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If Keystone won’t affect oil sands development, why is Harper pushing it so hard?

Natural Resources Minister Joe Oliver speaks in Toronto on March 22, 2013.

DEBORAH BAIC/THE GLOBE AND MAIL

The U.S. State Department's environmental assessment of the Keystone XL pipelines leaves hanging a nagging question: What's all the fuss about?

If approval or denial of Keystone is "unlikely to significantly affect the development of the oil sands," as the State Department concluded last week, why the enormous political capital spent by Prime Minister Stephen Harper and Alberta Premier Allison Redford to persuade the Americans to green light it?

Mr. Harper has made the pipeline from Alberta's oil sands to U.S. Gulf Coast refineries the overwhelming focus of Canada-U.S. relations. We're told that he's determined to push for approval when he meets U.S. President Barack Obama in Mexico later this month.

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His government has spent thousands of dollars on advertising in Washington, and ministers like Foreign Minister John Baird have slammed the slowness of the U.S. review process.

Premier Redford has travelled frequently to the United States, including Washington five times, to extoll the benefits of the proposed pipeline. Spending countless hours – and apparently lavish amounts of taxpayers' dollars – to push for a pipeline that we're now told is insignificant to the development of her province's oil sands resources.

When government and industry promoters lobby for the pipeline, they certainly talk as if it will generate investment far beyond the $5-billion required to build it.

In an interview in his Parliament Hill office on Tuesday, Natural Resources Minister Joe Oliver said Canadian production is increasing and it is important that companies find new markets for the crude.

"This project will create for Canada tens of thousands of jobs, billions of dollars in economic activity and significant revenue to government to support critical social programs like health care, housing and education," he said.

Now, that sounds a lot like he is saying the Keystone XL pipeline is an important link between the oil sands and new markets, and that its approval will indeed impact the pace of investment in the oil sands.

Pressed on the point, the minister said "every project is a contributor to the development of the oil sands."

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But he insisted that if Keystone XL was denied, there would be other ways for the bitumen to reach the Gulf Coast. Indeed, the State Department report laid out some options – rail to the West Coast, then tanker through the Panama Canal; rail to Cushing, Okla., and then fed into TransCanada Corp.'s new pipeline from there to the coast, or even rail all the way to the coast.

"But they may not be as economically attractive nor as environmentally friendly, because pipelines are a superior form of transportation to some others," Mr. Oliver said.

So the fallback position in the event of Keystone XL denial is rail. Apparently, Mr. Harper and Ms. Redford are so aggressively lobbying for the pipeline because they worry about the additional cost and risk of crude by rail.

If they were forced to rely on higher-cost rail to move crude, companies would see less revenue per barrel, and governments would get a smaller slice.

Many people worry about the additional risk of crude by rail after the crash and explosion in Lac-Mégantic that killed 47 people. The U.S. government is now considering new rules that could drive up the cost of rail, making it an even less attractive option for moving crude across the United States.

Oil industry executives and analysts have told us the industry needs an "all of the above" approach, saying that various pipeline proposals – and even additional rail capacity – are not competing but complementary, given the goal of tripling oil sands production.

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And that includes Keystone XL pipeline, which is an important piece of the puzzle . . . until it's not.

Shawn McCarthy covers energy in Ottawa.

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