The long-delayed plan suffered a major setback Wednesday when a Nebraska district judge ripped up a state law that could have forced landowners to allow the pipeline through their property.
The ruling opens up the prospect of more regulatory hurdles, complicated negotiations with landowners, legal fights and fresh delays, regardless of whether or not Barack Obama ever approves the controversial project.
Lancaster County Judge Stephanie Stacy declared unconstitutional a law that had given Nebraska Gov. Dave Heineman the power to push the project through private land.
Unless the law is reinstated by a higher court, Calgary-based pipeline builder TransCanada Corp. could be forced to either draw up a new route or seek permission from every last landowner on the current one.
Additional lawsuits seem almost inevitable in the ongoing fight over a project designed to increase the pipeline capacity for Canadian oil into the U.S. by about one-quarter — a pitched battle that has already lasted for years.
Stacy insisted her ruling had nothing to do with the merits of the pipeline and everything to do with Nebraska's constitution.
"TransCanada's Keystone XL pipeline has become a political lightning rod for both supporters and opponents of the pipeline, but the issues before this court have nothing to do with the merits of that pipeline," she wrote.
"The constitutional issues before this court will not require consideration of the current pipeline debate, nor will the decision in this case resolve that debate."
State officials who defended the law will appeal to the Nebraska Supreme Court. Nebraska lawmakers may have to pass a new pipeline-siting law to allow the third-party Public Service Commission to act.
If they do, it's not yet clear how long the five-member commission might take on the issue or whether it would approve the pipeline.
TransCanada, meanwhile, said it was disappointed and disagreed with the decision, but would analyze it before deciding on its next steps.
As it stands, TransCanada has settled with landowners in five of six U.S. states through which the pipeline is supposed to pass, as well as with more than two-thirds of the affected landowners in Nebraska.
But a minority have kept fighting, despite skyrocketing offers of compensation.
Jeanne Crumly and her husband have seen offers for use of their land surge from $8,900 to $61,977.84. But they don't want the pipeline on their family farm at any price.
Crumly, who lives in the tiny Nebraska town of Page, about 300 kilometres northwest of Omaha, said she had to read the ruling a couple of times to believe it. She made celebratory phone calls to her husband and children once it sank in.
"It felt great," Crumly said. "There's some justice and it's not just money running the show."
The company had been upping the ante for access to people's property, presumably to settle all possible disputes in the event Obama approved the pipeline.
TransCanada, which has complained it's been losing money as the pipeline equipment sits idle, had been hoping to start building during this year's construction season.
That plan now seems like a distant long shot.
The southern leg of the pipeline is already operational. But oil must still be transported by rail from Alberta through the northern U.S. before it can be sent by pipeline to refineries on the Gulf of Mexico.
The issue came up at a North American leaders' summit in Mexico, where Prime Minister Stephen Harper pressed Obama to provide some clarity on his intentions.
Officials said Obama's message remained unchanged: there's a regulatory process underway, and he doesn't control it.
There's a 90-day period during which U.S. government departments can raise concerns about the pipeline, before the State Department makes a final recommendation to the president.
However, administration officials have made it clear that there is no set deadline for either State or the president to make the final call.
Obama did add during a news conference later that he and Harper spoke about the need to work together on dealing with greenhouse-gas emissions.
There is some speculation in Washington that Obama might want to delay the politically sensitive decision until after November's midterm elections.