.

The Canadian government and the oil industry have limited options, however, as another controversial proposal to build a pipeline to export tar sands crude to Asian markets is just at the beginning of a lengthy review process.

The U.S. move to put off a decision on TransCanada Corp's proposed $7 billion Keystone XL pipeline for 18 months is a significant blow for Ottawa, which has strongly backed the project.

"While we are disappointed with the delay, we remain hopeful the project will be decided on its merits and eventually approved," Natural Resources Minister Joe Oliver said in a statement e-mailed to Reuters.

"In the meantime, our government will continue to promote Canada, and the oil sands, as a stable, secure, and ethical source of energy for the world."

The right-leaning Conservative government - which garners much of its support from Western Canada and is a firm supporter of the oil and gas industry - says the United States is better off buying oil from Canada, a neighboring stable democracy, than from other suppliers.

It has also touted the thousands of jobs that building the pipeline would create in Canada and the United States. Prime Minister Stephen Harper had referred to a U.S. approval as a "no-brainer".

Washington's decision to delay approval, which could end up killing the project, followed a campaign by protesters who complain oil sands crude is particularly energy intensive to extract, creating huge carbon emissions. They also point to a possible environmental disaster if the pipeline broke.

Keystone XL is one of two projects that oil sands producers have been counting on to increase financial returns by delivering to markets other than the oversupplied U.S. Midwest. Canada currently exports about 2 million barrels of oil a day, almost all of it to the United States.

NORTHERN GATEWAY NOW IN FOCUS

Focus now turns to Enbridge Inc's C$5.5 billion ($5.4 billion) Northern Gateway pipeline across the Rocky Mountains to Canada's Pacific Coast, where more than half a million barrels of crude a day could be loaded onto tankers and shipped to Asia.

"(There's) obviously growing energy demand in Asia as the economies continue to grow, and Canada will be looking for a buyer," said Sara MacIntyre, a spokeswoman for Harper.

Asked whether the Keystone delay might accelerate efforts to look for Pacific markets for tar sands crude, she told reporters: "It could be part of the discussions."

However, that project is anything but a sure thing. More than 3,000 people have registered to be heard at National Energy Board hearings on the Northern Gateway proposal, which are due to start in January.

The project faces stiff opposition from environmentalists and several native groups, which have said they would not want the pipeline crossing their land under any conditions, and the Keystone XL experience may embolden critics.

Alberta Premier Alison Redford, whose province garners a third of its revenue from oil sands and other fossil fuels, said she was disappointed with the U.S. move, but declined to say if she and her officials would be more forceful in pushing for Northern Gateway as that review unfolds.

"It's important that, as that develops, we are having a public conversation and a policy conversation," said Redford, who is scheduled to travel to Washington next week. "Is it enough? It's important and it's something that is the role of the premier ... and it is the role of the government of Alberta to ensure that our perspective is at the table."

Canada is already involved in a lengthy battle with the European Union over the bloc's plans to classify tar sands crude as particularly dirty. Ottawa fears this could limit future markets for the oil.

Rick Smith of the Environmental Defence group said the U.S. Keystone announcement has sent an important message.

"There is no such thing as 'business as usual' for the tar sands industry ... the longer Canada delays getting serious about reining in tar sands pollution and transitioning to a clean energy economy, the more of this type of controversy we should expect," he said in a statement.

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