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Keystone XL Pipe Delayed; Backers Want Congress to Act

The fate of Keystone XL was cast into doubt Friday when the U.S. State Department extended its fact-finding process with eight other federal agencies, putting off, for now, a long-awaited Obama administration decision on the project.

A pending Nebraska Supreme Court decision on a critical part of the proposed route could confirm the current proposed pipeline route through the state or cause it to be changed. In the latter case, that would impact the State Department's ongoing review of the application for a presidential permit for the TransCanada Corp. pipeline project if it is determined to be in the U.S. national interest (see Shale DailyJan. 13, 2013).

In a background briefing with senior State Department officials last Friday, the question of whether a new route through Nebraska would force a whole new environmental review process was hedged. Also not answered were questions about statements last February by the White House that the Nebraska court decision would not impact the federal government decision on national interest.

All of this did not sit well with supporters of the northern portion of the $7 billion, 1,700-mile project that is designed to carry heavy crude from the Canadian oilsands. They expressed strong disappointment and criticism toward the Obama administration for allegedly "playing politics" by pushing off the decision on the controversial project until after November's mid-term Congressional elections.

Sen. Lisa Murkowski (R-AK), the ranking Republican on the Senate Energy and Natural Resources Committee, called the delay by the Obama administration "a stunning act of political cowardice."

"The world is too dangerous and our energy security too important for President Obama not to have an opinion on such important matters," said Murkowski, labeling the administration's attitude toward the issue as "cavalier." She said the administration is ignoring "our historic alliance with Canada, free flow of commerce with our friends, and the development of a North American energy partnership," not to mention additional American jobs.

American Petroleum Institute (API) CEO Jack Gerard expressed frustration after "six years of exhaustive review" to have a decision on the project delayed further, and he advocated action by Congress. "It's a sad day for America's workers when politics trumps job-creating policy at the White House," Gerard said.

He argued that the long, detailed reviews confirmed no significant environmental impacts from the project and public opinion polls have demonstrated that nearly 70% of U.S. voters want the project (see Daily GPIApril 4, 2013).

"Strong majorities in the House and the Senate have publicly called for Keystone XL's approval," Gerard said. "Now they have a chance to show the voters they are ready to put job creation, economic growth and our country's energy security first."

RBN Energy LLC analyst Sandy Fielden predicted Monday that the further delay of Keystone XL will spawn increased rail shipments of Canadian crude oil by rail, although he thinks it will mostly benefit larger producers for the most part because they are connected to the key pipeline feeders for getting the gas to rail shipment depots.

Nevertheless, for small producers the rail option could be big, given the thickness of the western Canada bitumen supplies, Fielden said. To take them by pipeline requires adding a diluent to form dilbit for pipelines, as opposed to railbits for rail tank car shipment.

"Smaller oilsands producers ship their bitumen to market by rail because they don't have access to feeder pipelines, not because the rail costs are lower than pipeline alternatives," Fielden said.

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