Exclusive: U.S. decision on Keystone XL pipeline seen dragging past summer

By Timothy Gardner

WASHINGTON (Reuters) - The Obama administration is unlikely to make a decision on the Canada-to-Nebraska Keystone XL pipeline until late this year as it painstakingly weighs the project's impact on the environment and on energy security, a U.S. official and analysts said on Friday.

The decision may not be made until November, December or even early 2014, said a U.S. official, as President Barack Obama will not rush the process, which still has a number of stages to work through. One of those stages has not even begun yet and will run for months.

"The president has to be able to show that the administration looked under every stone to ensure it knew as much as it possibly could about the impact of Keystone," said the official, who did not want to be named given the sensitive nature of the project.

Analysts agreed that a decision would not be made by this summer as the State Department had suggested when it issued an environmental review on the pipeline on March 1.

The State Department is nominally in charge of making a final decision on TransCanada Corp's (TRP.TO) proposed project, which would help link Alberta's oil sands with refineries and ports along the U.S. Gulf Coast, because the pipeline would cross the national border. But Obama is expected to weigh heavily on the decision.

Another delay in the project, which has been pending for more than four years, would likely anger Canada, whose Prime Minister Stephen Harper is visiting New York next week to push the project at the Council on Foreign Relations.

Other Canadian federal and provincial officials have visited Washington regularly to press the case for the pipeline.

It could also set back TransCanada which last month said delays by Washington would delay completion of the project to the second half of 2015 and push costs for the project above its estimate of $5.3 billion.

A State Department spokeswoman on Thursday said the environmental review has received more than 1 million public comments.

The State Department did not immediately respond to questions about when it plans to finalize its assessment or move to the next stage of determining, with input from several other agencies, whether the pipeline is in the national interest. That stage is expected to take 90 days. Federal agencies will also have 15 days to comment on the decision before it is finalized.

A White House spokesman said in an email that he could not offer any guidance on when a decision is expected.

Kevin Book, a policy analyst at ClearView Energy Partners, said August looks less likely for a decision, but September or October still seem reasonable. Obama may want to time an approval of the pipeline to coincide with new Environmental Protection Agency climate rules for coal plants as a way of appeasing environmentalists who oppose Keystone XL, he said.

Getting the timing right could be a challenge as Republicans in the Senate stall the confirmation of Gina McCarthy, Obama's pick to lead the EPA.

BIG REVISIONS NEEDED?

Backers of the pipeline say the project would boost North American energy security and provide thousands of construction jobs. Opponents argue that it would lead to higher releases of greenhouse gases.

Even before that the national interest decision process kicks off, revisions to the environmental assessment may be needed after the EPA last month took issue with several parts of the State Department's review.

The EPA had concerns about the level of emissions from Canada's oil sands, where crude production is carbon-intensive. It also took issue with the State Department's conclusion that the pipeline would have no effect on climate because the oil sands would make it to market whether or not the pipeline was approved. The State Department said much of the oil could be moved by rail, an assumption the EPA questioned.

If the EPA and State Department do not come to an agreement, the decision could be sent to the White House, which could take even more time. A more likely scenario is that the two agencies will work out a solution, but they will most likely take their time to examine every detail to shield the decision from lawsuits.

"If they short-circuit the process it will open up whatever decision they make to legal challenge," said Daniel Weiss, a fellow at the Center for American Progress Action Fund.

Bills are pending in the U.S. House of Representatives and Senate that would give Congress, not the administration, the power to approve the pipeline. Passage in the House seems likely, but prospects in the Democrat-led Senate are uncertain, and the bill would probably meet a presidential veto.

(Editing by Carol Bishopric)

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