Administration to decide on Keystone XL pipeline by year’s end *Updated*

The State Department said Tuesday it will conduct another environmental study before deciding whether to approve a proposed pipeline to deliver oil sands crude from Canada to Gulf Coast refineries — but that a decision is likely this year.

The plan for another environmental impact statement was a blow to oil and gas industry leaders who had been urging the Obama administration to approve the 1,700-mile pipeline swiftly as a way to strengthen America’s partnership with Canada, create jobs and lessen the United States’ reliance on oil imported from other continents.

“This much-studied and much-needed pipeline would provide a critical link to our largest energy supplier — Canada — and its vast resources of nearby and available crude oil,” said Jack Gerard, president of the American Petroleum Institute. “It is past time for the administration to approve this important infrastructure investment.”

In a news release, the API emphasized that the pipeline already has been subjected to 32 months of scrutiny under a federal law called the National Environmental Policy Act.

Michael Whatley, with the Consumer Energy Alliance, said it was “good that we can finally see the goal posts, but at the same time, it’s frustrating that they have been moved again.”

While it is understandable that the State Department “wants to ensure that it has considered all of the information necessary for it to make an informed decision,” Whatley said, it already “has done a thorough and exhaustive job analyzing the potential environmental impacts of the proposed Keystone XL pipeline and soliciting public comments on the project.”

Environmentalists say the pipeline would encourage oil sands production in Canada that will damage Alberta’s boreal forest while generating far more greenhouse gas emissions than conventional crude production. Other critics complain that the 1,700-mile stretch of pipeline would snake through Nebraska’s Sand Hills and Ogallala Aquifer on its way to southeast Texas refineries.

Kate Colarulli, director of the Sierra Club’s Dirty Fuels Campaign, said the project warrants a closer look.

“The State Department now needs to carefully consider finding an alternative route for the pipeline that does not jeopardize the Ogallala aquifer, which is one of the most important sources of water in the country,” Colarulli said. “The agency also needs to fully consider the scale of pollution the project would create, including air pollution from refining the toxic crude in Texas communities.”

The State Department announced its plan for a new “supplemental draft environmental impact statement” on the proposed Keystone XL pipeline in a news release and said it will continue to solicit public comment on the project with at least one more public meeting in the nation’s capital. The State Department already has held more than 20 public comment meetings in Washington, as well as in areas near the pipeline’s proposed route including Texas and Oklahoma.

The State Department said in a release that it “expects to make a decision on whether to grant or deny the permit before the end of 2011.”

Analysts at ClearView Energy Partners said the decision to delay reflects the “significant division among Obama administration advisers regarding imports of crude from Canada’s oil sands.” According to ClearView: “If White House decision-makers predominantly favored the pipeline, the State Department probably would have approved it already.”

Those divisions were exposed last year when Secretary of State Hillary Clinton last October said she was “inclined” to back the project — a sentiment that has not been amplified by other administration officials since.

The pipeline proposed by TransCanada Corp., could allow Canada to export as many as 1.1 million barrels of oil sands crude to the U.S. every day. If the pipeline is approved, Gulf Coast refiners say that oil sands crude it delivers to southeast Texas could displace heavy crude now imported from Latin America.

Gerard argued that if the U.S. doesn’t import the Canadian oil sands crude, other countries will.

“Oil is a global commodity,” Gerard said. “It will go to where it is welcomed and the capital investments and jobs will go with it.”