11/14/2011 05:57 EST | Updated 01/14/2012 05:12 EST

Keystone Pipeline: TransCanada To Move Project Away From Sandhills And Aquifer

CALGARY - TransCanada Corp. said Monday it has reached an agreement with the Nebraska government to change the route of its proposed Keystone XL oil pipeline in order to avoid the ecologically sensitive Sandhills region.

The Calgary-based pipeline giant (TSX:TRP) said it supports legislation Nebraska has introduced to ensure the pipeline doesn't cross the expanse of grass-strewn, loose-soil hills, and part of the Ogallala aquifer, which supplies water to Nebraska and seven other states.

The 2,700-kilometre pipeline, if built, will carry crude from Alberta's oilsands to refineries on the U.S. Gulf Coast, traversing six states along the way.

Some of the most heated environmental opposition to the pipeline has come from Nebraska, where many residents were concerned a spill from the pipeline could pollute water they rely on for farming and ranching.

On Thursday, the U.S. State Department heeded those concerns, announcing it would delay its decision on Keystone XL until early 2013 so that the company could come up with a new route. The U.S. State Department has final say on Keystone XL because it would cross an international border.

Alex Pourbaix, TransCanada's president of energy and oil pipelines, said he expects the extra review will add six to nine months to the Keystone XL schedule.

"As long as we're able to stay on the shorter time-frame, that keeps costs down very significantly," he said in an interview with the Canadian Press from Lincoln, Neb.

But a State Department spokesman said late Monday that any new route would require a supplemental environmental impact statement that likely would take more than a year to complete.

"Based on the total mileage of potential alternative routes that would need to be reviewed, we anticipate the evaluation could conclude as early as first quarter of 2013," Mark Toner said in a written statement.

Pourbaix said he visited Nebraska earlier this fall at the invitation of Mike Flood, speaker of the state's legislature. At the time, possible changes to the route weren't up for debate, since the State Department had already determined the best one — through the Sand Hills — in its final environmental impact assessment.

"The discussions were always about other things TransCanada could do that would make Nebraskans feel better about the route," Pourbaix said in an interview with The Canadian Press from Lincoln, Neb.

Last month, Governor Dave Heineman called a special session to discuss legislation that would give the state the power to change the route, which "short circuited" those talks somewhat.

Following Thursday's State Department announcement that it would re-open the routing debate, TransCanada had the opportunity to discuss alternate routes with Nebraska legislators.

"We availed ourselves of that over the weekend, and we talked about what was doable, what wasn't doable, and Speaker Flood gave us a very good understanding of the concerns of Nebraskans."

Though an exact route hasn't been determined, Pourbaix told a news conference earlier Monday it would likely require about 48 to 64 kilometres of additional pipe and an additional pumping station. What that adds to the project's US$7-billion price tag is unclear at this point.

"The smaller the number of miles that comprise the reroute, the quicker the environmental work can get done and the simpler the process," he said in the interview.

Flood said the state will conduct an environmental assessment of its own at its own expense to determine a new route. The Nebraska Department of Environmental Quality will oversee the process, with collaboration from the U.S. State Department, he said.

A State Department decision had been expected by the end of the year and some have asked whether President Barack Obama pushed it back in order to avoid a backlash from two factions of his political base — unions concerned about jobs on one side and environmentalists on the other — ahead of the 2012 presidential election.

Noah Greenwald, a spokesman for the Center of Biological Diversity, said his group remains opposed to the pipeline and still believes it poses an environmental threat. The centre is one of three environmental groups that have sued the U.S. State Department, seeking a judge's order to block the project.

"Even with the reroute, we still feel like we can push forward," he said. "We're going to keep up the public pressure on the administration as this moves forward."

For many environmental lobbyists fighting Keystone, Nebraska wasn't the only issue. They also took aim at what would be inside the pipeline, oilsands crude they consider to be dirtier than crude from other sources.

Pourbaix said there are opponents who won't be satisfied unless Keystone XL is never built. But he said Monday's announcement should allay the key State Department concerns, which centred on the Sandhills region.

Keystone XL backers have warned that prolonged delays might compel customers to look for other ways to get their crude to market, such as West Coast shipments to Asia or adding capacity to existing U.S. pipelines.

Currently, Canada exports 2.1 million barrels of oil a day, almost all of it to the United States. A number of pipelines — including the first phase of TransCanada's Keystone system — already ship Canadian crude to refineries in the Midwest.

Asian exports aren't an easy option to fall back on. Enbridge Inc. (TSX:ENB) if facing stiff opposition to its proposed Northern Gateway pipeline between Alberta and the West Coast and to the tanker traffic along the northern B.C. coast that would result. An expansion to Kinder Morgan's Trans Mountain line to Vancouver and Washington State is in its early stages.

TransCanada says Keystone XL will create thousands of jobs for the ailing U.S. economy and help the United States reduce oil imports from unfriendly regimes like Venezuela.

TransCanada is Canada's largest natural gas shipper and the biggest gas distributor in the country. It is also growing its other energy businesses, including power generation and oil transportation, with Keystone XL one of the biggest projects in the company's history.