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State Department acted properly on Keystone: report

By Timothy Gardner

WASHINGTON (Reuters) - The State Department acted properly in its choice of an outside contractor to review the Keystone XL oil pipeline, a U.S. report said on Wednesday, raising calls by the project's supporters for President Barack Obama to approve it.

The State Department inspector general's report cleared the State Department of accusations by environmentalists there was undue influence by the pipeline's developer on a draft federal environmental review of the contentious project.

TransCanada Corp had recommended four companies to the State Department to do an environmental review, including Environmental Resources Management, Inc, or ERM, but did not tell the department it had previously worked with the company.

Under U.S. law, major industrial projects like Keystone, which would carry 800,000 barrels a day of crude oil from Canada to the U.S. Gulf, must undergo an environmental review.

The process the State Department used to select ERM to help prepare the report on Keystone "substantially followed" guidance, the inspector general said in a long-awaited report.

At times, the State Department was more rigorous than it needed to be, the report added.

Republican lawmakers said the report should clear the way for approval, which they have been urging for five years.

"Another day and another government report that finds no reason to continue blocking this common-sense, job-creating project," said Brendan Buck, a spokesman for U.S. House of Representatives Speaker John Boehner, the top Republican in Congress.

Environmentalists said the report showed the approval process was irresponsible and vowed to keep fighting Keystone.

Supporters of the $5.4 billion pipeline say it would create thousands of temporary construction jobs, improve U.S. energy security and relations with Canada.

But opponents say the oil sands, which are emissions-intensive to produce, would worsen climate change and that the massive pipeline would slow development of alternatives to petroleum.

Approval is a tricky decision for Obama, whose Democratic Party contains environmentalists who want to stop the project, and union workers who support it.

SECOND HURDLE CLEARED IN AS MANY MONTHS

Wednesday's report said the contractor selection process "can be improved," as very little documentation is required by regulations. Still, the State Department met the minimal requirements, it said.

It was the second major hurdle that Keystone, which would link Alberta's oil sands to refineries in Texas, had cleared in as many months. In January, the State Department said in a final environmental review, also conducted by ERM, that the pipeline would not cause undue harm and would not speed up development of the oil sands.

Several agencies, including the Environmental Protection Agency, and the Departments of Homeland Security and Commerce have been working with the State Department to decide whether the pipeline is in the national interest since the environmental review was published. The process is due to last through April.

Secretary of State John Kerry and Obama are expected to make a final decision on Keystone after the agencies finish their work, but they are under no timeline to do so.

"This process has stunk start to finish," said Bill McKibben, the co-founder of the environmental group 350.org. "The real scandal in Washington is how much is legal."

His group said up to 1,000 protesters would demonstrate against Keystone on Sunday outside Kerry's house in Washington before risking arrest at the White House.

(Additional reporting by Jeff Mason; Editing by Ros Krasny and Peter Cooney)

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