Canada Turning Up Heat on Obama as Keystone Pipeline Stalled

Jun 12, 2014 12:25 pm ET

(Updates with Gateway timing in fourth-last paragraph.)

June 12 (Bloomberg) -- Canadian Prime Minister Stephen Harper’s government, which has failed to persuade President Barack Obama to approve TransCanada Corp.’s Keystone XL, moved yesterday to turn up the heat on the U.S. administration.

Finance Minister Joe Oliver, Natural Resources Minister Greg Rickford and Foreign Affairs Minister John Baird traveled to New York this week, arguing in media interviews and at an energy conference that Obama has unfairly entangled the $5.4 billion pipeline with U.S. politics. According to Oliver, Canada’s intention is is to keep the issue alive with the U.S. public and business.

“This is a democracy, and I’m sure the government listens to the people,” Oliver said in an interview at Bloomberg’s New York headquarters.

The issue has become the biggest bilateral irritant between the world’s two largest trading partners, fueled tensions between Obama and Harper and threatens Canada’s ability to develop its oil resources.

The proposed pipeline, which would transport crude from Alberta’s oil sands to refineries on the Gulf Coast, is in its sixth year of review by Obama. The latest delay came in April, with Obama’s administration giving federal agencies more time to comment. That further stalled a project first proposed in 2008 and originally intended to come online in 2012.

“It’s not going to vanish as a business issue for those who are going to be directly impacted” in the U.S., Oliver said. “There’s a real sense this is a very unhappy delay.”

Deliberate Delay

The official U.S. position is that the administration is making every effort to ensure it adequately consults on the pipeline. Canadian officials claim Obama is deliberately delaying approval of the project to assuage environmentalists.

“We feel entitled to say, ‘Wait a minute, this isn’t right, this isn’t fair,’” Oliver said in the interview.

Messages left at the State Department and White House seeking comment on the Canadian officials’ statements weren’t immediately returned.

Whatever its environmental impact, Keystone’s political implications loom large. Republicans and Democratic candidates for U.S. Senate who are running in key energy states, such as Alaska and Louisiana, are pressuring Obama to approve the project. Delays have frustrated Harper, who has made the construction of energy infrastructure a national priority. Harper, who faces elections next year, has been criticized by the opposition Liberal Party for bungling the file.

At a meeting this week in New York organized by Goldman Sachs, Canada’s Baird said the U.S. was intentionally delaying Keystone for political purposes, undermining the interests of a key ally.

Delay Affront

Rickford had a similar message.

The delay “is an affront in no uncertain terms,” he said in an interview yesterday. “It’s inconsistent with the principles that have helped our relationship at least economically evolve, and in that sense it’s quite disruptive.”

Oliver, who was Rickford’s predecessor for three years before moving to the finance department in March, disputed contentions by opposition lawmakers that Harper could give Obama political cover to approve the project if Canada pressed ahead with climate-change regulations for the oil and gas industry. Such a step would undermine the industry’s competitiveness, while providing no guarantee it would help persuade Obama, he said.

“I don’t believe for one second it would make any difference if we in fact did that,” Oliver said. “Nobody has said to me in the U.S. administration; ‘We’re waiting for you to do that.’”

Easing Bottlenecks

Producers such as Royal Dutch Shell Plc and Total SA are counting on new pipelines to ease a transportation bottleneck that’s suppressing the price of Canada’s heavy crude and costing the economy as much as C$50 million a day, according to the Canadian Chamber of Commerce.

In addition to Keystone, proposed projects for oil sands crude include TransCanada’s Energy East conduit, Enbridge Inc.’s Northern Gateway and the expansion of Kinder Morgan Energy Partners LP’s Trans Mountain line.

Both Rickford and Oliver remain optimistic some projects will be developed. There are “some fairly safe bets that some of these projects will come to fruition” between 2018 and 2020, Rickford said in the interview at the Goldman Sachs North American Energy Summit.

Harper’s cabinet must decide by June 17 whether to permit the pipeline. A regulatory panel in December recommended the Canadian government approve the line, subject to 209 conditions. Both Rickford and Oliver declined to comment on the Gateway decision.

Regulatory Process

“We have a regulatory process in Canada it’s independent it’s objective it’s science based and we rely on it and we believe that can form the basis of government decisions,” Oliver said.

The summit was attended by Vice President Joe Biden and Treasury Secretary Jacob Lew, as well as executives including Duke Energy Corp. Chief Executive Officer Lynn Good and Enbridge CEO Al Monaco.

“I simply can’t believe we won’t get this done because the stakes are too high,” Oliver said.