Snags Lurk for Keystone XL Pipeline Even After U.S. Approval

Legal and regulatory snags at federal and state levels could mean more costly delays to TransCanada's Alberta-to-Texas oil sands pipeline.

Keystone pipeline
Credit: TransCanada

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Winning U.S. State Department approval for the Keystone XL oil pipeline is not likely to be the last hurdle TransCanada Corp faces in its efforts to build the controversial project.

Even if it gets the State Department’s greenlight, legal and regulatory snags lurk at federal and state levels and each could mean more costly delays to the $7 billion project, which is intended to move more than half a million barrels of oil sands-derived crude oil a day to Texas from Canada.

Environmental groups are girding for a host of battles aimed at putting the brakes on Keystone XL, which is already about a year behind schedule, legal sources said. The first lawsuit over wildlife could be filed this week.

In Nebraska, the state where political opposition to the project is highest, a lawmaker plans to introduce legislation next week that would give the farm state authority to regulate oil pipelines, adding more uncertainty for TransCanada.

Secretary of State Hillary Clinton is due to rule on the project by year’s end. Her department released an environmental assessment that concluded after three years of study that Keystone XL would have minimal impact.

A positive ruling would give TransCanada a presidential permit to cross the Canada-U.S. border with the 1,661-mile (2,673 km) line, decried by environmentalists for what they say are unacceptable oil spill risks and the likelihood of increased development of carbon-intensive tar sands.

But a start to construction in 2012 is still anything but certain, despite tens of millions of dollars TransCanada has spent so far.

“The presidential permit that will ultimately be issued as part of the State Department review is then subject to challenge in the courts,” said Paul Gutermann, partner with Akin Gump Strauss Hauer & Feld LLP in Washington, and a 25-year veteran of energy regulatory issues.

“I’d be surprised if one of the environmental groups, either national or local, didn’t go that route and take a shot at it, at least for the potential to delay commencement of construction.”

Cranes, Terns, Beetles

Opponents are expected to argue in federal court that the environmental impact statement or the permit itself failed to fully address threats to endangered species, wetlands or other issues.

Noah Greenwald, a wildlife expert at the Center for Biological Diversity, said the pipeline could harm a number of endangered species including the whooping crane, least tern, and the burying beetle. He said he believes the State Department failed to address the impact of a major oil spill on such wildlife, calling it “irresponsible.”

Such criticism leaves the door open for legal actions by green groups, said Ken Winston, a lawyer with the Sierra Club.

The first of what is expected to be a host of lawsuits by green groups on endangered species issues could land as early as this week, sources said.

To force a delay, plaintiffs must convince a judge to slap an injunction on construction while the case is heard, arguing that damage caused would be irreparable.

Gutermann put odds of that being successful only as high as 25 percent given the extra scrutiny the project has undergone.

Environmental groups and a broad assortment of celebrities have voiced strong opposition to the Keystone XL, which TransCanada says would bolster U.S. energy security and create jobs during a time of economic weakness.

More than 1,200 people were arrested in protests against the project at the White House in August and September and another 100 were taken into custody in Ottawa this week, showing opposition is fierce.

A series of public meetings at locations along the proposed route started Monday. Legal sources said they are aimed partly at bolstering the State Department’s case against challenges.

Battleground Nebraska

At the state level, Nebraska is shaping up to be a legal and political battleground as environmentalists and lawmakers oppose the right-of-way across the massive underground Ogallala aquifer, the most important source of fresh water to the agriculture-heavy central United States.

Nebraska’s governor Dave Heineman, and its two U.S. Senators, Mike Johanns and Ben Nelson, are among opponents of TransCanada’s current path over the aquifer.

The pipeline would be buried several feet deep but in most places would be several dozen feet above the aquifer.

Ken Haar, a Nebraska state senator, plans to introduce a bill on Monday that would put Nebraska in charge of its pipeline regulation, not the federal government. If he succeeds, the state could decide TransCanada has to reroute the pipeline, a move that would lead to more delays.

TransCanada declined to give details of any plans it might have deal with legal and regulatory challenges that arise apart from the State Department process.

“Beyond that, we can’t control what other people do. We certainly can’t control what they say or what actions they may take,” spokesman Shawn Howard said. “All we can do is continue to provide facts about the project, provide testimony where it’s needed and ultimately allow a decision to be made.”

He pointed out that the first phase of Keystone, which started operations in 2010, faced two legal challenges, but both failed to stop the project.

Apart from legal and political action, a raft of federal and state approvals following the State Department decision also stand to delay completion of the pipeline if any regulators involved drag their feet, Paul Sankey, analyst with Deutsche Bank, said in a note to clients.

“The take-away is that construction completion by the end of 2013 may ultimately prove ambitious for Keystone XL, something that we’ve suspected from the beginning,” he said.

(Reporting by Timothy Gardner in Washington and Jeffrey Jones in Calgary; Editing by Bob Burgdorfer)