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Canada's oil sands producers have suffered another black eye in the United States with Enbridge pipeline break that has spilled some three million litres of crude into Michigan's Kalamazoo River.

The high-profile accident and resulting political outcry comes at a sensitive time for the Canadian industry, which is looking expand pipeline access and exports to the U.S. Canadian officials have sought to quietly capitalize on BP's catastrophic blowout in the Gulf of Mexico by positioning the oil sands as a greener, safer alternative to offshore crude.

But there is growing opposition to oil sands pipelines - whether Enbridge's planned Northern Gateway project to the West Coast or Enbridge Keystone XL line to the U.S. Gulf Coast. And the Michigan spill, while small compared to the estimated 800 million litres that have spewed from BP's well, provides fresh ammunition to the industry's critics.

The U.S. State Department announced this week it would be delaying its ruling on the Keystone XL application while it takes into account a highly critical submission from the Environmental Protection Agency that raised serious questions about the need for and the impact of the pipeline.

Environmental groups are now pointing to the Michigan spill as further evidence that crude pipelines pose serious threats, particularly when they cross fragile ecosystems or critical sources of fresh water.

Enbridge chief executive officer Pat Daniel was in Michigan on Wednesday to supervise the cleanup effort after Michigan Governor Jennifer Granholm complained the company's response had been "anemic."

Enbridge doubled the number of staff working to contain the spill before it reaches Lake Michigan, and cleanup crews expressed optimism on Wednesday that oil would not reach the lake, which provides drinking water to millions of Americans living near its shores.

Echoing BP officials in their response to the Gulf blowout, Mr. Daniel committed company resources to fully clean up the oil. "Our intent is to return your community to its original state and the waterways to their normal state," he said a news conference.

There has been a heightened debate in the U.S. about the safety of the oil projects, both offshore and onshore, in the wake of the BP accident. Alberta officials have pointed to the relative safety of onshore production and transportation.

The timing of Michigan accident "is unfortunate for that point of view," said Jane Luxton, Washington-based partner in the law firm Pepper Hamilton LLP, which last week hosted a seminar over the Internet on oil sands issues.

"They will still be able to point out that a pipeline spill is a relatively contained situation compared to anything in the Gulf. … But any time you have an incident like that, it gives people a rallying cry."

In its seminar, the law firm noted that Canadian crude represents a growing share of the U.S. market, with some $170-billion (U.S.) in current and planned investments in Alberta to feed a series of recent and proposed pipeline expansions.

Operating Under A Microscope

Ms. Luxton said the EPA's intervention in the State Department review of the Keystone project marks a significant shift in U.S. approach to Canadian oil imports. The fate of the Keystone project may eventually be decided by the Council on Environmental Quality, the high-level Obama administration group that adjudicates interdepartmental battles.

David Collyer, president of the Canadian Association of Petroleum Producers, said the industry is "operating under a microscope" in terms of its environmental performance, and that any accident will be a detriment.

But he added that he is confident that the EPA's view will not prevail when the Obama administration balances the need for secure source of energy against the environmental risks that come with all sources of oil.

Among other things, the EPA is demanding that U.S. officials review the wide-ranging environmental impacts of TransCanada's Keystone XL project, including impacts on migratory birds and the growth in greenhouse gas (GHG) emissions that would result from greater demand for oil sands production.

In its submission, the agency argued GHG emissions resulting from increased production associated with the Keystone project would be equivalent to seven coal-fired power plants.

TransCanada spokesman Terry Cunha said the company rejects the EPA's view that U.S. regulators should be assessing emissions in Alberta, saying that is the job of Canadian governments.

Mr. Cunha acknowledged the Keystone XL project faces greater scrutiny as a result of the BP blowout and now Enbridge's accident in Michigan. "It's not ideal and it has heightened the level of awareness the public has," he said, adding that TransCanada has a stellar safety record.

But some 50 members of Congress and influential environmental groups had demanded that the State Department broaden its review along the lines that the EPA has recommended.

And Enbridge's accident this week vividly illustrates the dangers inherent in transporting oil sands crude from Alberta, said Susan Casey-Lefkowitz, direction of internal programs at the Natural Resources Defense Council.

"The Michigan pipeline spill basically makes all of the safety concerns about Keystone XL become more real," she said.


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