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Demonstrators voice their opposition last Sunday in Washington to TransCanada's proposed Keystone XL pipeline. (Andrew Harrer/Bloomberg News/Andrew Harrer/Bloomberg News)
Demonstrators voice their opposition last Sunday in Washington to TransCanada's proposed Keystone XL pipeline. (Andrew Harrer/Bloomberg News/Andrew Harrer/Bloomberg News)

How a pipeline was defeated: actors, activists and one key conversation Add to ...

In the end, it came down to a conversation between two of the most powerful people in the world.

Earlier this week, U.S. Secretary of State Hillary Clinton spoke with President Barack Obama about a pipeline set to run from Alberta’s oil sands down through the U.S. Midwest to reach refineries on the Texas coast of the Gulf of Mexico.

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Pipelines are usually mundane affairs, but this one was different. A year ago, few had ever heard of Keystone XL. But in the space of just a few months, the quietly planned pipeline erupted into a high-profile international debate about the oil industry, the environment, and the role Canada’s oil sands plays in both.

Actors and activists whipped up support against the project, garnering national attention in the U.S. as they linked hands in a human chain around the White House in protest. Opponents from across the country descended on Nebraska, denouncing the pipeline as a serious risk to an environmentally sensitive area of the state, and winning state political support along the way. Many supporters were there too, with a rallying cry that the U.S. desperately needs secure oil and jobs, both of which Keystone XL offered.

But the talk between Mr. Obama and Ms. Clinton put the pipeline plan in the ditch. About an hour before the State Department issued a press release Thursday afternoon, Ms. Clinton called John Baird, Canada’s minister of foreign affairs, and broke the news.

The State Department, which has already spent 39 months reviewing the $7-billion project, concluded it will wait until the beginning of 2013 to render a decision on Keystone XL. First, it wants TransCanada to come up with an alternate route through Nebraska.

The decision left Canada’s oil industry, which had viewed Keystone XL’s approval as a slam-dunk, alternately gasping and fuming. Keystone XL was a major element of Canada’s energy growth ambitions. The pipeline derailment raises questions about Canada’s trade relationship with the U.S., the world’s largest energy consumer. The timing of the decision also stung, coming just before an APEC meeting in Hawaii where Mr. Obama is scheduled to sit down with Prime Minister Stephen Harper.

Now industry players are wondering how a project whose approval was called a “no-brainer” by Mr. Harper has instead been left to founder.

Officially, the State Department called the decision non-political. A spokesperson said it arose from the growing anti-Keystone revolt in Nebraska that had made it difficult to say the pipeline, in its current form, was in the “national interest.”

But the delay, which will very likely place a final Keystone decision well after the presidential election a year from now, was the culmination of a remarkable few weeks that saw the president take an increasingly personal interest in the issue. That interest, many observers believe, makes it clear this was a political decision, made by a White House eager to hold on to a base of young environmental-minded voters who were instrumental in handing Barack Obama the presidency.

“I am sure the Obama campaign did not like the idea of their campaign offices being occupied by a bunch of people who were against the pipeline,” said Jane Kleeb, the Nebraska campaigner who was instrumental in stirring up that state’s opposition. “And I’m sure they were tired of the high-level donors saying, ‘No we’re not going to donate until you do something on this pipeline.’”

Mr. Obama’s growing interest was evident over the past few weeks. There was the Oct. 26 event in Denver where, in response to a heckler, Mr. Obama stopped mid-speech and responded: “I know your deep concern about [Keystone]” he said. “We will address it.”

Then there was the series of interviews on Nov. 1, when Mr. Obama spoke with a number of media outlets along the Keystone route. In one brief interview with a Nebraska TV station, he took ownership of the pipeline decision as his to make. It was clear he knew what he was talking about, making references to the water issues, for example, that had dominated the debate in Nebraska.

“It’s blatant politics,” said David Wilkins, former U.S. ambassador to Canada, in an interview Friday. Mr. Wilkins lobbied for Keystone on behalf of the Canadian Association of Petroleum Producers. “It’s politics at its worst. It was a move by the president to placate a certain wing of his party and I think it was a real travesty.”

Mr. Wilkins pointed out that Mr. Obama had passed up 20,000 Keystone jobs to “protect one job, his own.”

Canadian industry officials were confident Keystone XL would win approval, even amid unusual signals. In October, a request had come down from Ms. Clinton herself asking that no Canadians be present at a Washington hearing into the pipeline. Canadian officials saw the request as a suggestion that Ms. Clinton supported the project, and didn’t want a Canadian presence to further disturb the peace.

But there were other warning signs. David Goldwyn, the State Department’s Special Envoy and Co-ordinator for International Energy Affairs, was seen as a Keystone supporter but left to pursue a private career. He had actually travelled to the oil sands in late 2010 with Gary Mar, the former Alberta cabinet minister who was then serving as the province’s representative in Washington.

In January, Mr. Mar invited the governors of the seven states along the Keystone XL route to a breakfast meeting. The only one not to show was Dave Heineman, the Nebraska governor who would, months later, publicly oppose the Keystone XL pipeline route.

That’s when alarm bells started to sound. Both TransCanada and the Canadian government substantially increased their lobbying efforts around the beginning of this year, when it started to seem plausible that they could lose this project.

Mr. Heineman’s opposition was, however, viewed as naked politicking. Nebraska has a long history of governors graduating to become powerful U.S. senators, and Mr. Heineman, some believe, wants to unseat Ben Nelson, a Democrat who currently holds one of Nebraska’s Senate seats.

Still, Nebraska’s fight soon took on national political significance. In some ways, it offered the White House an easy argument. When Mr. Heineman called a special legislative session to examine new “siting” rules that would let Nebraska move a pipeline route, it provided solid evidence that Keystone clearly did not have universal support.

Other issues were also at play, of course: the BP spill had enlivened in many Americans a sense that oil production and transportation is fraught with risk. TransCanada’s decision to purchase pipeline steel from India angered a country pursuing a Buy America agenda. TransCanada’s heavy-handed dealings with landholders inflamed local passions. Its high-level corporate lobbying backfired when e-mails were released that suggested an overly cozy relationship with the State Department. That prompted the State Department’s inspector-general to announce an investigation into whether TransCanada’s involvement in its own review might constitute a conflict of interest.

TransCanada also struggled to shift public attitudes in Nebraska, where it faced even more blowback: an ad at a college football game received so many boos that it was pulled. Revelations of the company’s heavy lobbyist spending brought comparisons of the corporate conduct of Big Tobacco. Critics waged war through social media, while TransCanada relied heavily on a single communications consultant to offer its responses.

Still, the pipeline’s defenders said they did all they could.

Keystone supporters “dotted their i’s and crossed their t’s,” Mr. Wilkins said. “I think it was in the end a cop-out by the administration to placate their base.”

Follow on Twitter: @nvanderklippe

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