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Keystone report raises pressure on Obama to approve pipeline

Protesters rally about the Keystone XL oil pipeline along U.S. President Barack Obama's motorcade as he arrives at the Jefferson Hotel in Wa
Protesters rally about the Keystone XL oil pipeline along U.S. President Barack Obama's motorcade as he arrives at the Jefferson Hotel in Wa

By Roberta Rampton and Jeff Mason

WASHINGTON (Reuters) - Pressure for President Barack Obama to approve the Keystone XL pipeline increased after a State Department report played down the impact it would have on climate change, irking environmentalists and delighting the project's proponents.

But the White House signaled late on Friday that a decision on an application by TransCanada Corp to build the $5.4 billion project would be made "only after careful consideration" of the report, along with comments from the public and other government agencies.

"The Final Supplemental Environmental Impact Statement includes a range of estimates of the project's climate impacts, and that information will now need to be closely evaluated by Secretary (of State John) Kerry and other relevant agency heads in the weeks ahead," White House spokesman Matt Lehrich said.

The White House comment came after proponents of the pipeline, which would transport crude from Alberta's oil sands to refineries on the U.S. Gulf Coast, crowed about how the State Department report cleared the way for Obama to greenlight the project.

The agency made no explicit recommendation. But the State Department said blocking Keystone XL - or any pipeline - would do little to slow the expansion of Canada's vast oil sands, maintaining the central finding of a preliminary study issued last year.

The 11-volume report's publication opened a new and potentially final stage of an approval process that has dragged for more than five years, taking on enormous political significance.

With another three-month review process ahead and no firm deadline for a decision on the 1,179-mile (1,898-km) line, the issue threatens to drag into the 2014 congressional elections in November.

Obama is under pressure from several vulnerable Democratic senators who favor the pipeline and face re-election at a time when Democrats are scrambling to hang on to control of the U.S. Senate. The project looms over the president's economic and environmental legacy.

Canada's oil sands are the world's third-largest crude oil reserve, behind Venezuela and Saudi Arabia, and the largest open to private investment. The oil sands contain more than 170 billion barrels of bitumen, a tar-like form of crude that requires more energy to extract than conventional oil.

Obama said in June that he was closely watching the review and said he believed the pipeline should go ahead "only if this project does not significantly exacerbate the problem of carbon pollution."

NOT OVER YET

The report offered some solace to climate activists who want to stem the rise of oil sands output. It reaffirmed that Canada's heavy crude reserves require more energy to produce and process - and therefore result in higher greenhouse gas emissions - than conventional oil fields.

But after extensive economic modeling, it found that the line itself would not slow or accelerate the development of the oil sands. That finding is largely in line with what oil industry executives have long argued.

"This final review puts to rest any credible concerns about the pipeline's potential negative impact on the environment," said Jack Gerard, head of the oil industry's top lobby group, the American Petroleum Institute.

The optimism was echoed by the chief executive of TransCanada, and Canada's Natural Resources Minister Joe Oliver, who said he hoped Obama would approve the project in the first half of 2014.

U.S. Secretary of State John Kerry will consult with eight government agencies over the next three months about the broader national security, economic and environmental impacts of the project before deciding whether he thinks it should go ahead.

The public will have 30 days to comment, beginning next week. A previous comment period in March yielded more than 1.5 million comments.

Kerry has no set deadline. The open-ended review made some pipeline supporters nervous.

"The administration's strategy is to defeat the project with continuing delays," said Republican Senator John Hoeven of North Dakota, where the oil boom has boosted truck and rail traffic.

Some North Dakota oil would move on the pipeline, designed to take as much as 830,000 barrels of crude per day from Hardisty, Alberta, to Steele City, Nebraska, where it would meet the project's already complete southern leg to take the crude to the refining hub on the Texas Gulf coast.

MORE REVIEW AHEAD

The State Department's study found that oil from the Canadian oil sands is about 17 percent more "greenhouse gas intensive" than average oil used in the United States because of the energy required to extract and process it. It is 2 percent to 10 percent more greenhouse gas intensive than the heavy grades of oil it replaces.

The Sierra Club, an environmental advocacy group, said the report shows the pipeline would create as much pollution each year as the exhaust from almost 6 million cars - evidence that it said will be hard for Obama to ignore.

"Reports of an industry victory on the Keystone XL pipeline are vastly over-stated," said Michael Brune, the group's executive director.

The study found oil sands development could be curbed if pipelines were not expanded, oil prices were low, and rail shipping costs soared.

The study examines data from a 2010 pipeline spill in Michigan, where more than 20,000 barrels gushed into the Kalamazoo River system. Pipeline operator Enbridge Energy Partners was ordered last summer to do more to dredge up oil from the bottom of the river.

(Additional reporting by Thomas Ferarro and Timothy Gardner; Editing by Peter Henderson, Jonathan Leff, Grant McCool, Mohammad Zargham and Lisa Shumaker)

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