Flaherty warns that delay could kill XL pipeline project

Finance Minister Jim Flaherty says that the Obama administration's decision to delay construction of the mammoth Keystone XL pipeline could mean that the project is dead in the water.

The pipeline would transport crude from the oilsands in Alberta southward to the Gulf Coast in the U.S., where it also would be refined and exported.

But the U.S. State Department said Thursday that it would hold off approving the proposed $7-billion pipeline while TransCanada Corp. explores whether it is possible to route the project around ecologically sensitive areas in Nebraska.

"I'm not sure this project would survive that kind of delay," Flaherty told Bloomberg, adding that delaying the project for a year "is actually quite a crucial decision."

First Asset oil analyst John Stephenson said Friday it is possible that another pipeline could be conceived that would carry oil out to the West Coast, where it could be sent to China. Or existing pipelines could be used to do the same job as the proposed Keystone XL line.

Another plan might be to move the oil eastward and then to the southern U.S.

While the U.S. is likely to approve the pipeline at some point, there is concern that when it finally does, it may be too late.

Flaherty also hinted that Canada can look elsewhere for exports, including emerging markets in Asia.

"It may mean that we may have to move quickly to ensure that we can export our oil to Asia through British Columbia," Flaherty told Bloomberg.

The same argument was made by TransCanada president and CEO Russ Girling, who said Thursday that both oilsands producers and U.S. refineries will run out of patience on the pipeline issue.

"If Keystone XL is continually delayed, these refiners may have to look for other ways of getting the oil they need. Oil sands producers face the same dilemma -- how to get their crude oil to the Gulf Coast," Girling said in a statement.

The delay is largely due to the upcoming U.S. presidential election and Barack Obama's need to shore up votes among both unions and environmentalists -- both core democratic supporters who are on opposite sides of the pipeline -- says Colin Robertson, a former trade envoy to the U.S.

"This wasn't about Canada. This is about the presidential election. This about the president really being caught between a rock and a hard place," Robertson said Friday on CTV News Channel. Environmentalists are opposed to the pipeline while the unions support it and expect it will create some 20,000 jobs.

An earlier and comparable pipeline, Enbridge Clipper, "sailed through" the U.S. approval process, he added.

Robertson predicted that the U.S. will revisit Keystone. "I'm not convinced this is over ... There will be other acts to this because at the end of the day, Americans still need hydrocarbons."

In the wake of the State Department decision, environmentalists see an alternative future as well -- but it involves shifting away from oil as a fuel source entirely.

Keith Stewart of Greenpeace Canada said Friday that a pipeline cannot be built with a guarantee that it will never have an accident. And for that reason, it is time to pursue a different approach.

"We know that there is no way to build something that can't have accidents," Stewart said.

"The best way to avoid those types of things is to not do the dangerous activity in the first place. If you build a pipeline, it's likely to spill at some point. The point, however, is to start making those transitions to types of energy which don't spill."