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Scenarios: U.S. Battle Brews Over Canada Oil Pipeline

Date: 03-Nov-10
Country: USA
Author: Timothy Gardner

A battle is brewing in the Obama administration over a proposed oil pipeline that could lock in Canada's place as the top crude exporter to the United States for 50 years.

The State Department is weighing whether the $7 billion Keystone XL pipeline would be necessary to bolster U.S. energy security as the oil would slash dependence on imports from Venezuela and Middle Eastern countries such as Saudi Arabia.

The Environmental Protection Agency, however, is worried about the greenhouse gas emissions from production of Canada's tarry oil sands and that the oil flow could undermine plans to make cars more efficient and to electrify more vehicles in coming decades.

Calgary-based TransCanada Corp hopes the pipeline, which would bring oil from Canada to refineries in Texas and Louisiana, will start in early 2013.

Here are some possible paths the plan could take if it is eventually approved by the State Department, the White House, or perhaps President Barack Obama.

EASIEST PATH: STATE FINALIZES REVIEW, EPA SATISFIED

In July, the EPA asked the State Department to revise its environmental impact statement on the pipeline to consider greenhouse gas emissions, other environmental concerns, and pipeline safety.

Secretary of State Hillary Clinton hinted late last month her department was "inclined" to approve the line on energy security concerns. Since then a senior official there said approval is not a foregone conclusion.

State could finalize an environmental review of the project without taking public comment, but that could push the EPA to ask that the final decision be made by the White House.

Or State could revise the environmental statement and open it to public comment before finalizing it.

That move could open up the planned pipeline to changes, such as diverting the pipeline route away from environmentally sensitive areas, pipeline safety measures, or reducing the proposed 510,000 barrels per day throughput. That could make the project more palatable to the EPA and the project could move ahead.

MORE DIFFICULT PATH: EPA ASKS WHITE HOUSE TO DECIDE

If EPA is unhappy about revisions to the environmental impact statement after public comment, or if State finalizes it without opening up to public discussion, the regulators could ask that the final decision be referred to the White House's Council on Environmental Quality.

The CEQ is headed by Nancy Sutley who has said that clean energy and emissions reductions could help break the country's dependence on foreign oil.

Presumably State and the EPA would want to work out their differences before it gets to this stage. After the environmental impact process, which could take months, the State Department will work on a "national interest determination."

In this process, Hillary Clinton's department will weigh the importance of the line on U.S. energy security. The process would be open to comment by agencies such as the EPA and the Department of Energy.

The agencies will likely question whether the project truly strengthens U.S. energy security as some of the Canadian oil could be refined for export to other countries, and not go directly to serving U.S. oil demand.

In addition, the EPA may argue that the emissions from oil sands -- which it says are 82 percent greater that the average crude refined in the United States -- could play a role in hurting U.S. security. The damage could be from the effects of global warming in coming decades, including heat waves, droughts and rising seas. Others have argued that inaction by the United States on emissions could crystallize anti-American resentment in countries that are the most vulnerable to climate change.

TOUGHEST PATH: OBAMA DECIDES

If the EPA or another agency is not happy with the State Department's decision in the national interest determination, they could ask that the decision be sent to Obama. The president has pledged the United States would cut emissions and dependence on foreign oil, but an opportunity to link energy systems with close ally Canada could be hard to resist.

The administration may be anxious to avoid this stage and ask State and EPA to come to a compromise because sending the decision to Obama could attract public criticism.

(Editing by Lisa Shumaker)

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