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UPDATE 1-Canada says won't use NAFTA to challenge U.S. on Keystone

(Adds quotes from energy minister, background)

OTTAWA, May 2 (Reuters) - Canada is not considering a NAFTA challenge after the United States once again delayed its decision on approving TransCanada Corp's controversial Keystone XL pipeline, Natural Resources Minister Greg Rickford told reporters on Friday.

In recent weeks, some senior former officials in Canada have said that if U.S. President Barack Obama blocks the pipeline, Canada could launch a challenge on the grounds that the North American Free Trade Agreement guarantees Canadian exports unfettered access to the U.S. market.

Asked whether the government plans a NAFTA challenge, Rickford replied "No".

Government sources have also told Reuters that there had been no political discussion in Ottawa about a possible NAFTA challenge, which would undoubtedly worsen already frayed bilateral ties over the fate of the pipeline.

The U.S. administration - under heavy pressure from environmentalists to block Keystone - has repeatedly put off a decision on the northern U.S. segment of the project, which would move crude from the Alberta oil sands to the U.S. Gulf Coast.

Last month the U.S. State Department announced a new delay, effectively putting off a final decision until after Nov. 4 midterm elections. The Canadian government has repeatedly urged Obama to approve the pipeline, saying it would create jobs and ensure a safe energy supply.

"We're obviously disappointed that this has become politicized," Rickford said.

"We're hopeful that in the shorter term, rather than the medium or longer term, that a decision will be taken by the United States to move forward with the Keystone XL pipeline."

(With additional report by Randall Palmer; Writing by David Ljunggren; Editing by James Dalgleish; and Peter Galloway)

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