"It is disappointing that after more than three years of exhaustive analysis and consultation on this critical project, we find out that a decision will be delayed until early 2013," she said.
TransCanada Corp.'s (TSX:TRP) proposed pipeline would carry millions of barrels of crude each week from the northern Alberta oilsands — and some U.S. oilfields along the way — to Texas refineries. The Gulf Coast is a coveted market for oilsands producers, many of which are in the midst of expanding their bitumen production.
The State Department said earlier Thursday it wants TransCanada to explore other routes for the controversial pipeline so it skirts ecologically sensitive areas of Nebraska. That will delay the US$7-billion project by years, and could kill it outright if TransCanada customers lose patience and find other alternatives.
The Alberta government respects the fact that the decision over the pipeline rests with U.S. authorities, but said Keystone XL is a key piece of infrastructure for Alberta.
"Our energy industry supports this province and this country, and it is imperative that we can move our products to market," Redford told a news conference.
Redford was already scheduled to visit Washington next week for the first time since becoming premier, and said she will press U.S. officials on the Keystone decision when she meets with them.
Her itinerary hasn't been altered in light of Thursday's developments, though that may change.
"There is a possibility, because dynamics are changing so quickly, that opportunities can present themselves. We'll assess that as this goes on."
It's hard at this point to pin down what revenue impact Alberta coffers may see if Keystone is delayed for a long time, or killed all-together.
"At this point in time...it is a project that is not currently on the books or providing revenue to the province of Alberta," she said.
"No doubt it would have an impact on our revenue, but at the end of the day, it's not detailed work that we've done in the absence of the project actually operating."
TransCanada CEO Russ Girling said he's confident Keystone XL will ultimately be approved.
"This project is too important to the U.S. economy, the Canadian economy and the national interest of the United States for it not to proceed," Girling said in a statement.
Travis Davies, spokesman for the Canadian Association of Petroleum Producers, said his group is also optimistic Keystone XL will go ahead on its own merit eventually.
"It's good for Canada, and it's good for the U.S. It makes sense economically, environmentally and from an energy supply standpoint," he told reporters.
The Canadian Chamber of Commerce said the United States risks missing out on the opportunity to create jobs and to wean itself off of crude imports from unfriendly regimes.
"There is no doubt that the rich energy supplies from Canada's oilsands will be brought to market. The only question now is whether the U.S. will be among the beneficiaries."
Unions in Canada have come out against Keystone because they say it would ship high-paying refining and upgrading jobs south of the border along with the raw bitumen.
Dave Coles, president of the Communications, Energy and Paperworkers Union of Canada, cheered the decision to delay a pipeline he called a "job killer."
"We have stepped back from the abyss," he said.
The Alberta Federation of Labour was also pleased with the delay, saying "it will give the Redford government an opportunity to pursue value-added opportunities here at home, rather than shipping unprocessed bitumen south for upgrading."
The review of new routes could be completed "as early as the first quarter of 2013," State Department said — several months after next November's presidential election. The State Department decision effectively means Obama can dodge a political bullet since he won't have to decide whether to approve the project until after U.S. voters go to the polls.
When Redford was asked whether the U.S. election had anything to do with the delay, she said: "Everybody watching knows we live in a complicated world."
The pipeline would traverse six U.S. states to Gulf Coast refineries. Its current proposed route crosses the Sand Hills area of Nebraska, the location of the Ogallala aquifer, a crucial source of drinking water to millions on the Great Plains.
"Taken together with the national concern about the pipeline's route, the department has determined it is necessary to examine in-depth alternative routes that would avoid the Sand Hills in Nebraska in order to move forward with a national interest determination for the presidential permit," the State Department said.
Obama praised the State Department's decision, saying it's necessary because a final decision "could affect the health and safety of the American people as well as the environment."
"The final decision should be guided by an open, transparent process that is informed by the best available science and the voices of the American people," Obama said in a statement.
The reaction from the Prime Minister's Office was of a decidedly different tone.
"We are disappointed," said Andrew MacDougall, a spokesman for Prime Minister Stephen Harper. Keystone XL, he said, promises to create thousands of jobs and billions of dollars in economic growth on both sides of the border.
"We remain hopeful the project will be decided on its merits and eventually approved. In the meantime, our government will continue to promote Canada and the oilsands as a stable, secure, and responsible source of energy for the world."
The decision represents a stunning victory for the North American environmental movement. For months, Keystone XL has been the target of angry protests on both sides of the Canada-U.S. border and a major source of consternation for Obama.
"A year ago this pipeline was assumed to be a done deal, but thanks to the amazing strength and determination of ordinary people concerned about water, climate change and the health of communities, we have a decision that brings us a little closer to the world we need," said Greenpeace anti-oilsands campaigner Mike Hudema.
A lobbyist for TransCanada expressed dismay about the decision, saying it stemmed from "a couple of senior advisers" in the White House.
"It's breathtaking; the White House's political operation gave in to the protesters, going completely outside the national interest and the three-year permit process that's been a painstaking one," the lobbyist, who asked not to be identified, told The Canadian Press.
"The ballsier thing would have been to either approve it or deny it, but to kick the can again is actually more difficult for the president politically. There's 20,000 jobs on the table and they did this to save one — Barack Obama's."
Indeed, the White House was reportedly becoming increasingly concerned that the Canadian pipeline would cost Obama much-needed votes in the election. Environmentalists within his liberal base had vowed to stay home if he gave Keystone XL the green light.
— with files from Lee-Anne Goodman in Washington