Decision on Keystone XL Pipeline May Wait Until After Election

Studying a new route for the oil pipeline could take 12-18 months.

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WASHINGTON (Reuters) — The United States may choose to reroute a proposed Canada-to-Texas oil pipeline, a move that could defer a decision on approving the politically charged project beyond the 2012 election, an official said on Wednesday.

Studying a new route for the Keystone XL pipeline, which is opposed by many environmentalists and backed by industry, could take 12-18 months, the official said. That would put a final decision after President Barack Obama's re-election bid in November 2012.

The U.S. official said the time would be needed to examine the environmental impact of TransCanada Corp's $7 billion Keystone XL project, considered the most important North American oil pipeline plan for several decades.

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"The best judgment is somewhere between a year and 18 months," the official, speaking on condition of anonymity, told Reuters, saying the assessment could happen faster but was unlikely to be completed in less than a year.

Mark Routt, an analyst at the KBC consultancy in Houston, said the delay could scuttle the proposal. "To delay the decision on Keystone XL is in effect a decision itself," he said. "I think in all likelihood that a delay would kill the project."

A TransCanada spokesman said on Wednesday a delay would not make sense and would leave the United States dependent on tanker traffic and oil imports from the Middle East.

Some of Obama's liberal supporters have strongly opposed the project and delaying a decision could allow him to avoid antagonizing environmentalists disillusioned with his progress on climate change.

Green groups, which are part of the president's voter base, have rallied to oppose development of the oil sands, which they say release more carbon dioxide than other crude oils

But a delay could also could open Obama to attacks from Republicans and oil industry groups who say the project would create many jobs and improve U.S. energy security.

On Sunday, thousands of anti-pipeline protesters encircled the White House demanding Obama kill the project, months after 1,200 opponents were arrested there during another action.

'FEELING THE HEAT'

"The U.S. administration is feeling the heat and wants to put off a decision until after the election," said John Bennett of the Sierra Club Canada. "It's the first time the environment has trumped oil in U.S. politics."

The State Department had hoped to decide on the 1,700-mile (2,740-km) project by the end of the year, but recently opened the door to the chance of a delay.

The U.S. official said the government could opt for an alternative route to shift it away from Nebraska's Sand Hills region, home to endangered species and a major aquifer.

State Department spokesman Mark Toner said the agency was looking at all of the ideas raised during public meetings on the pipeline, but declined to provide details.

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"It's one of many issues that we have discussed that were raised during these public hearings that we held, and all of those issues are currently under review as we move forward," Toner told reporters at a briefing.

A long delay could be a blow to Alberta's oil sands interests as shippers and refiners may abandon support for the project, Russ Girling, the CEO of TransCanada, said last week.

The pipeline would run through six states in the central United States, and opposition is toughest in Nebraska, where the Legislature is conducting a two-week special session in an attempt to route the line away from the Ogallala aquifer.

Further delay on the project, which is already about a year behind schedule following an extended U.S. government review process, could roil oil markets.

Traders are counting on Keystone's 700,000 barrel-per-day capacity to relieve a buildup of crude in the U.S. Midwest, which does not have enough pipelines to ship growing Canadian output to Gulf Coast refineries for use across the United States.

Canadian Oil Minister Joe Oliver said oil sands development would go forward, no matter what the State Department decided on the line.