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Canada's ire grows as U.S. stalls on Keystone oil pipeline project

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By Bloomberg News
Saturday, April 26, 2014, 8:24 p.m.
 

OTTAWA, Ontario — On Thursday, Nov. 10, 2011, Canada's Prime Minister Stephen Harper, seated in his Ottawa office across from Parliament Hill, took an urgent call from President Obama.

Harper's advisers were listening intently around a muted speakerphone in an adjoining room.

Obama said the State Department would be making an announcement that day to put the Keystone XL pipeline project on hold.

There was no choice, according to Obama.

Nebraska wanted the route changed to protect a key aquifer under millions of acres of prime farmland. The change would necessitate a new environmental assessment. Obama assured Harper that the call was not a game-changer; neither a yes nor a no — just a delay.

Harper was irritated.

The project, which underwent three years of study, was on the cusp of approval, Canadian officials thought. Harper told Obama that a delay would serve no one's interest.

By the time Harper hung up, according to people with knowledge of the episode, he had sized up the potential economic calamity for Canada and its oil ambitions.

Western Canada's landlocked Alberta oil sands hold roughly 168 billion recoverable barrels of heavy crude known as bitumen. America gobbles up almost all of Canada's oil exports. An energy research group in Calgary had run the math: If Keystone died, it could cost Canada $573 billion over 25 years — 94 percent of it from the economy of Alberta, the province that Harper calls home.

In Harper's view, Obama was jeopardizing Canada's welfare by throwing a sop to his anti-Keystone environmental supporters. He had blinked and might well blink again. A year or two could be three or four. Or never.

The lack of U.S. support to take Canada's oil was a shocking epiphany, said a former senior government adviser with knowledge of the call who asked not to be identified.

Obama's call that day jolted the Canadian officials awake. It convinced Harper that Obama was treating a long-presumed “special relationship” between Canada and the United States — enshrined in the 1989 Free Trade Agreement — as a political football. It would set a brittle tone on both sides of the border as the Keystone battle became a contest of contrasting political wills and sensibilities as much as a fight over oil development.

Canada was so blinded by its long-held expectation that the United States wanted to buy its oil as much as Canada wanted to sell it that it missed critical cues that Keystone was running into political trouble.

Today Harper's pessimism over that 2011 call seems justified.

On April 18, as Christians marked the Good Friday holiday, the Obama administration notified the Canadians that the pipeline decision would be held up one more time over unresolved legal issues involving the Nebraska route.

In public pronouncements, the White House and Harper's office say the countries remain staunch allies despite the Keystone friction.

“Canada is one of our closest partners,” said White House spokesman Matthew Lehrich, who characterized the latest delay as White House deference to the State Department's role of “evaluating whether the Keystone pipeline project is in the national interest.”

Harper, in a Jan. 14 interview with Bloomberg News, characterized his relationship with Obama as “good,” although noting that “there are times when we do have to stand up in a way that's not necessarily the same view as the American administration.”

Even before the Keystone clash, the relationship between Harper, leader of Canada's Conservative Party, and the Democrat occupying the White House was at best coolly cordial, said officials familiar with the dynamic. Keystone has made it frosty. Irritated themselves, Obama and the State Department had offered Harper some advice - toning down Canada's aggressive Washington lobbying would let the regulatory process play itself out without the appearance of unseemly outside pressure.

Harper, an economist by training who had cut his teeth in petroleum-rich Alberta, has staked a great deal of his political capital on getting Keystone built as part of an ambition to rebrand Canada as a global energy superpower. Harper, according to many of his advisers, thinks of Obama as a kind of frustrator-in-chief.

Instead of toning it down, Harper chose to make Keystone a “bilateral irritant” that Obama could not ignore, according to the insiders.

Two months before Obama's heads-up call, Harper, during a swing through New York, called an approval of Keystone a “no brainer” — a zinger aimed at challenging the judgment of Keystone opponents while goading Obama into action. He hasn't hesitated to repeat similar digs.

In the January Bloomberg interview, Harper criticized Obama for kicking the can down the road. Asked what he had learned from Keystone about dealing with the president, he replied: “I don't think I've learned anything I didn't know already. I'll just leave it there. Look, I'm not telling any tales out of school that the reason for the holdup is politics, and it is politics of a fairly narrow nature.”

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