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Keystone XL pipeline would be hard to kill, analysts say

Even if the Obama administration rejected it on environmental grounds, demand for oil and jobs means an alternative probably would emerge.

January 16, 2012|By Neela Banerjee, Washington Bureau

Reporting from Washington — A provision attached to the recent payroll tax bill requires President Obama to decide by Feb. 21 on the construction of the controversial Keystone XL pipeline from Canada to the U.S.

But even if the administration rejects the project, it may not be enough to kill it, industry analysts said. Americans' thirst for oil probably will push the administration andTransCanada Corp., the pipeline's sponsor, to find a way to transport Canadian crude across the United States even if it's not through a pipeline called Keystone XL, industry analysts said.

"We think it will be built," said Jamie Webster, senior manager for markets at PFC Energy, a Washington consulting firm. "The interesting bit is, what is 'it'? The future of the pipeline could go a couple of different ways."

TransCanada said it had already started to work with Nebraska authorities to find an alternative route. Once one has been determined, the environmental review could take about nine months, TransCanada said.

Over the next six weeks, TransCanada could pull the Keystone application to avoid deepening the political fight over the permit and submit it later with a new route through Nebraska, said Frank Verrastro, director of energy and national security at the Center for Strategic and International Studies, a nonpartisan Washington think tank.

TransCanada also might begin building the Keystone XL in pieces, Verrastro said. "They have spent millions of dollars on land rights and easements" along much of the route in the U.S., he said. "They could put these other parts in place. It's a gamble."

Even environmentalists who expect the project to be rejected concede that may not be the end of oil-sands crude from Canada. "If it is rejected, TransCanada can come back and apply again," said Susan Casey-Lefkowitz, international program director at the Natural Resources Defense Council. "But the whole process starts again then."

The pipeline would carry oil from Alberta that is mined from soil rich in a tar-like petroleum called bitumen and refined to separate the heavy crude. The project's backers contend Keystone XL would provide oil from a stable, democratic neighbor and spur the creation of thousands of jobs, though estimates vary widely.

The project's critics argue that the mining and refining of bitumen would substantially increase greenhouse gas emissions, pollute water and destroy the region's boreal forests. Many Nebraska residents also oppose the pipeline because it would traverse the Ogallala aquifer, the main source of drinking water in the upper Midwest.

Facing rising resistance from environmentalists and Nebraskans, including the governor and state legislators, the administration decided in November to conduct additional reviews of the proposal, such as alternative routes bypassing the aquifer. The step allowed Obama to delay a decision on a hugely divisive issue until after the presidential election, but it infuriated the pipeline's backers, whose congressional allies added the Keystone pipeline rider to the payroll tax bill.

A State Department official said the agency was reviewing the legislation "to figure out where to go from here."

With the global appetite for oil increasing because of the growing industrialization of China and India, the demand for Canadian crude will only grow and lead to the breaking of logjams against pipelines, Verrastro said. TransCanada has indicated that it will not give up readily on the pipeline project.

"We will continue to move forward in a positive way as we have done since the review process began in 2008," TransCanada spokesman James Millar said in an email. "This project is too important to the energy security of the U.S. And also the jobs it would create to be denied."

neela.banerjee@latimes.com

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