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Keystone pipeline approval in limbo after Nebraska ruling

By Patrick Rucker and Valerie Volcovici

WASHINGTON (Reuters) - A Nebraska court on Wednesday voided the governor's decision to allow the Keystone XL pipeline to pass through the Midwestern state, creating another snag for the controversial project to link Canada's oil sands with refineries in Texas.

Nebraska Governor Dave Heineman last year supported legislation that cleared the way for TransCanada Corp's $5.4 billion pipeline to cross parts of his state.

But some landowners objected to the legislation, saying it disregarded their property rights.

On Wednesday, the District Court of Lancaster County sided with landowners, a move that makes inevitable additional months of delay to the project, already more than five years in the planning.

The Nebraska Public Service Commission, or PSC, is the proper state agency to decide pipeline matters, Judge Stephanie Stacy wrote in a lengthy ruling, declaring the governor's decision "unconstitutional and void."

State officials and a lawyer for landowners agreed a new permit application for the pipeline could require at least six months of work - and probably much longer.

Heineman filed a notice later on Wednesday appealing the decision to a state appeals court. An appeal could also take months.

"The legislature will either have to fix (the law) or the attorney general will have to decide to take his chances in the state Supreme Court, one of the two, or both," said David Domina, who represented several landowners in the case.

Supporters say Keystone XL would create thousands of jobs and cut U.S. fuel costs by reducing the nation's reliance on oil imports from countries less friendly than Canada. They also cite U.S. government reports about the dangers of moving crude oil by rail as an alternative to the pipeline.

Critics say it would harm the environment and hasten climate change by promoting oil-extraction methods in Alberta that produce high levels of carbon dioxide emissions.

Republican lawmakers have urged President Barack Obama for years to approve the pipeline. The Democratic president is also under pressure from several vulnerable senators in his own party who favor the pipeline and face re-election at a time when Democrats are fighting to maintain control of the U.S. Senate in November's elections.

Obama has said he will have the final word on the project. That decision is not expected before May.

Keystone foes said they hoped to make the most of additional delays.

"This court decision provides more uncertainty for pipeline proponents, and more time to organize for pipeline opponents," said Dan Weiss, a senior fellow with the Center for American Progress, which opposes the plan.

POLITICALLY CHARGED

The Keystone XL pipeline has become freighted with political meaning for Obama, who says he is committed to energy independence and weaning the nation off fossil fuels blamed for climate change.

Canada's oil sands are the world's third's largest crude oil reserve, behind those of Venezuela and Saudi Arabia, but extraction of the thick, gritty substance is emissions-intensive.

Responding to the decision on Wednesday, TransCanada said it was disappointed and would examine its legal options.

"We will now analyze the judgment and decide what next steps may be taken," company spokesman Shawn Howard said.

Laura Demman, director and legal counsel for the Nebraska PSC, said TransCanada would need to submit an application to route the pipeline through the state. The commission would have seven months to review the application and could get an extension of up to 12 months.

The U.S. State Department said on January 31 in an 11-volume environmental impact statement that approving Keystone XL would not unduly worsen climate change. Several federal agencies were given up to 90 days to weigh in with their own views. It is unclear how the Nebraska ruling will affect that process.

Keystone was expected to be discussed by Obama and Canadian Prime Minister Stephen Harper at a one-day North American leaders' meeting on Wednesday in Toluca, Mexico.

The planned 1,179-mile (1,900-km) northern leg of the Keystone pipeline would run from the province of Alberta to Steele City, Nebraska, where it would connect with an already operational line that runs to the U.S. Gulf - a system that could move more than 800,000 barrels of crude each day.

(Additional reporting by Timothy Gardner in Washington, Mica Rosenberg in New York and Scott Haggett in Calgary; Editing by Ros Krasny and Peter Cooney)

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