U.S. EPA demands extensive review of oil sands pipe

WASHINGTON (Reuters) - The U.S. Environmental Protection Agency raised new concerns about TransCanada Corp's proposed $7 billion Keystone XL pipeline that would bring oil sands crude from Canada to refineries in Texas.

In a letter to the State Department, the EPA cited two small leaks on an existing Keystone line last month as cause for alarm. The letter came at the end of the public comment period for a second environmental analysis on the line, considered a crucial link for easing a growing glut of crude in the U.S. Midwest.

While it remains uncertain whether the EPA's views could cause further delays, they will stoke debate over a project that has become a flashpoint for environmentalists concerned over the carbon emissions related to oil sands and the dangers of a new oil line bisecting the United States.

The State Department expects to decide whether the 700,000 barrel-per-day pipeline can go forward before the end of the year, but has faced sustained opposition from the EPA. State's approval, which is required because it is an international line, has been pending since November 2008.

In its letter, the EPA reasserted familiar objections about potential leaks from the pipeline that would hurt groundwater and that the heavy oil it carries would raise health-damaging emissions at U.S. Gulf Coast oil refineries.

But it also said that two recent leaks on TransCanada's existing line from Canada to Cushing, Oklahoma, known simply as Keystone, underscored the need for the State Department to "carefully consider" both the route of the planned expansion and what measures are needed to prevent and detect spills.

"With respect to the spill detection systems proposed by (TransCanada), we remain concerned that relying solely on pressure drops and aerial surveys to detect leaks may result in smaller leaks going undetected for some time, resulting in potentially large spill volumes," the EPA said.

Requiring ground-level inspections of valves and other parts of the pipeline several times a year, in addition to plane patrols of the pipeline, could improve the ability to detect leaks or spill and limit any damage, the agency said.

The EPA said the State Department has made progress on its previous complaints that it did not study the environmental issues. The EPA added it expects State to address its concerns when it finalizes the environmental review at some point in the future. But if the disagreement continues, the EPA could force the White House's Council on Environmental Quality to make the ultimate decision.

The pipeline would help drain a buildup of crude in the U.S. Midwest that has grown as Canada and North Dakota boost production of unconventional oil that have helped put downward pressure on U.S. crude prices. The premium of Brent crude futures traded in London to U.S. light sweet crude reached a record above $17 a barrel on Tuesday.

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The EPA was commenting on the State Department's supplemental environmental impact assessment that EPA forced it to do after it found an initial report inadequate.

The EPA said it will work with State as it finalizes the assessment.

The State Department plans to finalize the supplemental assessment in coming weeks or months, and will hold public meetings on the project in Montana, South Dakota, Nebraska, Oklahoma and Texas as well as a meeting in Washington, D.C.

But environmentalists said they would do everything they can to stop the pipeline.

Jeremy Symons, a senior vice president at the National Wildlife Federation, said his group would take every legal action available to block the project.

Friends of the Earth applauded the EPA's objections. The green group said State would have to push back its final decision on the project until next year to fully meet the EPA's requests for more analysis.

"All eyes are on Secretary of State Clinton. Will she comply with the law and ensure that these impacts are studied, or not?" asked Alex Moore, of Friends of Earth, in a statement.

A TransCanada spokesman said the company hopes the decision will not be delayed any further. "We feel enough review has been done on this project and we feel we have answered the questions," said TransCanada spokesman James Millar. "Let's move forward."

(Additional reporting by Tom Doggett and Scott Haggett in Calgary; Editing by Lisa Shumaker; Editing by David Gregorio)

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