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Keystone XL moves closer to green light, warning signs remain ahead

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WASHINGTON - The often-delayed, hotly debated Keystone XL pipeline has taken one step closer to completion, but every last yard still threatens to be a battle through a barrage of litigation, investigation and political calculation.

A long-awaited report by the U.S. State Department concluded Friday that the proposed TransCanada pipeline would produce less greenhouse gas emissions compared with transporting oil to the Gulf of Mexico by rail.

That's because the development of the Alberta oilsands appears likely to continue, pipeline or not, according to the report, which raised no major objections to the project.

It said the industry is driven by too many factors to pin everything on a single pipeline — an apparent rejection of the argument by environmental groups that stopping Keystone XL would thwart the oilsands.

Still, the Keystone debate remains far from the finish line.

For starters, the Environmental Protection Agency and other U.S. government departments now have up to 90 days to comment on the report. The file then gets transferred to the desk of U.S. President Barack Obama, who must make the final call.

A spokeswoman for Secretary of State John Kerry bluntly noted that he can take as long as he wants to make a recommendation to the president.

"Technically there's no deadline," Kerry spokeswoman Melanie Harf told a press briefing.

Those opposed to the project vowed to keep fighting. One issued a statement on its Facebook page titled, "Game on."

In fact, they said there was enough material in the report to justify a rejection and pointed to an observation that oilsands growth could theoretically slow down if oil prices remained lower than expected and if all new Canadian pipeline projects were stopped.

But the report arrived at the same basic conclusion as past State Department reviews during the halting, five-year process: that the growth of Alberta's industry appears likely with or without Keystone XL.

"The dominant drivers of oil sands development are more global than any single infrastructure project," said the report's executive summary.

The findings are sure to be touted by the Canadian government, and supporters of the project on both sides of the border. Obama has said his decision will be guided primarily by whether the pipeline would significantly increase greenhouse gas emissions.

However, TransCanada (TSX:TRP) is under no illusions about the fight ahead. Russ Girling said Friday that he's hopeful, that the facts would win out over what he called opponents' "misinformation."

Meanwhile, those opposed are threatening to bury the project in litigation. There's already a lawsuit in Nebraska to prevent the governor from forcing landowners to allow the pipeline on their path.

Some opponents are also demanding an investigation into how Canadian officials, journalists and oil executives learned about Friday's report before the U.S. public, comparing the leak to insider trading.

There's an internal investigation already within the State Department into conflict-of-interest allegations against contractors who worked on the report, and had also done past work for TransCanada Corp. (TSX:TRP).

Keystone speculation has become a cottage industry for lobbyists, politicians and diplomats, as every presidential twitch on the file is parsed for significance — with the most popular guessing game being whether Obama will make a final decision before or after November's congressional elections.

There has even been chatter that Keystone might be used as some bargaining chip with Republicans in Congress.

Such a move would risk the wrath of the president's political base.

Already, a prominent supporter was demanding an investigation after the Canadian government scheduled a press conference about the report before the State Department even announced it was coming.

"The fact that a foreign oil company and foreign government were given critical intelligence ahead of everyone else tells you all you need to know about how useless this (report) is," said one adviser to billionaire Keystone opponent Tom Steyer.

"If such insider information had been leaked by a public corporation, it would generate an insider trading investigation."

The comments from a deep-pocketed Obama donor illustrate the president's dilemma.

He has been squeezed on one end by activists within his party, including influential donors, and on the other end by powerful economic interests, the pleas of America's northern neighbour, and by criticism that he's hurting the economy.

The Canadian government has become increasingly strident in demanding an answer. Natural Resources Minister Joe Oliver expressed satisfaction with the report Friday and urged a decision within the first half of the year.

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

The report described the extent, and limits to, the economic impact.

It estimated 42,100 direct and indirect jobs will be created for up to two years during construction, however after the project is built it would result in a grand total of 50 U.S. jobs — 35 permanent employees and 15 temporary contractors.

It said the project would also generate $55.6 million in property tax in the first year, spread across 27 counties, with a property tax revenue benefit of at least 10 per cent in more than half those counties.

The contested route would complete an existing pipeline and carry oil from Alberta and the northern U.S. to Texas refineries. The project is designed to increase Canadian pipeline capacity in the U.S. by about one-quarter, to 2.4 million barrels per day.

But there has been vigorous opposition from just under one-third of the Nebraska landowners on the pipeline path.

They say the financial benefit, for them, doesn't come close to matching the risk to their soil and water, let alone the impact of oil on greenhouse gases.

An activist who has helped organize those landowners, Jane Kleeb, said she was pleased to see the report admit that the pipeline route still touches part of the Ogallala Aquifer.

"Is any pipeline worth 35 jobs (while)... crossing the Sandhills and the Ogallala Aquifer?" she told a conference call.

"The pipeline is simply all risk, and no reward."

Keystone Environmental Impact Statement: Executive Summary

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