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Oil patch gives a dire warning to the U.S.

Demonstrators for the Keystone XL pipeline, right, and a demonstrator against the pipeline meet outside Pershing Auditorium near the state Capitol in Lincoln, Neb.

Nati Harnik/Nati Harnik/Associated Press

Canada's oil sands companies are warning that a U.S. rejection of the Keystone XL pipeline would slam the door on their plans to expand exports into the lucrative American market.

In a measure of the substantial national and corporate interest riding on the controversial TransCanada Corp. project, both supporters and opponents are attempting to raise the stakes on a Washington approval verdict that had been expected by year-end, although it may now be delayed.

For industry, that has translated into increasingly dire warnings over the consequences of a decision on the $7-billion project to be made by U.S. President Barack Obama, who earlier this week said he will personally weigh in.

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This week, some of the highest-ranking executives in the Canadian oil patch publicly detailed potential alternatives to Keystone XL amid a sharpening rhetoric that included a blunt caution: For some, an unfavourable decision will effectively close off the U.S. to future crude export growth, shutting down an option that has long underpinned Canada's oil sands expansion plans.

"It's pretty clear if Keystone doesn't go ahead, that U.S. markets are not in favour of having Canadian oil," Steve Laut, the president of Canadian Natural Resources Ltd., said Thursday. "If Keystone doesn't get approved, would any other pipeline get approved? That's the question you have to ask yourself."

Such deliberation speaks to the profound consequences associated with Keystone XL. The U.S. has been virtually the sole export market for Canadian crude in the country's entire history as an energy producer. Today, Canada is the top source of U.S. energy imports. A change in that relationship would have sweeping consequences.

Keystone XL would carry 700,000 barrels a day of Canadian and northern U.S. crude to refineries on the Gulf Coast, and is a critical plank underlying the immense expansion plans under way in Alberta's oil sands. Mr. Laut – and, indeed, much of the Canadian oil patch – continues to believe Mr. Obama will give the $7-billion project his blessing.

But it's clear that industry is increasingly concerned amid the growing discord in the U.S. This week, for example, Nebraska legislators tabled draft rules that could force TransCanada to change the pipeline's route, which could delay its construction by more than three years, and potentially kill the project. And the State Department suggested a decision may not be made by the end of the year, the date it has been aiming toward.

Pipeline supporters have warned that the loss of the Keystone project will force Canada to turn to Asian, notably Chinese, markets. Natural Resources Minister Joe Oliver – who has lobbied aggressively to win American support for the project – travels to China this week. The minister will attend a mining conference there, but will also meet with senior Chinese government officials and company executives from the energy sector.

"It is a strategic priority of the government to diversify our energy markets, including markets in Asia," said Patricia Best, Mr. Oliver's spokeswoman.

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Industry, too, is increasingly looking to other options. In October, for example, Kinder Morgan Canada began soliciting bids for a major expansion of its Trans Mountain pipeline, which could deliver crude to Asia-bound tankers. The company had waited to push forward that expansion until it felt it had sufficient corporate support.

On Thursday, Rick George, Suncor's chief executive officer and a fierce supporter of Keystone XL, outlined some of industry's options should the pipe falter. On top of the Asian option, Mr. George insisted oil sands crude would still find its way to other markets in North America.

"There are lots of Plan Bs," he said on Suncor's third-quarter conference call. "This industry is very inventive ... We will get the crude moved around one way or the other."

He added: "There is, and there will be, a Plan B in case this does not go forward."

The Enbridge Inc. Northern Gateway pipeline to the northern B.C. coast is the ultimate alternative, but Mr. George suggested other pipes could be reversed to move Western Canadian crude to more refineries in the Canadian east and U.S. south. But few of those options are easy, as virtually any pipeline expansion today finds itself the focus of intense environmental criticism.

Indeed, the assessment of contingency plans comes amid protests in the U.S. On Sunday, pipeline opponents plan to encircle the White House to urge the President to block the XL project. In similar protests in August, dozen of demonstrators – including former Hollywood stars like Darryl Hannah and Margo Kidder – were arrested for trespassing, garnering substantial attention for their cause.

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Still, despite reports about a potentially delayed decision, oil industry lobbyists say they remain hopeful TransCanada will get the go-ahead in December.

The industry points to support from labour unions and local politicians – other than those in Nebraska – who are eager for the job creation that the project will bring.

"I remain positive that we'll have an approval of the pipeline and we are certainly hopeful the administration will make that decision before the end of the year," said Marty Durbin, executive vice-president of the American Petroleum Institute.

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About the Authors
Asia Bureau Chief

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More

Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

Carrie Tait joined the Globe in January, 2011, mainly reporting on energy from the Calgary bureau. Previously, she spent six years working for the National Post in both Calgary and Toronto. She has a master’s degree in journalism from the University of Western Ontario and a bachelor’s degree in political studies from the University of Saskatchewan. More

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