Bloomberg News

Keystone Pipeline May Not ‘Survive’ U.S. Delay, Flaherty Says

November 14, 2011

Nov. 11 (Bloomberg) -- The U.S. State Department’s decision to delay its review of TransCanada Corp.’s $7-billion Keystone XL pipeline until after next year’s presidential election may doom the project and accelerate Canada’s efforts to ship crude to Asia, Canadian Finance Minister Jim Flaherty said.

“The decision to delay it that long is actually quite a crucial decision. I’m not sure this project would survive that kind of delay,” Flaherty said yesterday in an interview at the Asia-Pacific Economic Cooperation summit in Honolulu. “It may mean that we may have to move quickly to ensure that we can export our oil to Asia through British Columbia.”

The deferral on Keystone XL is a blow to the government of Prime Minister Stephen Harper, who called U.S. approval of the pipeline a “no brainer.” Canadian officials underestimated the strength of resistance to the project by Nebraska farmers and environmentalists, political and foreign-policy experts said.

The State Department said yesterday it will study an alternative route to avoid environmentally sensitive areas in Nebraska. Nebraskan farmers, officials in the state and some members of Congress argue the proposed route across the Sandhills area risks contaminating the Ogallala aquifer that supplies water to 1.5 million people.

Flaherty, who travels to China this week, called the State Department’s move “disappointing,” noting that unions and business groups appeared to back Keystone.

“This project would have provided thousands and thousands of jobs in the United States, a lot of unionized, well-paying jobs,” he said. “The delay, we hope, doesn’t doom the project. We hope it will still happen.”

Hollywood Opposition

The project was also opposed by environmentalists who, backed by Hollywood celebrities such as Daryl Hannah and Julia Louis-Dreyfus, said the crude it would deliver from the Alberta oil sands to Gulf Coast refineries produces more greenhouse-gas emissions than conventional oil.

“The whole thing was kind of mishandled by not understanding the local resistance to it,” said Andy Hira, a professor of political science at Simon Fraser University in Vancouver who studies energy policy. Harper and TransCanada need to be more flexible about the route for the project to be approved, he said.

Harper has promoted his country as an “energy superpower,” pointing to its political stability compared with other suppliers. Canada is already the biggest foreign supplier of oil to the U.S. and provides the country with almost a quarter of its crude imports, twice what Saudi Arabia does.

Canada had dispatched senior officials and diplomats to lobby on behalf of the pipeline. In an interview at Bloomberg headquarters in New York on Sept. 21, Harper said approval of the project was a “no brainer” because it would create jobs in the U.S. and help the country secure its energy supply.

Gulf Coast

The 1,661-mile (2,673-kilometer) pipeline would deliver 700,000 barrels a day of crude from Alberta’s oil sands to the Gulf of Mexico by crossing Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas.

Flaherty, 61, will travel later this week to Beijing, where he will discuss increasing energy exports to China and facilitating investment in Canadian natural-resource assets.

Enbridge Inc. has proposed building a pipeline, called Northern Gateway, that would transport crude from Alberta’s oil sands to Canada’s Pacific coast, while Kinder Morgan Inc. plans to expand its Trans Mountain route to do the same.

Opposition to Keystone XL grew over this year, as environmentalists and other groups held protests outside the White House that led to arrests. The Nebraska legislature is in a special session weighing measures to force a rerouting of the project.

Environmental Risks

As the political pressure on his administration grew, Obama himself acknowledged the health and environmental risks in Nebraska.

“Folks in Nebraska, like all across the country, aren’t going to say to themselves, ‘We’ll take a few thousand jobs if it means our kids are potentially drinking water that would damage their health,’” Obama said in Nov. 2 interview with Nebraska TV station KETV. “We don’t want, for example, aquifers to be adversely affected. Folks in Nebraska obviously would be directly impacted.”

The Canadians appeared not to pick up on the shift in U.S. thinking on the pipeline, said Hira.

“Over the last month or two the Canadian government really should have re-assessed the situation based on the amount of resistance that was coming from in Nebraska,” he said.

Lobby Efforts

Canada’s drive to secure Keystone’s approval included two trips to Washington by Natural Resources Minister Joe Oliver, where he met with U.S. Energy Secretary Stephen Chu and pressed the case with Obama administration officials and numerous House representatives and senators, Patricia Best, Oliver’s chief spokeswoman, said in an e-mail.

In advocating the pipeline, Canada had appealed to the democratic and economic values it shares with the U.S. It is a position outlined by Canadian conservative commentator Ezra Levant in his book “Ethical Oil,” in which he argues that countries such as the U.S. should opt for oil from Canada rather than from Middle East dictatorships such as Saudi Arabia or socialist Venezuela.

“In Canada, as is the case in the United States, energy policy is rooted in the principles of the open market and shaped by a commitment to develop our energy resources in an environmentally and socially responsible way,” Oliver said in an Oct. 4 speech in Washington to the U.S. Energy Association. “How different the situation is elsewhere.”

Judged on Merit

Canada’s ambassador in Washington, Gary Doer, also lobbied U.S. and state officials to support the pipeline. After Obama’s televised interview, Doer told reporters in Ottawa that he expected the project to be approved if judged on “merit,” rather than ”noise.”

“We’re very excited here in Nebraska that our voices have been heard,” Nebraska Governor Dave Heineman, a Republican, said yesterday in an interview. “And I want to emphasize, most Nebraskans, including myself, we support the pipeline but we’re opposed to the route.”

In an environmental impact study in August, the State Department said it studied 14 “major route alternatives” for the pipeline. The department “did not find any of the major alternatives to be preferable to the proposed project,” it said at the time.

Still, environmentalists were able to raise doubts about the project’s impact, a factor that the Canadian government didn’t take seriously enough, said Michael Byers, an expert in international law at the University of British Columbia.

Rigorous Review

“Their mistake was to gloss over the environmental dimensions,” said Byers, who ran as a candidate for the opposition New Democratic Party in a 2008 general election. ”Obama was conscious that he needs to get out his base on election day. He didn’t want the environmentalists to stay home.”

The delay is an opportunity for a more “sober” and “rigorous” assessment of the pipeline on all sides, outside of the politicized climate of a presidential election campaign, he said.

Russ Girling, chief executive officer of Calgary-based TransCanada, who had said rerouting delays might kill the project, said yesterday the company remains “confident Keystone XL will ultimately be approved.”

“This project is too important to the U.S. economy, the Canadian economy and the national interest of the United States for it not to proceed,” Girling said a statement.

--With assistance from Theophilos Argitis in Ottawa. Editors: David Scanlan, John Simpson


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