A decision on whether to approve the Keystone XL oil pipeline may slip into next year, giving opponents time to marshal efforts against it while offering President Barack Obama a chance to wring concessions from Canada.

The U.S. State Department is reviewing TransCanada Corp. (TRP)’s request to build the $5.3 billion link from Alberta’s oil sands to U.S. refineries in the Gulf Coast. The department said it won’t complete its environmental-impact review of the pipeline until after reviewing and publishing 1.5 million public comments it received, a months-long process that could be completed as soon as this week.

Once the environmental assessment is completed, the department begins a 90-day review of whether Keystone is in the national interest, weighing factors such as foreign relations, national security and economic impact. After that, other agencies have 15 days to appeal, which would send the matter to Obama to adjudicate — potentially pushing a decision into mid-December or January.

“The prospects for the green lighting of Keystone have been diminishing as time goes on,” Anthony Swift, an attorney tracking Keystone for the Natural Resources Defense Council in Washington, which opposes the project, said in an interview. Delays have “significantly reduced its chances.”

2008 Application

Some analysts say the extra time may give Obama the opportunity to develop offsetting policies to undercut the opposition, either pursuing other climate-change priorities in the U.S. or getting Canada to agree to its own measures to offset the impact of oil sands production.

TransCanada Corp. first applied to build Keystone XL in September 2008. It revised the route to avoid a sensitive ecosystem in Nebraska after officials in the state said the line presented too many environmental risks. The administration is compiling its supplemental environmental impact statement, or SEIS, to account for the changes to the pipeline’s path.

The March draft environmental impact statement found that the project wouldn’t significantly increase greenhouse gas emissions because the oil sands would be developed without Keystone, and shipped out through other pipelines or by rail.

The Environmental Protection Agency questioned that conclusion in its response. Environmental groups such as the Sierra Club issued a report on Aug. 29 saying the analysis, written by a contractor, is flawed and that production targets set by the Canadian oil industry can’t be met without Keystone.

Questions raised about the contractor also may mean more delay.

Inspector General

The State Department’s Office of Inspector General said in August that it would issue in January a report on conflict-of-interest allegations that ERM Group Inc. failed to properly disclose financial ties to TransCanada and to oil companies that would refine the oil. State Department officials haven’t said whether they would wait for that review before releasing the environmental impact statement.

“It will give State the excuse they need to further attenuate the decision,” Michael McKenna, president of MWR Strategies Inc., a Midlothian, Virginia-based public policy and communications consulting firm, said in an e-mail. “This pipeline will never be built during the Obama administration.”

The executive order that establishes the process for permitting an international pipeline doesn’t set a deadline.

‘Maximum Leverage’

Obama may be trying to “extract the maximum leverage” in discussions with Canada on reducing emissions from oil sands production, which tend to be higher than other forms of conventional drilling, said David Victor, an international relations professor at the University of California, San Diego, who has written a book on climate change.

Commitments from Canada to reduce the carbon emissions associated with mining the heavy crude from oil sands could help Obama reduce some of the outrage over an approval of Keystone, Victor said.

That’s important for Democrats in upcoming elections because of the money and mobilization the environmental community offers, he said.
The pipeline would be capable of carrying 830,000 barrels a day with 100,000 barrels reserved for the light sweet crude from the Bakken formation in North Dakota and Montana.

Michael Webber, the deputy director of the Energy Institute at the University of Texas in Austin, said delaying a final decision on Keystone also gives Obama more time to establish policies to limit carbon emissions.

The EPA is preparing rules to put limits on emissions from new and existing power plants.

Climate Speech

Obama can say, “‘You know what? Yeah, I approved the pipeline, but I also put in place a policy on carbon and carbon emissions are falling, so get off my back,’” Webber said.

In a June speech on climate change at Georgetown University in Washington, Obama waded more directly into the decision than he had before, declaring that Keystone shouldn’t be approved if it were found to “significantly exacerbate” carbon pollution.

“The president set a tough climate test for the pipeline, which it clearly fails to pass,” Michael Brune, Sierra Club executive director, said in a statement Aug. 29. ” There is no wiggle room here.”

In its draft review, the State Department said the net effect on the climate would be minimal. “They didn’t calculate it right,” William Moomaw, a professor at Medford, Massachusetts-based Tufts University, said in an interview. “If President Obama is serious about his statement in his Georgetown speech, the answer is very clear.”

Negotiating Ploy

Obama also questioned Keystone’s value as a jobs creator in an interview with the New York Times (NYT) and in a July speech in Chattanooga, Tennessee. The comments have emboldened environmental groups that have been galvanized by the issue in much the same way they were in opposing drilling in the Arctic National Wildlife Refuge a decade ago.

Victor, at the University of California, said Obama’s negative comments about Keystone could be a negotiating ploy. The more it looks like he’ll reject it the more the Canadian government may be willing to commit to emissions reduction targets, he said.

A delay may also take some of the steam out of the opposition, Webber at the University of Texas said.

“It lets everyone cool off,” he said in an interview.

Protests Accelerate

So far, protests have been waxing, not waning. 350.org and other groups have been showing up this year at speeches by Obama and outside fundraisers where he appears. Last month a large group tried to get arrested out front of the State Department.

“We need to keep up the pressure,” said May Boeve, executive director of 350.org, which promotes policies to reduce the threat of climate change and helped raise the political profile of Keystone.

Opponents including Tom Steyer, a hedge-fund billionaire and Democratic fundraiser, have said a Keystone approval can’t be justified by climate concessions from Canada or with domestic limits on carbon emissions.

Canadian officials, meanwhile, have resisted suggestions that it do more to address climate change as a quid pro quo for Keystone approval.

“Canada has an excellent environmental record,” Joe Oliver, Canada’s natural resources minister, said in an e-mail in July. “We’ve already acted to phase out traditionally fired coal electricity.”