TransCanada Corp.'s proposed Keystone XL pipeline has become a litmus test in the U.S. battle over energy policy, as the environmental movement looks for reassurance that President Barack Obama is committed to combatting climate change.
Prodded by congressional Republicans for a quick decision, the U.S. State Department concludes a comment period on Monday for its draft environmental impact statement on the XL project.
The final version - to be issued this summer - will likely conclude that the environmental concerns should not derail the project, despite troublesome leaks from the existing Keystone pipeline, which was shut last week after a small leak in Kansas. (Over the weekend, U.S. regulators approved the company's plan for reopening it.)
Secretary of State Hillary Clinton will then have to determine whether the construction of the $6-billion (U.S.) pipeline - which would deliver 700,000 barrels per day of oil sands crude to the massive Gulf Coast refining hub - is in the U.S. national interest.
But issue could end up on Mr. Obama's desk. If the State Department rules favourably, the Environmental Protection Agency or the Department of Energy could appeal to the president to overturn it, and either reject the proposal or order further study.
The Keystone XL project, which involves building nearly 2,700 kilometres of pipeline to eventually reach a delivery point near the Texas coastline, is TransCanada's most important growth project. More than that, it is seen as crucial for Canadian oil producers because it will open up the largest refining complex in the world to Canadian crude. Most oil sands production is now refined in the U.S. Midwest, where a glut of supply has depressed the price that Canadian oil companies receive.
But environmental groups have mounted a major campaign to derail the project, arguing that approval of a pipeline from Canada's "tar sands" will increase global emissions of greenhouse gases, threaten local water sources and frustrate U.S. efforts to reduce its reliance on crude oil.
With no climate legislation on the horizon in Congress, and Republicans attempting to block the Environmental Protection Agency's regulatory effort to force industry to cut emissions, green activists are hoping to score a victory by blocking the Keystone XL project.
In a wide-circulated blog, climate activist Bill McKibben said approval of the Keystone XL line "would ensure forever [Mr.]Obama's legacy as a full-on carbon president."
Still, many analysts believe TransCanada will get its permit before the end of the year, as the Obama administration opts for the security of crude supply and the direct job creation over environmental concerns.
"I am confident that Keystone XL will be approved," said David Goldwyn, a former State Department energy official who left this year to work as a consultant.
He said the department has had an extensive review of environmental issues, and addressed the most pressing concerns, including a lengthy analysis of pipeline design and safety.
Critics say the State Department should delay its approval in order to re-assess safety issues in the light of the Department of Transportation decision on Friday to require TransCanada to undertake corrective action before it can re-start the main Keystone line.
After more than a year of regulatory delay, new questions are now emerging about the need for the additional pipeline capacity from Canada. Brazil is set to raise its production of medium to heavy crude by 1.3 million barrels per day by 2015, and Colombia is increasing its crude exports.
"Competing heavy oil supply on the U.S. Gulf Coast looks more robust than when the Keystone XL proposal first started toward approval," said Robert Johnston, director of global energy analysis for Washington-based Eurasia Group, a political risk consultancy.
The pipeline "will still likely get approved but the demand outlook for Canadian bitumen in [the Gulf Coast region]faces more uncertainty," he said.
There is clearly no single view within the Obama administration. The president himself is pushing policies aimed at weaning the U.S. transportation system off imported oil, but he has also acknowledged that Canada and other neighbouring democracies are favoured sources for the imported oil that will be needed.
The Environmental Protection Agency and the Department of Energy were unhappy with the State Department's initial environmental review, and lobbyists are hopeful the two departments will force additional delays and public hearings.
Republicans, meanwhile, have introduced bills in both houses of Congress to force the administration to make a decision on Keystone XL this fall. And with gasoline prices near record levels, they will seize on any delay to suggest that Mr. Obama is blocking a new source of secure supply that could help reduce the price at the pump.
With unemployment still stubbornly high, TransCanada's ace in the hole may be the promise of thousands of jobs that will be created through the construction phase of the pipeline. The American Petroleum Association plans to release Monday a new study from the Canadian Energy Research Institute (CERI) that will forecast significant employment impacts from Keystone XL and the resulting investment in Alberta's oil sands.
"Jobs are absolutely the key issue," said John Kerekes, Midwest manager for the American Petroleum Institute.
Environmental groups argue there are still major holes in the State Department's study, including failure to fully assess the climate impact or the additional environmental fallout for communities near the refineries that will be processing the bitumen.
And they warn that investing billions of dollars in oil transportation will lock the U.S. into continued dependency on an increasingly heavy type of imported crude that will drive up emissions both from the foreign producer and the domestic refiner.
"If the president vetoes the pipeline or prevents the pipeline from happening, it will confirm that he is moving forward with his agenda of growing the economy through investments in clean energy rather than dirty energy," said Daniel Weiss, a senior fellow at the American Progress, a progressive think tank in Washington.
"If the pipeline is approved, that will be a step backward in that effort."