Keystone pipeline will not affect oilsands growth: U.S. report

Roberta Rampton and Jeff Mason, Reuters

, Last Updated: 7:43 PM ET

WASHINGTON - Pressure for President Barack Obama to approve the Keystone XL pipeline increased on Friday after a State Department report played down the impact it would have on climate change, irking environmentalists and delighting the project's proponents.

The agency made no recommendation on whether Obama should grant or deny an application by TransCanada Corp to build the $5.4 billion line, which would transport crude from Alberta's oil sands to refineries on the U.S. Gulf Coast.

But the State Department said blocking Keystone XL - or any pipeline - would do little to slow the expansion of Canada's vast oil sands, maintaining the central finding of a preliminary study issued last year.

The 11-volume report's publication opened a new and potentially final stage of an approval process that has dragged for more than five years, taking on enormous political significance.

"President Obama is out of excuses," said John Boehner, the Republican Speaker of the House of Representatives and a big Keystone proponent.

"If President Obama wants to make this a 'year of action' he will stand up to the extreme Left in his own party, stand with the overwhelming majority of American people, and approve this critical project."

With another three-month review process ahead and no firm deadline for a decision on the 1,179-mile (1,898 km) line, the issue threatens to drag into the 2014 congressional elections in November.

Obama is under pressure from several vulnerable Democratic senators who favor the pipeline and face re-election at a time when Democrats are scrambling to hang on to control of the U.S. Senate. The project looms over the president's economic and environmental legacy.

Canada's oil sands are the world's third largest crude oil reserve, behind Venezuela and Saudi Arabia, and the largest open to private investment. The oil sands contain more than 170 billion barrels of bitumen, a tar-like form of crude that requires more energy to extract than conventional oil.

The report offered some solace to climate activists who want to stem the rise of oil sands output. It reaffirmed that Canada's heavy crude reserves require more energy to produce and process - and therefore result in higher greenhouse gas emissions - than conventional oil fields.

But after extensive economic modeling, it found that the line itself would not slow or accelerate the development of the oil sands. That finding is largely in line with what oil industry executives have long argued.

"This final review puts to rest any credible concerns about the pipeline's potential negative impact on the environment," said Jack Gerard, head of the oil industry's top lobby group, the American Petroleum Institute.

NOT OVER

Obama signaled in a major climate speech in June that he was closely watching the review and said he believed the pipeline should go ahead "only if this project does not significantly exacerbate the problem of carbon pollution."

Keystone XL opponents and the State Department itself warned that the process was not over.

"This environmental impact study ... is by no means the final word on the Keystone XL pipeline," said Neera Tanden, president of the Center for American Progress, a liberal-leaning group with strong ties to the White House. "I hope that President Obama will hold firm on the commitment he made in his climate speech and reject the pipeline."

TransCanada Corp shares finished up more than 1 percent on the Toronto Stock Exchange on Friday, reflecting optimism that the report was positive for the eventual construction of the pipeline.

The company's chief executive officer, Russ Girling, said the case for the Keystone pipeline "is as strong as ever."

Canadian Natural Resources Minister Joe Oliver said he hoped Obama would make a decision in the first half of 2014.

"This has been a lengthy and thorough review process. The benefits to the United States and Canada are clear. We await a timely decision on this project," Oliver said.

He described the environmental review "as a positive step on the route to approval."

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U.S. Secretary of State John Kerry will consult with eight government agencies over the next three months about the broader national security, economic and environmental impacts of the project before deciding whether he thinks it should go ahead. There is no deadline, and the report does not seek to address some of the larger strategic questions involved.

The public will have 30 days to comment, beginning next week. A previous comment period in March yielded more than 1.5 million comments.

The open-ended review made some pipeline supporters nervous.

"The administration's strategy is to defeat the project with continuing delays," said Republican Senator John Hoeven of North Dakota, where the oil boom has boosted truck and rail traffic.

Some North Dakota oil would move on the pipeline, designed to take as much as 830,000 barrels of crude per day from Hardisty, Alberta, to Steele City, Nebraska, where it would meet the project's already complete southern leg to take the crude to the refining hub on the Texas Gulf coast.

PREMATURE VICTORY?

The State Department's study found that oil from the Canadian oil sands is about 17 percent more "greenhouse gas intensive" than average oil used in the United States because of the energy required to extract and process it. It is 2 to 10 percent more greenhouse gas intensive than the heavy grades of oil it replaces.

The Sierra Club, an environmental advocacy group, said the report shows the pipeline would create as much pollution each year as the exhaust from almost 6 million cars - evidence that it said will be hard for Obama to ignore.

"Reports of an industry victory on the Keystone XL pipeline are vastly over-stated," said Michael Brune, the group's executive director.

The study found oil sands development could be curbed if pipelines were not expanded, oil prices were low, and rail shipping costs soared.

The study examines data from a 2010 pipeline spill in Michigan, where more than 20,000 barrels gushed into the Kalamazoo River system. Pipeline operator Enbridge Energy Partners was ordered last summer to do more to dredge up oil from the bottom of the river.


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