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Congress plays pipeline poker by tying Keystone to payroll-tax bill

Rail cars arrive in Milton, N.D., loaded with pipe for an earlier phase of the Keystone pipeline.

Eric Hylden/The Associated Press

TransCanada Corp.'s torturous effort to win approval for its $7.6-billion Keystone XL pipeline has taken another sharp turn as the U.S. Congress looks to force Barack Obama to make a quick decision on the project.

The Calgary-based company is gearing up to begin work early in 2012 in five of the six U.S. states that the pipeline would cross, while it works with Nebraska's government to reroute the line around the environmentally-sensitive Sand Hills region.

Unlike previous cross-border pipelines that have been quickly and quietly approved, the Keystone XL line has become a lightning rod for environmental opposition to Canada's oil sands, and a political football in the highly charged campaign toward the 2012 presidential election.

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The U.S. Senate on the weekend passed a payroll-tax bill that included a rider that would force the President to decide on the required permit for Keystone XL within 60 days, leaving the rerouting question to Nebraska. The Senate bill would require the administration to adopt Nebraska's environmental review of the new route when that study is completed some time in the middle of 2012.

However, the Republican leaders in the House of Representatives oppose the Senate version of the payroll bill and have vowed to seek amendments as early as Monday. The House of Representatives has already passed a separate bill that sets a two-month deadline on the pipeline decision, but offers none of compromises of the Senate version.

For TransCanada, the political wrangling offers the potential for a quick approval for a project that the administration had put on hold until early 2013. But it poses the equally real possibility that Mr. Obama will carry through with threats to reject the project entirely on the grounds there is not enough time to study the proposed route changes.

The Canadian government has lobbied aggressively to win U.S. approval for the pipeline, which would link the Alberta oil sands with the world's largest refining complex, located on the Gulf Coast of Texas and Louisiana.

This fall, Prime Minister Stephen Harper called approval of the project a "no-brainer." Weeks later, the U.S. State Department announced the delay that would postpone a final decision until after the 2012 presidential election.

Canada's ambassador to Washington, Gary Doer, said support for the pipeline has been building since announcement of the delay in the permit decision. On Friday, Jim Jones, Mr. Obama's former national security adviser, held a news conference in which he supported the pipeline as essential to American energy security.

"The body of support in favour of the pipeline has become more vocal, particularly with regard to energy security," Mr. Doer said in an interview Sunday.

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He noted that the governors in the six states through which the pipeline passes are now supporting its construction, and that there has been two supportive votes in the Republican-dominated House of Representatives and one in the Democratic-controlled Senate.

Mr. Doer said U.S. support is also growing because the Keystone XL project would link the booming Bakken oil fields to refineries on the Gulf Coast. The Bakken – and other shale oil plays – have allowed the U.S. to reverse its declining crude production, but the fields need to be connected to markets.

TransCanada has welcomed the support from Congress on the pipeline, and said it would be ready to begin construction as soon as it can get the permit.

The company's chief executive, Russ Girling, revealed last week that TransCanada is expanding the pipeline capacity to 830,000 barrels per day from 700,000 after receiving additional commitments for volume from oil companies.

The pipeline company suggested there has already been sufficient study of the project to allow for a shorter timetable.

"The over three-year review process for Keystone XL has become the most detailed and comprehensive environmental review ever undertaken for a cross border pipeline," Mr. Girling said in a release.

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TransCanada would have to revisit the entire project should the White House carry through on its threat and deny the permit in February. The company has already indicated it intends to proceed with a U.S.-only leg of the pipeline, connecting the current terminus and storage facility at Cushing , Okla., with the Texas refining hub.

The first phase of the Keystone pipeline currently carries crude from Alberta to Cushing, where a glut has developed that has pushed down prices on Canadian crude. Both TransCanada and its competitor, Enbridge Inc., are pursing Cushing-to-Texas lines to serve existing producers.

But oil companies in Alberta are eager to get more exporting capacity to support expansion of the oil sands from its current 1.5-million barrels per day to double, or even triple that amount.

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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