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Flaherty talks tough with U.S. in wake of Keystone pipeline delay

Finance Minister Jim Flaherty attends a ministerial meeting at the APEC Summit in Honolulu on Nov. 10, 2011.

JIM YOUNG/REUTERS

In a move that reflects a widening rift with Canada's largest trading partner, a senior Harper government minister is warning that Washington's decision to postpone a review of the Keystone XL pipeline could doom the project and speed up Ottawa's efforts to ship oil to Asia instead.

Federal Finance Minister Jim Flaherty delivered this message from the sidelines of the APEC summit in Honolulu as U.S. foot-dragging over the $7-billion Canadian pipeline's fate becomes the latest in a string of trade irritants between Canada and the United States.

"The decision to delay it that long is actually quite a crucial decision. I'm not sure this project would survive that kind of delay," Mr. Flaherty told Bloomberg News.

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"It may mean that we may have to move quickly to ensure that we can export our oil to Asia through British Columbia."

It's been an awkward few months for Canada-U.S. relations.

First, in September, the Obama administration excluded Canadian firms from bidding on $100-billion (U.S.) worth of U.S. infrastructure contracts in the name of supporting homegrown jobs. In October, the United States announced it would slap a $5.50 tax on Canadians entering by airplane or ship as a way to help reduce Washington's $1-trillion-plus deficit.

On Thursday, the U.S. State Department compounded Canadian frustrations by announcing it won't approve or reject the proposed pipeline until after the November, 2012, presidential election – a delay of about 12 to 15 months.

The Keystone project is backed by Calgary's TransCanada Corp., and would ship up to 700,000 barrels a day from the Alberta oil sands to the U.S. Gulf Coast. Massive opposition from landowners along its proposed route and environmental activists has left the Obama administration unwilling to make a tough political call before the next ballot.

The State Department said on Thursday it will study an alternative route to avoid environmentally sensitive areas in Nebraska. Critics argue the proposed route across the Sandhills area would put a water supply for 1.5 million people at risk of contamination.

Mr. Flaherty called Washington's delay "disappointing" and noted that unions and business groups appear to back the project.

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"This project would have provided thousands and thousands of jobs in the United States, a lot of unionized, well-paying jobs," the minister said.

"The delay, we hope, doesn't doom the project. We hope it will still happen."

The Finance Minister's tough talk of redirecting Canada's efforts to sell oil toward Asia is not as easy as it sounds.

Public hearings on the proposed Northern Gateway pipeline to the B.C. coast kick off on Jan. 10, but opposition from aboriginals in British Columbia will ensure the project a rough ride.

Aboriginal groups vow to fight Northern Gateway regardless of whether it receives environmental and technical permits, saying their land rights trump other permits. Environmental groups, meanwhile, have formed alliances with the native bands and coastal communities opposed to the project.

The assessment process for the Gateway project is slated to visit 23 B.C. communities, with repeat visits to some towns because thousands of people from around the world have registered to participate.

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It would also be difficult for the government to compel the National Energy Board, an independent regulator, to speed up the approval process for Gateway.

The U.S. delay for Keystone threatens to extinguish a pipeline that's been years in the making, giving shippers an opening to abandon it.

That creates serious concern for Canada's oil producers, which are just years away from running out of room on existing pipelines for their product.

TransCanada hastened to assure reporters on Friday that it remains confident the Keystone project can work through the delay and win approval.

"We have had discussions with our shippers and we are confident their support of Keystone XL will continue," TransCanada spokesman James Millar said.

With a report from Nathan VanderKlippe in Calgary

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About the Authors
Parliamentary reporter

Steven Chase has covered federal politics in Ottawa for The Globe since mid-2001, arriving there a few months before 9/11. He previously worked in the paper's Vancouver and Calgary bureaus. Prior to that, he reported on Alberta politics for the Calgary Herald and the Calgary Sun, and on national issues for Alberta Report. More

Carrie Tait joined the Globe in January, 2011, mainly reporting on energy from the Calgary bureau. Previously, she spent six years working for the National Post in both Calgary and Toronto. She has a master’s degree in journalism from the University of Western Ontario and a bachelor’s degree in political studies from the University of Saskatchewan. More

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