* U.S. believes new route study could be done by Q1 2013
* Environmental groups pleased by decision
* Republicans accuse Obama of sacrificing jobs
* Delay could tarnish U.S.-Canada ties, push oil to Asia
(Recasts, updates with Canadian, TransCanada reaction, further
By Arshad Mohammed and Timothy Gardner
WASHINGTON, Nov 10 The U.S. government on
Thursday delayed approval of a Canada-to-Texas oil pipeline
until after the 2012 U.S. election, bowing to pressure from
environmentalists and sparing President Barack Obama a damaging
split with liberal voters he may need to win reelection.
The decision to explore a new route for TransCanada Corp's
(TRP.TO) Keystone XL oil pipeline to avoid fragile territory in
the Sand Hills of Nebraska dismayed the Canadian government,
which had lobbied assiduously for the $7 billion project.
It also drew a harsh reaction from the oil industry and
from Republicans in Congress who accused Obama of sacrificing
jobs for the sake of his reelection.
The State Department suggested that looking at new routes
for the pipeline within the state of Nebraska would take until
at least the first quarter of 2013, well beyond the Nov. 6,
2012 U.S. election. The department had previously said it hoped
to make a final decision by the end of this year.
TransCanada, which proposes to build and operate the
pipeline, said it remained confident that it would ultimately
win approval. Industry analysts had previously said a
significant delay could kill the project.
The Obama administration said U.S. domestic politics played
no part in the decision. Analysts suggested the delay may
actually be an effort to split the difference.
"Politically it's an effort to avoid antagonizing either
side of the issue," said David Pumphrey, a senior fellow at the
Center for Strategic and International Studies and former
Energy Department official.
"Both sides are likely to be disappointed, but since it's
impossible to calculate the most damaging outcome, better to
buy time," Pumphrey said.
Obama said the decision was made on the merits.
"Because this permit decision could affect the health and
safety of the American people as well as the environment, and
because a number of concerns have been raised through a public
process, we should take the time to ensure that all questions
are properly addressed," Obama said in a statement.
Critics said the president was putting politics ahead of
job creation and a chance to reduce U.S. dependence on Middle
"More than 20,000 new American jobs have just been
sacrificed in the name of political expediency," House of
Representatives Speaker John Boehner said in a statement.
It was an abrupt reversal for a project that six months ago
had looked all but certain to move forward before being
derailed by an environmental campaign. The decision could
strain relations with Canada and prompt companies to renew
efforts to build new Western export routes to China.
Analysts say the delay could kill the project to deliver
Canada oil sands crude to U.S. Gulf Coast refiners. As
TransCanada returns to the drawing board, other projects may
lock in its customers.
It was one of the most closely watched energy policy
decisions for global oil traders, who had expected the Keystone
line to help relieve a supply bottleneck that has caused an
unprecedented disconnect between depressed U.S. Midwest oil
prices and global rates paid on the coast.
If built, the pipeline would transport 700,000 barrels per
day or more of crude, most it from Alberta's oil sands, the
world's third largest oil reserve. That is nearly 4 percent of
the 19 million barrels the United States uses every day.
"It suggests to us that he has made a determination that
he'd prefer the United States continue to import from sources
outside North America as opposed to further solidifying our
great relationship with Canada." said Jack Gerard, president of
the American Petroleum Institute, a leading industry group.
The State Department said it decided to look at rerouting
the pipeline chiefly because of concerns about its running
through the Sand Hills area of Nebraska, which has fragile
wetlands, a sensitive ecosystem and shallow groundwater.
"The White House did not have anything to do with this
decision," Assistant Secretary of State Kerri-Ann Jones told
reporters. "There was no effort to ... influence our decision.
It was our decision."
The State Department said it was only looking at moving the
pipeline's route within Nebraska and estimated that a new route
would affect about 75 to 250 miles of the conduit.
VICTORY FOR ENVIRONMENTAL GROUPS
The decision was a victory for environmental groups, who
say producing oil sands crude emits large amounts of greenhouse
"The president should know that nothing that happened today
changes our position -- we're unequivocal in our opposition,"
said Bill McKibben, leader of protests at the White House
against the pipeline that drew thousands of opponents.
"If this pipeline proposal reemerges from the review
process intact we will use every form of nonviolent civil
disobedience to keep it from ever being built," he said.
While the decision hurt Obama with industry and
Republicans, it may shore up his support from
environmentalists, an important constituency for the president
and his fellow Democrats.
TransCanada shares closed down 73 Canadian cents at C$39.85
on the Toronto Stock exchange.
Analysts said any damage to U.S.-Canadian relations should
be short-lived. Still, the delay creates a dilemma for Canada
as it tries to expand markets for its most lucrative export.
Keystone XL is one of two projects oil sands producers have
been counting on to boost returns by relying less on the
oversupplied U.S. Midwest market. Canada now exports about 2
million barrels of oil a day, almost all to the United States.
Government and industry officials say a major delay in the
Keystone XL decision would prompt increased efforts to push
forward Enbridge Inc's (ENB.TO) C$5.5 billion ($5.5 billion)
Northern Gateway pipeline across British Columbia to the West
Coast, where more than half a million barrels of crude a day
could be loaded onto tankers and shipped to Asia.
Pushing harder on that proposal "could be part of the
discussions" as Canada's natural resources minister meets with
officials during his his current visit to China, Prime Minister
Stephen Harper's spokeswoman said on Thursday.
However, that project is anything but a sure thing. More
than 3,000 people have registered to be heard at the Natural
Energy Board hearing, due to start in January. The project
faces considerable opposition from environmentalists and
several native groups, who have said they would not want the
pipeline crossing their land under any conditions, and the
Keystone XL experience may embolden critics.
A Keystone XL delay may also hamper Canada's efforts to
convince the European Union not to label oil sands crude as
inherently polluting under a new fuel quality directive.
(Additional reporting by Jeff Mason and Ayesha Rascoe in
Washington and by Jeffrey Jones and Scott Haggett in Calgary;
Editing by David Gregorio and Russell Blinch)