* Pipeline would increase imports from Canada's oil sands
* Environmental protests a headache for President Obama
* Delay would prolong gap between US, global oil prices
By Arshad Mohammed
WASHINGTON, Oct 25 The U.S. State Department
may miss a year-end target to approve TransCanada Corp's Canada-to-Texas Keystone oil sands pipeline, a U.S.
official told Reuters on Tuesday, risking a further delay to
the most important new crude oil conduit in decades.
The official, who spoke on condition of anonymity, said the
State Department still hoped to make a decision by the end of
this year, which has been its target, but that its highest
priority was to carry out a thorough, rigorous review. The
decision has already been pushed back once.
A further delay would not only be a blow to TransCanada, it
could also prolong a massive gap between U.S. and global oil
prices because oil traders are counting on Keystone's 700,000
barrel-per-day capacity to relieve a build-up of crude in the
U.S. Midwest, which doesn't have enough pipelines to ship
growing Canadian output to Gulf Coast refineries for use around
the United States.
The ruling, which falls to the State Department because the
line crosses national borders, is forcing President Barack
Obama into a decision that effectively pits environmental
safety against job creation and energy security.
"While we still hope to make a decision by the end of the
year, we are first and foremost committed to a thorough,
transparent and rigorous review process," said the U.S.
official, who spoke on condition of anonymity.
"So we're carefully reviewing all of the information we've
received, including the many comments from the public, and will
make a decision only after we have weighed all of the facts,"
the official added.
'ALL ABOUT TIMING'
Analysts and officials said despite a potential delay, it
looks like the United States will ultimately approve the
Kevin Book, an analyst at ClearView Energy Partners LLC in
Washington, said the State Department is taking time to ensure
its decision making on the $7 billion project is meticulous and
protected from lawsuits.
"Everything that we are aware of suggests the State
Department is moving toward 'yes' very openly, albeit slowly,"
said Book. The Obama administration could face criticism ahead
of next year's elections if it decided against the pipeline.
"A 'no' decision in January could be a big problem in
November if oil prices are above $100 a barrel, " he said.
Canadian officials have not heard any recent change in
tone from the State Department that would suggest a shift in
thinking, Joe Oliver, Canada's natural resources minister, said
in an interview.
Still, further delays would roil already edgy oil markets.
"It's all about timing, not about the route. The market had
moved on the understanding that this thing was going to be
online in the second half of 2013," said Jan Stuart, head of
energy research at Credit Suisse in New York City.
"If you are suddenly mucking around with the timing ... the
market has to move again."
Benchmark U.S. crude oil prices fell to a record $28 a
barrel discount versus Europe's Brent last month, but has
rebounded this week to a $18 discount on signs of tightening
supplies. Analysts say the spread won't return to its
historically normal $1 or $2 range until new pipelines are
Pipeline opponents, many of whom are environmental groups,
say producing liquid crude from oil sands production releases
large amounts of greenhouse gases and that the fuel is
potentially corrosive to pipelines. Others fear potential
damage to a major U.S. fresh water aquifer.
Some 1,200 opponents were arrested in front of the White
House this summer, and more protests were expected next month.
Supporters say the pipeline would create thousands of jobs
and provide a secure source of energy imports from a close
Approval for the pipeline has been pending since late 2008
and the project could face many legal and regulatory hurdles
that could delay it.
Environmental groups groups sued the U.S. government in
federal court on Tuesday challenging claims in the State
Department's environmental report saying spills on the line
Opposition is crystallizing in Nebraska where the pipe
would cross the aquifer and the Sand Hills region, home to
whooping cranes and other endangered species.
Ryan Salmon, energy policy adviser for the National
Wildlife Federation, said a delay "would demonstrate that there
still are issues that haven't had careful consideration and
they're now recognizing that they may need to do that work."