TransCanada agreed yesterday to reroute a contested oil pipeline around an ecologically sensitive region of Nebraska, raising new questions about the fate of the Keystone XL project.

The Canadian-based company said it backed legislation introduced yesterday in the state legislature that would ensure a pipeline route around Nebraska's Sandhills, a region that contains a major state drinking water reservoir known as the Ogallala Aquifer. Previously, TransCanada CEO Russ Girling said that a route around the Sandhills would jeopardize the pipeline, which would run 1,700 miles from Alberta, Canada, to Texas refineries if built.

"I can confirm the route will be changed and Nebraskans will play an important role in determining the final route," said Alex Pourbaix , TransCanada's president, Energy and Oil Pipelines.

He told ClimateWire that the company hoped the deal struck with Nebraska state legislators would speed up the permitting process from the State Department, which announced last week it would delay a decision on a cross-border permit for the $7 billion Keystone XL until after 2012 elections.

In announcing the delay, State Department officials said the agency needs additional time to study alternative routes around the Sandhills.

The deal also should ease concerns about existing oil shipping agreements between TransCanada and oil refineries, since companies had been waiting on a resolution to the reroute issue, according to Pourbaix.

TransCanada had little choice but to reconsider its position on a reroute, because the "State Department made that decision for us," said Pourbaix. He said a pathway around the Sandhills would require miles of additional pipeline beyond what was originally planned, and force a route over more farmland and state bodies of water than the original proposal.

Another victory for environmental groups

The company's decision is the latest wrinkle in the Keystone XL drama, which handed President Obama the biggest environmental challenge of his presidency. After the State Department announced it would delay a decision on the pipeline, many political analysts said the Obama administration took the best political option in avoiding pushback on the topic during an election year (ClimateWire, Nov. 11 ).

Under yesterday's deal, TransCanada is supporting an amendment that could reach the floor of the Nebraska legislature as early as today. The agreement calls for Nebraska's Department of Environmental Quality to conduct an environmental assessment for an alternate route for Keystone XL, while consulting with State Department officials.

Nebraska is expected to finish this review within six to nine months, said Jane Kleeb, executive director of Bold Nebraska. There is little doubt the measure will pass, since it is backed by prominent politicians in the legislature, she said.

The new environmental assessment from Nebraska should not replace the State Department's ongoing process to determine whether Keystone XL is in the national interest, said Susan Casey-Lefkowitz, an analyst at the Natural Resources Defense Council. She argued that the State Department should look at broader issues beyond the Sand Hills and a reroute in its new supplemental environmental impact statement, including the $7 billion project's impact on climate change.

She added that the deal in Nebraska also should not alter the State Department's 2013 timeline, despite the vow of an environmental assessment from state officials. A State Department official confirmed last night that a new review of Keystone XL would still take at least a year, according to the Associated Press.

Kleeb called the deal a "victory" for environmentalists in Nebraska, but also said green groups in the state were waiting to see the details about an alternative route. There is a genuine debate in the state about what constitutes the Sandhills, with some saying they apply to only the most delicate stand dunes in the central part of the state, and others saying they also include sandy regions in Eastern Nebraska, she said.

"We don't trust TransCanada," she said. "The full Sand Hills have to be avoided."

Heavy lobbying by Canada

Other environmentalists said they wanted clarification from the White House, to ensure that issues beyond a reroute were still under review.

"What we expect to hear from them is: Whatever happens with the State Department Environmental Impact Statement, there is going to be a full consideration of climate and public health issues surrounding the tar sands oil before any presidential permit is granted," said Bill McKibben, founder of 350.org, who led several protests against Keystone XL at the White House this year. Oil-sands crude is more carbon-intensive to produce than traditional forms of oil, a factor that helped spur environmental rallies.

Obama met with Prime Minister Stephen Harper over the weekend and reiterated his support for State's decision. Since then, Harper and members of the Canadian oil-sands industry have been warning that the delay on Keystone XL could force Canada to look more to alternative pipeline routes to Asia as a market for oil-sands crude.

Meanwhile, Alberta Premier Alison Redford met with Rep. John Boehner (R-Ohio) and other congressional lawmakers yesterday to press her case for Keystone XL, as part of an announced strategy to "seek immediate answers from U.S. officials" about why the State Department delayed a permit on the project. Oil-sands projects in Alberta constitute roughly 10 percent of the province's annual budget.

"Canada's prime minister has already confirmed that either American workers will benefit from this project, or our competitors in China and elsewhere will," said Boehner after meeting with Redford.