The State Department may miss a year-end target to approve TransCanada Corp's Canada-to-Texas Keystone oil sands pipeline, a U.S. official told Reuters on Tuesday, risking a further delay to the most important new crude oil conduit in decades.
The official, who spoke on condition of anonymity, said the State Department still hoped to make a decision by the end of this year, which has been its target, but that its highest priority was to carry out a thorough, rigorous review. The decision has already been pushed back once.
A further delay would not only be a blow to TransCanada, it could also prolong a massive gap between U.S. and global oil prices because oil traders are counting on Keystone's 700,000 barrel-per-day capacity to relieve a build-up of crude in the Midwest, which doesn't have enough pipelines to ship growing Canadian output to Gulf Coast refineries for use around the United States.
The ruling, which falls to the State Department because the line crosses national borders, is forcing President Barack Obama into a decision that effectively pits environmental safety against job creation and energy security.
"While we still hope to make a decision by the end of the year, we are first and foremost committed to a thorough, transparent and rigorous review process," said the U.S. official, who spoke on condition of anonymity.
"So we're carefully reviewing all of the information we've received, including the many comments from the public, and will make a decision only after we have weighed all of the facts," the official added.
'All About Timing'
Analysts and officials said despite a potential delay, it looks like the United States will ultimately approve the project.
Kevin Book, an analyst at ClearView Energy Partners LLC in Washington, said the State Department is taking time to ensure its decision making on the $7 billion project is meticulous and protected from lawsuits.
"Everything that we are aware of suggests the State Department is moving toward 'yes' very openly, albeit slowly," said Book. The Obama administration could face criticism ahead of next year's elections if it decided against the pipeline.
"A 'no' decision in January could be a big problem in November if oil prices are above $100 a barrel, " he said.
Canadian officials have not heard any recent change in tone from the State Department that would suggest a shift in thinking, Joe Oliver, Canada's natural resources minister, said in an interview.
Still, further delays would roil already edgy oil markets.
"It's all about timing, not about the route. The market had moved on the understanding that this thing was going to be online in the second half of 2013," said Jan Stuart, head of energy research at Credit Suisse in New York City.
"If you are suddenly mucking around with the timing ... the market has to move again."
Benchmark U.S. crude oil prices fell to a record $28 a barrel discount versus Europe's Brent last month, but has rebounded this week to a $18 discount on signs of tightening supplies. Analysts say the spread won't return to its historically normal $1 or $2 range until new pipelines are completed.
Pipeline opponents, many of whom are environmental groups, say producing liquid crude from oil sands production releases large amounts of greenhouse gases and that the fuel is potentially corrosive to pipelines. Others fear potential damage to a major U.S. fresh water aquifer.
Some 1,200 opponents were arrested in front of the White House this summer, and more protests were expected next month.
Supporters say the pipeline would create thousands of jobs and provide a secure source of energy imports from a close ally.
Approval for the pipeline has been pending since late 2008 and the project could face many legal and regulatory hurdles that could delay it.
Environmental groups sued the government in federal court on Tuesday challenging claims in the State Department's environmental report saying spills on the line were unlikely.
Opposition is crystallizing in Nebraska where the pipe would cross the aquifer and the Sand Hills region, home to whooping cranes and other endangered species.
Ryan Salmon, energy policy adviser for the National Wildlife Federation, said a delay "would demonstrate that there still are issues that haven't had careful consideration and they're now recognizing that they may need to do that work."
(Reporting by Arshad Mohammed, additional reporting by Timothy Gardner, Ayesha Rascoe, Matthew Robinson in New York, Jeffrey Jones in Calgary; Editing by Russell Blinch and Cynthia Osterman)