Republicans eye highway bill as vehicle for Keystone

WASHINGTON (Reuters) - House of Representatives Republicans looking to force approval of the Canada-to-Texas Keystone XL oil pipeline that was blocked last week by the Obama administration are considering attaching it to a massive highway bill, a key lawmaker said on Tuesday.

"It's not settled," said Representative Lee Terry, a senior Republican on the House of Representatives Energy and Commerce Committee. "But there seems to be some coalescence for an infrastructure bill."

The Republicans, searching for ways to resurrect the $7 billion project, also are not ruling out coupling it to a payroll tax bill that needs to get through Congress in February.

Senate Majority Leader Harry Reid, a Democrat, said on Tuesday he does not think a provision to speed approval of the pipeline belongs in the next payroll tax cut bill.

"If we want to wean ourselves from foreign oil, why would we allow a pipeline to be built of 1,700 miles to manufacture petroleum products to be shipped overseas? That's the purpose of this," Reid told reporters.

Terry said an infrastructure bill seems like a "marriage" for TransCanada's Keystone, which would sharply boost the flow of crude from Canada's oil sands to U.S. Gulf Coast refineries.

Congressional Republicans have over the past year rejected ambitious Obama administration infrastructure proposals that were intended as job creators, citing cost concerns.

House Speaker John Boehner in November proposed a five-year plan to combine road and bridge spending with measures that would increase royalties from new offshore oil and gas drilling.

Parts of the plan, such has opening part of the Alaska National Wildlife Refuge to oil exploration, stand little chance of passage in the Democratic-controlled Senate.

President Barack Obama said his administration denied TransCanada's application for the oil sands pipeline on January 18 because there was not enough time to review an alternate route that would avoid a sensitive aquifer in Nebraska within a 60-day window set by Congress.

Congressional Republicans had tried to force the administration into a quick decision after Obama delayed the project in November on the grounds that more study was needed.

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Liberals and environmental groups - who Obama does not want to antagonize as he seeks re-election on November 6 - have protested against the project because of the higher greenhouse gas emissions from mining Alberta's massive oils sands.

The administration will likely not reconsider the project until after the presidential election unless Congress can force Obama's hand.

The five-year, $260 billion infrastructure bill eyed by House Republicans is long-delayed legislation to fund highway, bridge and rail construction programs. Relevant committees plan to consider the measure next month.

Republicans feel their hand has been strengthened after a new legal analysis by the nonpartisan Congressional Research Service found that Congress has the constitutional right to legislate permits for cross-border oil pipelines like Keystone.

Attaching the bill to payroll tax cut legislation that needs to pass by the end of February has not been ruled out.

But Republican leaders may try to avoid a showdown on that bill after delays in December backfired.

Republicans in both the House and Senate are working on legislative language but getting a Keystone bill passed faces hurdles in the Democratic-controlled Senate, and also ultimately would need to be signed by Obama to become law.

The House has been considering language drafted by Terry, whose home state of Nebraska would host part of the pipeline. The language would shift the Keystone decision to the independent Federal Energy Regulatory Commission, which regulates pipelines.

The House Energy and Commerce Committee will hold a hearing on Terry's bill on Wednesday, which will signal further determination by Republicans to press ahead with the project that they say is needed to create jobs secure the country's energy security.

Using a slightly different approach, House Republican Ted Poe of Texas introduced a bill on Tuesday that would see Congress give the project a permit "directly and immediately."

Republican Senator John Hoeven of North Dakota, whose state needs the pipeline to move booming oil production from the Bakken shale reserve, is also working on language to push approval of the project.

(Additional reporting by Roberta Rampton and John Crawley; Editing by Will Dunham)