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TransCanada requests suspension of US permit for Keystone

Elizabeth Schulze | CNBC

TransCanada has requested U.S. Secretary of State John Kerry pause a State Department review of the company's application for the Keystone XL pipeline that aims to carry Canadian oil to U.S. refineries.

TransCanada's president and chief executive officer Russ Girling said the company's request was based on the fact that it has applied to the Nebraska Public Service Commission for approval of its preferred route in the state.

As currently proposed, the Keystone XL pipeline would move as many as 830,000 barrels of oil a day, mostly from Canada's oil sands to Steele City, Nebraska, where it would connect with existing pipelines to Gulf Coast refineries. Up to 100,000 barrels of that oil would come from North Dakota's booming oil fields. If completed, the pipeline system would span 1,700 miles and cross six U.S. states.

Monday's announcement marks a turning point for the company's effort to get the pipeline approved. Its executives have repeatedly said over the years they wouldn't back down from seeking a permit in the face of political or economic uncertainty. Low oil prices have called into question to what extent oil companies would need the pipeline and President Barack Obama has repeatedly said he doubted the pipeline would benefit the U.S.

TransCanada first applied for a permit with the State Department, which reviews cross-border pipeline projects, in September 2008. The company has faced many setbacks in Nebraska, where opposition from landowners and environmentalists delayed the permitting process.

"I note that when the status of the Nebraska pipeline route was challenged last year, the State Department found it appropriate to suspend its review until that dispute was resolved. We feel under the current circumstances a similar suspension would be appropriate," Girling said in a statement.

Girling said Calgary-based TransCanada made the decision to apply to the Nebraska Public Service Commission (PSC) following legal challenges in the state over the constitutionality of the statute under which Nebraska's Governor Dave Heineman approved the route in 2013.

It is anticipated that route approval by the PSC would take seven to 12 months to complete, according to a TransCanada statement.

TransCanada's move comes as the State Department was in the final stages of review, with a decision to reject the permit expected as soon this week, according to people familiar with the matter.

TransCanada in September signaled it was shifting its strategy when it dropped state legal challenges and efforts to seize land in Nebraska for the pipeline. Company officials hoped those moves would extend the review process in Washington while details on the Nebraska portion of the route were worked out.

The shift reflects headwinds the project continued to face from the Obama administration. In public remarks made after the November midterm election, Obama said he had doubts about the project. He has said it would create few jobs, not lower gasoline prices and could affect climate change, an important second-term priority for his administration.

The U.S. review process, which has lasted more than seven years, has escalated into a broader debate on the economy, energy production and climate change.