Deal to divert Keystone XL pipeline puts heat on Obama

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A compromise between top Nebraska politicians and TransCanada Corp. to reroute the Keystone XL oil pipeline around a critical state aquifer has injected new life into the Canadian-led project and upended President Barack Obama's plan to bury a political hot potato until after the 2012 election.

TransCanada's decision to divert the pipeline away from the Sand Hills region, which sits atop the Ogallala Aquifer, immediately won the support of Nebraska's Governor and shattered the anti-Keystone coalition of state politicians and national environmentalists.

With leading Nebraskan legislators now calling on the U.S. State Department to "expedite" its approval of the controversial $7-billion (U.S.) project, the Obama administration faced new pressures from environmentalists to kill the pipeline altogether.

"Our most important objective all along was to move the route. So if we can expedite the supplemental environmental impact assessment and get moving on the construction of the pipeline, we're all for that," Nebraska Republican Governor Dave Heineman told a news conference in the state capital of Lincoln on Tuesday.

The U.S. State Department said last week that it would delay until 2013 a decision on the pipeline aimed at moving about 700,000 barrels a day of Alberta oil-sands crude to refineries on the U.S. Gulf of Mexico, primarily because of Nebraskans' opposition to the proposed route through their state. It had previously promised a decision by year end.

The delay spared Mr. Obama, who has said the final word rests with him, from making a decision that could anger key Democratic constituencies as he seeks re-election. Many environmentalists and some key Democratic donors consider the Keystone a litmus test of Mr. Obama's values that will determine whether they campaign for him in 2012.

Republicans in Congress overwhelmingly support the project, arguing it would create thousands of construction jobs and ensure American access to a secure source of energy from a friendly neighbour. Delaying the pipeline, they add, would damage bilateral relations and lead Canada to seek new markets for its oil, including in China.

Swift action by TransCanada to voluntarily reroute the pipeline on Monday, and an immediate proposal by Nebraska's Speaker to pay for a state review of the altered trajectory, may have thrown a wrench into the Obama administration's calculations.

What Mr. Heineman called "a Nebraskan common-sense solution" was quickly hailed as a "win-win" by Speaker Mike Flood and endorsed by other state politicians, including Democratic Senator Ben Nelson, who faces a tough re-election bid in 2012.

TransCanada maintains that a new environmental review might take no more than nine months, though State Department spokesman Mark Toner said Tuesday that the administration still expected a final ruling on the pipeline would not come before 2013.

"Nebraska [and]TransCanada are working together, and we're working to support them," Mr. Toner said. "But nothing has changed in regard to the timeline we laid out last week."

David Wilkins, a former U.S. ambassador to Canada and South Carolina Republican whose Washington-based law firm has been retained by the Canadian Association of Petroleum Producers, added that it was "premature" for Keystone proponents to declare victory.

"Any way you shake it, it looks like the decision has been put off past the election, which I believe was the intention to start with," he said. "The agreement in Nebraska won't satisfy others who don't want the pipeline at all and they're going to continue to put pressure on the administration."

Indeed, the Nebraskan compromise had leading environmentalists vowing to redouble their efforts to get the Obama administration to kill the pipeline altogether.

"We need TransCanada to listen to the American people tell them 'no' to the pipeline as a whole and we need Canada to stop pushing dirty tar sands oil on America," said Susan Casey-Lefkowitz, director of the international program at the Washington-based National Resources Defense Council.

Environmentalists argue the pipeline would deepen U.S. dependence on fossil fuels, and specifically on oil-sands bitumen, which produces higher amounts of greenhouse gases than conventional oil.

But University of Nebraska-Omaha political science professor Paul Landow countered that, with TransCanada's move to defuse opposition to the project in Nebraska, the Obama administration may have lost its pretext for delaying a decision on the pipeline.

"There is going to be added pressure on the administration to make a quick decision on moving forward now," Prof. Landow said in an interview. "Jobs and energy security have a much broader appeal, primarily to independent voters. So, those two issues alone could be enough to move the pipeline ahead on an expedited basis."

Some analysts viewed the delay as a political move that could earn Mr. Obama critical support in Nebraska, where he won only one of the state's five electoral votes in 2008. But Prof. Landow insisted the move was squarely aimed at mobilizing the Democratic base nationally for Mr. Obama in 2012.

"They needed to appease environmentalists who feel they've been shortchanged by the administration over the last few years," he noted. "The areas of Nebraska that are pleased with the [State Department]decision are so heavily Republican that it wouldn't matter anyway."

In New York on Tuesday, Alberta Premier Alison Redford said the Keystone project is a critical part of her province's economic development, but also "one piece of the puzzle" in a needed North American energy strategy.

"We believe that Keystone is important for our economic development but we also believe that there are tremendous benefits for the United States," she said.