November 2, 2011 / 8:30 PM / 6 years ago

Keystone ruling faces delay as Obama weighs in

CALGARY/WASHINGTON (Reuters) - The decision on the controversial Canada-to-Texas Keystone pipeline could slip into next year, a U.S. State Department official acknowledged on Wednesday, a day after President Barack Obama said for the first time that the final decision rests with him.

TransCanada’s $7 billion Keystone XL pipeline is at the center of a political firestorm with green groups and some landowners along the pipe’s route mounting formidable opposition to the project that will transport Canadian oil sands crude to the Gulf coast.

The State Department has consistently said it would decide by the end of year whether it would approve the pipeline, which falls under its jurisdiction because it crosses the U.S.-Canada border.

Obama, however, told a Nebraska television station on Tuesday that the department would provide him their recommendations on the project “in the next several months” and that he would decide the fate of the pipeline based on health and economic factors.

A State Department spokeswoman on Wednesday acknowledged that the agency’s evaluation of the pipeline proposal might continue into the new year.

“We’d like to get it done by the end of the year, but if thoroughness demands a little more time nobody has slammed the door on that,” State Department spokeswoman Victoria Nuland told a news briefing.

Further delay in the pipeline could roil oil markets as 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.

Christine Tezak, an energy policy analyst at Robert W. Baird & Co., said the Obama administration will likely make a decision on the pipeline early next year, if it doesn’t wrap up the process by the end of December.

“Given the persistent controversy, I don’t see any upside for the administration to let this drag on another year,” Tezak said.

Tezak said ultimately she thinks the pipeline will be approved because of its energy security and job creation benefits.

A source who has had meetings with White House and State Department policy staff also told Reuters that the administration will likely approve the pipeline.

ALREADY BEHIND SCHEDULE

With an election year looming, the clash over the pipeline has reached a fever pitch, with critics of the pipeline staging sit-ins outside of the White House and Nebraska holding a special legislative session over concerns about the pipeline’s route through a significant aquifer.

In response to growing opposition in his state, Republican Governor Dave Heineman reversed an earlier decision and called for the special session that is expected to take several weeks.

Heineman said the purpose of the session was to “find a legal and constitutional solution to the siting of the pipeline within the state.”

Environmentalists have made the rejection of the pipeline a top priority for them and a test of the Obama administration’s dedication to green issues.

Green groups plan to circle the White House on Sunday, exactly one year before the 2012 presidential election, to urge Obama to say “No” to the pipeline.

Approving the pipeline, which they say will lock the United States into dependence on “dirty” oil sands crude, will make it difficult to mobilize the president’s environmental base, the groups warn.

Still with economic concerns likely to be at the heart of next year’s election, the Obama administration would face criticism if halts a project that would enhance the country’s energy security.

Supporters of the pipeline argue it will create thousands of jobs and ensure a stable source of fuel from a friendly neighbor.

TransCanada said Wednesday that it still expected a decision on the pipeline by year’s end, noting that the review process was already in its 39th month.

“They’ve outlined to us that they’ll make a decision by year-end, and until we’ve been told otherwise we’ll continue to work toward that direction,” TransCanada spokesman Terry Cunha said.

The project is already about a year behind its initial schedule following an extended review process that has included draft and final environmental impact statements and public comment periods.

TransCanada Chief Executive Russ Girling said on Tuesday that another extended delay in the regulatory process would lead oil shippers and refiners to abandon their support for the project, rendering it uneconomical to build.

Writing by Ayesha Rascoe, additional reporting by Timothy Gardner; Editing by Russell Blinch and Alden Bentley

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