Canada-US pipeline on hold amid oil's recent woes

The steel is staged, and crews are waiting to lay the last and most expensive leg of TransCanada Corp.'s multibillion-dollar pipeline network that would carry Canadian oil to refineries along the Gulf Coast.

Yet final U.S. government approval for the massive project, once assumed to be on a fast track, is now delayed indefinitely, with little official explanation. The company had hoped to begin laying pipe by the end of the year, but those prospects have dimmed.

Some experts conclude the negative publicity surrounding oil-related disasters, particularly the offshore BP leak that polluted the Gulf Coast for months, has made the Keystone XL pipeline a victim of guilt by association.

"I think it's fair to speculate that BP fouled the nest for TransCanada," said Richard Fineberg, a pipeline analyst with Ester, Alaska-based Research Associates. "There is much more attention to the industry and its dark side. It's going to be harder to get things done at this moment."

If the Calgary-based company is battling poor timing on this leg of the project, it enjoyed much better timing during the previous leg. The Keystone pipeline — separate from Keystone XL albeit part of the same 3,800-mile underground network — sailed through the approval process when Americans were clamoring for the government to do something about record gas prices.

The delay is frustrating for some business and labor leaders who were counting on the new revenues from the pipelines.

"I think all that safety stuff has already been done by now. Let's do something," said Ken Mass, president of the Nebraska AFL-CIO.

The massive pipeline network — about five times the length of the trans-Alaska oil pipeline — is designed to move 1.5 million barrels of Canadian oil daily to U.S. refineries.

TransCanada won approval two years ago for the first Keystone pipeline, which carries crude oil across Saskatchewan and Manitoba and through North Dakota, South Dakota, Nebraska, Kansas, Missouri and Illinois.

Oil began coursing through the 36-inch Keystone pipeline in June, and it appeared that permitting and construction would go as slickly for TransCanada's Keystone XL. That $7 billion leg of the system is designed to carry crude oil from tar sands near Hardisty, Alberta, to the Gulf Coast via Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas.

Because both pipelines cross the U.S.-Canadian border, presidential permits from the State Department are required. But department officials have given no signal about when they might approve the final permit for Keystone XL, despite enthusiastically touting the Keystone pipeline as a project with little opposition when it was at this stage three years ago.

"I don't know that it was expected to take this long, but it's not a simple process," State Department spokesman Bill Cook said last week. "It's cross-border, across several states, and all these interests have to be reconciled."

In April, the State Department published a draft report giving the Keystone XL pipeline a favorable environmental score, but that was just days before the Gulf Oil spill hit. Other oil-related disasters followed, including Enbridge Inc.'s broken pipeline that spilled hundreds of thousands of gallons of oil into the Kalamazoo River in Michigan.

Some elected officials and federal agencies have expressed skepticism about the positive environmental findings. The Environmental Protection Agency called the State Department's review inadequate, while the Department of Energy concluded Keystone XL couldn't act as a safeguard against global price shocks.

Crude for the pipeline comes from oil sands, a tar-like bitumen that is mined or extracted by using steam injected in the ground. Refining the oil creates more greenhouse gases than traditional crude, leading opponents to argue that it doesn't justify the fuel produced.

Sen. Mike Johanns, R-Neb., sent a letter last week to Secretary of State Hillary Clinton questioning whether alternative routes were considered that would have been less environmentally risky.

House Energy Chairman Henry Waxman, D-Calif., has argued that using crude oil from the Alberta tar sands would increase greenhouse gas emissions.

TransCanada insists the pipeline won't harm the environment but will deliver a dependable source of oil to the U.S. from a friendly trading partner. Still, company officials acknowledge recent oil spills have brought more scrutiny to Keystone XL.

Keystone spokesman Terry Cunha said the only difference between the two pipelines is the routes.

"It's the same kind of pipeline and the same kind of oil," Cunha said.

Not everyone is alarmed by the delay. Kevin Cramer, chairman of the agency that regulates North Dakota's pipeline industry, speculates offshore drilling fears may actually help get Keystone XL and other U.S. pipelines built.

"I think we will be seeing a lot more onshore investment and that onshore crude would be coming to the same ports that the offshore crude would be coming," said Kevin Cramer, chairman of the North Dakota Public Service Commission.

Opponents of the Keystone XL project describe the 1,980-mile pipeline as an ecological disaster waiting to happen, and land owners are angry that TransCanada has threatened to use eminent domain to obtain the easements it needs for the project.

"We really see this pipeline as a problem that's bad for people at every step of the route," said Alex Moore, spokesman for Friends of the Earth.

TransCanada says Keystone XL would inject more than $20 billion in new spending into the U.S. economy and about $585 million in state and local taxes to the six states along the pipeline's path.

Some residents still aren't convinced, including Janie Capp, whose eastern North Dakota farm sits above the Keystone pipeline. She calls the entire system a "risky experiment."

"Anything manmade will eventually leak: a garden hose, a hose on your car or your plumbing," she said. "Everything will leak."