03/06/2012 11:21 EST | Updated 05/06/2012 05:12 EDT

Keystone XL Pipeline: TransCanada Says New Route Ready In Weeks


CALGARY - A new route for the controversial Keystone XL oil pipeline through Nebraska should be ready within weeks with "relatively modest" changes, an executive with the project's backer said Tuesday.

Calgary-based TransCanada Corp. (TSX:TRP) is working closely with the Nebraska government to find a path that avoids the ecologically sensitive Sandhills region of Nebraska, Alex Pourbaix, president of TransCanada's energy and oil pipelines division, told an energy conference in Houston.

The company has identified several corridors that will be made public in a few weeks. It appears the new plan will require about 32 kilometres of additional pipe and about a 160 to 176-kilometre reroute around the Sandhills, he said.

"We're talking about a relatively modest jog around the Sandhills," Pourbaix said.

Jane Kleeb, a vocal critic of Keystone XL, scoffed at the idea that the pipeline can simply "jog" around the Sandhills, an area of grass-covered sand dunes that covers a large swath of the state.

"I would love for him to say that to ranchers, because he would be running out of Nebraska if he tried to say that," the director of progressive advocacy group Bold Nebraska said in an interview from Hastings, Neb.

"That kind of arrogance and disrespect for the Sandhills and our land is outrageous, and you can't just jog around the Sandhills."

Kleeb added there's no law in place in Nebraska that allows for a reroute review, so it's doubtful the new path will be sorted out as quickly as TransCanada expects.

And while Bold Nebraska and other groups were concerned about the Sandhills, a reroute does not allay their worries about the effects the pipeline could have on the Ogallala aquifer, a vast underground water source that supplies eight states.

"That is the backbone and the lifeblood of our state's economy, the (agriculture) economy," she said. "And any risk to that is just something that we're not going to allow happen."

The U.S. State Department has dealt TransCanada two setbacks in recent months in its efforts to build the US$7.6-billion pipeline between Alberta and Texas refineries.

In the fall, the State Department delayed a decision until early 2013 so TransCanada could work out the new Nebraska route.

Then, in January, it denied TransCanada a permit for the project, but left the door open for the company to apply for a new one.

The Obama administration said a Republican-imposed deadline to make a decision by Feb. 21 didn't allow enough time to adequately study the Nebraska reroute, so it had no choice but to reject the project.

Both the president and the State Department said the decision had less to do with the pipeline's merits than with the arbitrary deadline.

TransCanada announced last week it plans to effectively chop Keystone XL into two separate projects, pursuing the most urgently needed portion of the line first.

The US$2.3-billion leg between an oversupplied storage hub at Cushing, Okla., to the Gulf Coast, should be in service by mid-to-late 2013.

TransCanada has said it will soon file a new presidential permit application for the northern part of Keystone XL from the Canada-U.S. border at Montana to Steele City, Neb.

Pourbaix said Tuesday construction of the southern portion of Keystone XL, which doesn't require a special permit because it doesn't cross the Canada-U.S. border, will begin by late spring or early summer.

A lot of Canadian barrels get stuck at Cushing, so Alberta producers will benefit as soon as the southern leg is up and running, said Ralph Glass, with consultancy AJM Deloitte in Calgary.

"Anything to alleviate that oversupply in that area to get it down into the refinery markets I think would be an advantage." he said.

But the northern portion of the line is still necessary, and Glass said he expects it will be approved once election season is over.

"I still think it's a critical component because there's a lot of expansion still going on the oilsands side of it," he said.

But it's not only access to the Gulf of Mexico Canadian producers need. Glass said it's necessary for Canada to be able to export its oil off the West Coast to Asian markets, via Enbridge Inc.'s (TSX:ENB) Northern Gateway proposal, or an expansion to Kinder Morgan's Trans Mountain line.

Energy demand in the United States is flat or declining, so Canada needs an outlet to the international market to get better pricing for its oil, Glass said.

"I honestly think we need both, and I think the push will still be there from the oilsands producers to get access to the world market."

— With files from The Associated Press

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