State Department's Keystone XL Review Hampered By Government Shutdown

By Timothy Gardner

WASHINGTON, Oct 10 (Reuters) - The U.S. government shutdown is making it harder for the State Department to review the Keystone XL pipeline permit process, a State Department official said on Thursday, which could delay President Barack Obama's decision on the project.

The State Department - which is in charge of the pipeline permit process because Keystone XL would cross the national border - had been expected to issue a final environmental review in mid-October for TransCanada Corp's pipeline that would help link Canada's oil sands to refineries in Texas.

Delays in that review could push back Obama's final decision on the pipeline, which had not been expected until some time in early 2014.

The State Department has multi-year funding, which allows it to continue work on the environmental review. But the federal government has been in a partial shutdown since Oct. 1; officials at other agencies, including the Environmental Protection Agency and the Department of Interior, are unable to weigh in on the review as they did before the shutdown.

Finalizing the environmental review "involves work with consulting agencies to discuss and address their comments as appropriate, but most of those consulting agencies have had a large number of staff furloughed," the State Department official said. The official spoke on condition of anonymity because of the sensitive nature of the decision.

The EPA has been particularly hard hit with a large number of employees furloughed.

The official would not say how long any delay on the application process would last. TransCanada initially applied for a permit more than five years ago.

"We cannot make any predictions on the timing - we haven't before and can't now," the official said. "We are working as best as we can under the circumstances," to finalize the draft review.

Environmentalists have focused on stopping the pipeline, saying it will lead to faster development of Canada's oil sands, which are linked to higher emissions than average crude oil refined in the United States.

Backers of the project counter that the oil will be sent by rail and truck, which are more prone to accidents, if the pipeline is not built.

After the environmental review is finalized, eight U.S. agencies will have 90 days to comment on whether the pipeline is in the national interest.

At that point, the State Department will make a determination on whether the pipeline should be approved. (Reporting by Timothy Gardner; Editing by Cynthia Osterman and Ken Wills)