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State Department delays Keystone pipeline decision

By Timothy Gardner and Andrew Quinn

WASHINGTON (Reuters) - The Obama administration has delayed a decision on TransCanada Corp's rerouted Keystone XL oil pipeline until after March, even though Nebraska's governor on Tuesday approved a plan for part of the line running through his state.

"We don't anticipate being able to conclude our own review before the end of the first quarter of this year," said Victoria Nuland, a spokeswoman at the State Department, which had previously said it would make a decision by that deadline.

She said the department would take into consideration approval of the line by Nebraska Gov. Dave Heineman.

Interest in The fate of the $5.3 billion pipeline that would link Canada's oil sands to refineries in Texas has been heightened after President Barack Obama promised to fight climate change.

Obama said in his inaugural address on Monday the United States will respond to the threat of climate change and that failure to do so would "betray our children and future generations.

The Keystone pipeline is staunchly opposed by environmentalists, who say it will lock the United States for 50 years into dependence on fuel that has higher emissions than average crude oil refined in the United States.

They want the State Department to re-examine the climate impact of the line after it previously said the project would not result in additional emissions because the oil would find its way to market even if Keystone were not built.

It was the latest delay on the pipeline, which has been pending for more than four years.

Last year Obama threw his support behind the southern section of the line, which is now being built and would help drain a glut of crude in the nation's midsection resulting from new oil drilling in North Dakota.

The State Department will rule on a final permit for the northern section of the line because it would cross the national border.

It expects to issue a draft environmental assessment of the Keystone line in the near future and before the end of March, a second official at the department said. That report will have a public comment period before the department makes a final decision on the line.

NEBRASKA APPROVES PIPELINE SECTION

Nuland's comments came shortly after Nebraska's governor approved a revised route in his state for the Keystone XL pipeline.

Heineman, a Republican, sent a letter to President Obama on Tuesday that said TransCanada would adhere to 57 safety conditions. Those include rigorous pipeline design, testing and the reporting of leaks. It would also avoid Nebraska's ecologically sensitive Sandhills region.

TransCanada had submitted a new route for the northern pipeline, expected to transport 830,000 barrels per day of oil, after the Obama administration had rejected an initial plan. Environmentalists had complained it would cross ecologically sensitive regions in Nebraska.

Heineman said TransCanada would provide evidence that it is carrying $200 million in third party insurances to cover any cleanup costs from leaks.

He approved the line even though his state's environmental regulator said this month it would still cross a section of the massive Ogallala aquifer, an important source of irrigation and fresh water to the Great Plains states.

Nuland said Nebraska's decision was important but gave no clues about what the State Department's review would say. "Our processes move in parallel," she told reporters. "We obviously want to take the Nebraska environmental study, we want to compare it with the work that we've done."

TRANSCANADA CONFIDENT

TransCanada's CEO Russ Girling, who attended Obama's inauguration, said he was not worried by the president's latest comments, and that the Nebraska decision was "hugely positive step forward."

Regarding the State Department's eventual decision, he added: "I'm still optimistic that this thing can be done in a relatively short period of time."

Girling said work on the southern section of the pipeline, now called the Gulf Coast project, is on schedule.

Robert Johnston, a risk management analyst at the Eurasia Group, however, has warned that the decision could be delayed until the summer as environmentalists push for public hearings and a review by the Environmental Protection Agency.

Many Republicans in Congress support the pipeline for the jobs it would bring to their states. Senator John Hoeven of North Dakota said he is making preparations to reintroduce legislation enabling Congress to approve the line if Obama does not. He could attempt to attach the measure to a must-pass bill. Similar attempts have failed in the past.

(Additional reporting by Jeff Mason and Scott Haggett in Calgary; Editing by Ros Krasny, Gerald E. McCormick, Bob Burgdorfer and Dan Grebler)

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