Keystone XL pipeline takes second shot at U.S. OK

CALGARY, Alberta Fri May 4, 2012 5:19pm EDT

Russ Girling, president and CEO of TransCanada, talks to a shareholder before the company's annual general meeting in Calgary, Alberta April 27, 2012. REUTERS/Todd Korol

Russ Girling, president and CEO of TransCanada, talks to a shareholder before the company's annual general meeting in Calgary, Alberta April 27, 2012.

Credit: Reuters/Todd Korol

CALGARY, Alberta (Reuters) - TransCanada Corp is taking its second shot at asking Washington to approve the contentious Keystone XL oil pipeline, betting that a new route through Nebraska and post-U.S. election time frame for a decision will push the project forward.

The reapplication to the U.S. State Department on Friday comes after Canada's largest pipeline company carved the proposal into two parts in hopes of kickstarting the project.

U.S. President Barack Obama rejected the full $7.6 billion project early in this election year as concerns spread about the proposed northern portion of the route near an aquifer in Nebraska. Obama has expressed support for the southern portion.

TransCanada has been negotiating with Nebraska state officials over a new route and hopes to have U.S. State Department approval for the northern part of the line early next year with the aim of putting it in service by the end of 2014 or early 2015. That portion would cost $5.3 billion.

The company pointed out that 10,000 pages of study from the first review concluded Keystone XL would have minimal impact on the environment, so the application need not be bogged down again.

"Certainly the message we've heard coming out of the State Department and out of the White House is that they fully expect to use as much of the pre-existing record from the previous application as possible," Alex Pourbaix, president of TransCanada's pipeline division, told Reuters.

"When we look at that we think that the lion's share of that information remains current and relevant and provides all of the analysis that the State Department would require to make their decision."

The move angered environmentalists, who had claimed the last rejection as a victory in a battle against what they say are oil spill risks and rising greenhouse gas emissions from oil sands development. Last year they staged noisy protests against the project in Washington and elsewhere, leading to some arrests.

TransCanada and its supporters say Keystone XL would be key to cutting U.S. dependence on imported oil from unfriendly sources and will create thousands of jobs.

The State Department, which reviews the application because it crosses the international border, noted that the earliest it could make a decision is early 2013.

PRESIDENTIAL PIPELINE POLITICS

That pushes it past the November election. U.S. Republicans were highly critical of Obama's refusal to approve the project, saying he was thumbing his nose at a crucial job-creation opportunity and a way to keep gasoline prices in check.

"This project has been caught up in presidential politics long enough, it's time to get to work," Senator Lisa Murkowski, an Alaska Republican and ranking member of the Senate Energy and Natural Resources Committee, said in a statement.

Republican presidential hopeful Mitt Romney backed the pipeline on Friday in a campaign stop.

"By the way, that pipeline from Canada? We'll build it if I have to build it myself," he told supporters in a suburb of Pittsburgh.

For the Obama administration, the development has been politically troublesome, pitting environmentalists opposed to increased fossil fuel use and pipelines through sensitive areas against unions and other Democrats who say it will create badly needed jobs in a shaky economy.

In January, he rejected the project under a deadline imposed by Congress, saying more time was needed to review the proposed route which raised objections in Nebraska due to its course across the Ogallala aquifer, a major water source.

Pourbaix said he believes the Nebraska Department of Environmental Quality will be able to decide on a new route that skirts environmentally sensitive areas by September or October.

The overall 830,000 barrel a day project is aimed at moving crude derived from the Alberta oil sands to refineries on the U.S. Gulf Coast, which face declining volumes of oil from traditional suppliers, including Mexico and Venezuela. It would also transport growing supplies from North Dakota's booming Bakken shale oil fields.

Canadian oil producers and Prime Minister Stephen Harper's government have lobbied hard for the 1,661 mile pipeline, as part of a series of initiatives to tap new markets to get better returns for burgeoning production from the tar sands. Most of that now flows to the oversupplied U.S. Midwest.

Joe Oliver, Canada's natural resources minister, said he believes there is now a greater likelihood of Washington's approval now that the Nebraska issues are being dealt with.

Bill McKibben, an environmental activist who was one of the leaders of last year's pipeline protests, said a new route through Nebraska will not solve larger environmental problems such as rising carbon emissions from tar sands development.

"There are many reasons to be worried about this thing. The one that brought most people out into the streets was worries about our climatic future. Those remain," McKibben said.

The $2.3 billion Gulf Coast portion will carry crude to Texas refineries from the glutted Cushing, Oklahoma, storage hub. It does not require a presidential permit and Obama has said he will direct officials to quickly grant the necessary permits.

TransCanada expects the approvals for that segment to allow construction to start by the end of the summer, which would mean the pipeline could be in service by mid- to late 2013, Pourbaix said.

(Additional reporting by Timothy Gardner and Arshad Mohammed in Washington, Steve Holland in Pittsburgh and Julie Gordon and Euan Rocha in Toronto; Editing by David Gregorio)