UPDATE 3-Keystone report raises pressure on Obama to approve pipeline

Fri Jan 31, 2014 5:07pm EST

By Roberta Rampton and Jeff Mason

WASHINGTON Jan 31 (Reuters) - Pressure for President Barack Obama to approve the Keystone XL pipeline increased on Friday after a State Department report played down the impact it would have on climate change, irking environmentalists and delighting proponents of the project.

The agency made no recommendation in its report on whether Obama should grant or deny an application by TransCanada Corp to build the $5.4 billion line, which would transport crude from Alberta's oil sands to U.S. refineries.

But the State Department said that blocking Keystone - or any pipeline - would do little to slow the expansion of Canada's vast oil sands, maintaining the central finding of a preliminary study issued last year.

The 11-volume report's publication opened a new and potentially final stage of an approval process that has dragged for more than five years, taking on enormous symbolic political significance and looming over Obama's environmental and economic legacy.

"President Obama is out of excuses," said John Boehner, the Republican Speaker of the House of Representatives and a big Keystone proponent. "If President Obama wants to make this a 'year of action' he will stand up to the extreme Left in his own party, stand with the overwhelming majority of American people, and approve this critical project."

With another three-month review process ahead and no firm deadline for a decision on the 1,179-mile (1,898 km) line, the issue threatens to drag into the 2014 congressional elections in November. Obama is under pressure from several vulnerable Democratic senators who favor the pipeline and face re-election at a time when Democrats are scrambling to hang on to control of the U.S. Senate.

The report offered some solace to climate activists who want to stem the rise of oil sands output. It reaffirmed the idea that Canada's heavy crude reserves require more energy to produce and process - and therefore result in higher greenhouse gas emissions - than conventional oil fields.

But after extensive economic modeling, it also found that the line itself would not slow or accelerate the development of billions of barrels of reserves that environmentalists say would exacerbate global warming. That finding is largely in line with what oil industry executives have long argued.

"This environmental impact study - which ignores the evidence gathered in the past year that indicates the pipeline will increase our level of emissions - is by no means the final word on the Keystone XL pipeline," said Neera Tanden, president of the Center for American Progress, a liberal-leaning group with strong ties to the White House.

"I hope that President Obama will hold firm on the commitment he made in his climate speech (last year) and reject the pipeline."

To read the report, click on

TransCanada Corp shares traded up more than 1 percent in afternoon trading, reflecting optimism that the report was positive for the eventual construction of the pipeline.

The company's Chief Executive Officer Russ Girling said the case for the Keystone pipeline "is as strong as ever."

Canada's Natural Resources Minister Joe Oliver said he hoped Obama would make a decision in the first half of this year.

"This has been a lengthy and thorough review process. The benefits to the United States and Canada are clear. We await a timely decision on this project," Oliver said. He described the environmental review "as a positive step on the route to approval."

For other reactions, click on

LIMBO

Secretary of State John Kerry will consult with eight government agencies over the next three months about the broader national security, economic and environmental impacts of the project before deciding whether he thinks it should go ahead. There is no deadline, and the report does not seek to address some of the larger strategic questions involved.

"While we have a lot of deeper and broader analysis in this supplemental (report), it does not answer the broader question about how a decision on this potential pipeline fits in with broader national and international efforts to address climate change," a State Department official told reporters.

The pipeline has been in political limbo during the review, a long-stalled process that complicated relations with allies in Ottawa and annoyed advocates on both sides of the issue. The line would carry as much as 830,000 barrels of crude per day from Hardisty, Alberta, to Steele City, Nebraska, where it would meet the project's already complete southern leg to take the crude to the refining hub on the Texas Gulf coast.

Polls show a majority of Americans support the project, although environmentalists have fiercely opposed it.

Republicans, supported by business leaders and the Canadian government, want Obama to approve the project because of its potential to create jobs and boost U.S. energy security.

For a Factbox on potential winners and losers, click on

The State Department's study found that oil from the Canadian oil sands is about 17 percent more "greenhouse gas intensive" than average oil used in the United States because of the energy required to extract and process it, the State Department official said. It is 2 to 10 percent more greenhouse gas intensive than the heavy grades of oil it replaces.

But the study found oil sands development could be curbed in a scenario where pipeline capacity was constrained, oil prices were low, and rail shipping costs soared, the official said, noting the uncertainty involved in modeling the impacts.

The study also examines data from a 2010 pipeline spill in Michigan, where more than 20,000 barrels gushed into the Kalamazoo River system. Pipeline operator Enbridge Energy Partners was ordered last summer to do more to dredge up oil from the bottom of the river.

OBAMA'S CHOICE

Eight other government agencies ranging from the Pentagon to the Energy Department to the Environmental Protection Agency will have the opportunity to weigh in on the pipeline during the next 90 days, and the public will have 30 days to comment, beginning next week.

A previous comment period in March yielded more than 1.5 million comments.

The White House will be kept informed about the process, but does not have a formal role within the government's process for reviewing pipelines, unless departments cannot agree on whether the project should go ahead, the State official said.

Obama signaled in a major climate speech in June that he was closely watching the review, and said that he believed the pipeline should go ahead "only if this project does not significantly exacerbate the problem of carbon pollution."