December 21, 2012 / 8:33 PM / in 5 years

US ruling on Keystone pipeline could slip again -report

* Eurasia Group director sees summer timing for ruling
    * Heavy-oil discounts could linger for two years
    * EnSys founder expects eventual approval

    By Jeffrey Jones
    CALGARY, Alberta, Dec 21 (Reuters) - A top risk-management
analyst warned on Friday that a decision by Washington on
TransCanada Corp's Keystone XL pipeline could get
delayed again into next summer, adding more pressure to already
deeply discounted Canadian oil prices.
    The U.S. State Department has said it will rule on the $5.3
billion Canada-to-Nebraska pipeline by the end of March,
assuming Nebraska approves a new route that skirts an
environmentally sensitive region in the state.
    However, Robert Johnston, director of global energy and
natural resources for the Washington-based Eurasia Group, said
environmental groups will press for public hearings on the
department's new environmental impact statement on the project,
expected shortly, and push for an Environmental Protection
Agency review of the study.
    "This suggests a timetable of presidential approval as early
as April but quite possibly one that extends until summer,"
Johnston wrote in a report on how oil sands producers have few
short-term options for new market access and price relief.
    If it gets the green light start-up would likely be pushed
to the end of 2015 from the current estimate of late 2014 or
early 2015, he said.
    The stakes are rising. Canadian oil is being heavily
discounted as production rises and pipeline capacity additions
to new and current markets are slow to be added, partly due to
regulatory delays. The price of Western Canada Select heavy
blend, a widely quoted crude type, sold at times for $40 under
the price of benchmark U.S. crude in the past few weeks, triple
the spread of just a few months ago.
    This week, the Alberta government, which garners about a
third of its revenue from the oil industry, warned it may not
meet its deficit-elimination target because of the
    Now all eyes are on Keystone XL again, four years after
TransCanada first applied to build the project, which became a
flashpoint in the U.S. debate over the environment and economy. 
    President Barack Obama rejected the application last year,
saying more work was needed to determine a better route around a
massive aquifer in Nebraska. Since then, TransCanada split the
proposal in two and is now building the $2.3 billion southern
section between Oklahoma and Texas.
    It re-applied to build the northern part last spring, and
still faces staunch opposition from environmental groups that
warn of increasing carbon emissions from the tar sands and the
risks of pipeline ruptures.
    The 830,000 barrel a day pipeline requires State Department
approval because it would cross the Canada-United States border.
Obama nominated John Kerry, who has supported tougher carbon
policies, as successor to Hillary Clinton as Secretary of State
on Friday.
    TransCanada Chief Executive Russ Girling told Reuters this
week that the choice of secretary should not affect the chances
of approval for Keystone XL, due to the project's importance to
U.S. energy security. 
    Johnston also weighed alternatives for moving crude out of
Alberta, including to refineries in Quebec and Atlantic Canada
through proposals by TransCanada and Enbridge Inc.
    TransCanada's plan to convert one of its cross-Canada
natural gas lines to oil use has more potential than Enbridge's
to help cut the price differential, as the latter is aimed at
shipping light oil, but both are hampered by a relatively small
eastern Canadian refining market. The prospect of international
exports, possibly to India, from the region is a "wild card,"
however, Johnston said.
    Exports from Canada's Pacific Coast are still years away,
and Enbridge's Northern Gateway proposal also faces heavy
opposition from environmental and native groups.
    An top industry consultant who assessed the market and trade
implications of Keystone XL for the State Department in its
first regulatory go-round said he believes it will be approved,
but not before Washington pores over every detail as the
pressure from environmentalists will only increase.
    From a market perspective, the project -- or some
alternative offering similar capacity -- is still required, even
with booming U.S. output of light oil, Martin Tallett, president
of EnSys Energy, said in a recent interview.
    The one big change in the market over the past year has been
how aggressive railroads have been in stepping in to move oil as
pipelines get delayed, he said.
    "When we look at the projections and we come up with a
balance about where we are four years ahead, our conclusion at
the moment is we still do need Keystone XL or equivalent," he
said. "And there I come back to the possibly of a TransCanada
line through Ontario or a lot of rail capacity."

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