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On Thursday, Nov. 10, 2011, Canadian Prime Minister Stephen Harper, seated in his Ottawa office across from Parliament Hill, took an urgent call from U.S. President Barack Obama. Mr. Harper’s advisors were listening intently around a muted speakerphone in an adjoining room.
The U.S. State Department, Mr. Obama said, would be making an announcement later that day putting the Keystone XL pipeline project on hold. There was no choice, according to the president. Nebraska wanted the route changed to protect a key aquifer under millions of hectares of prime farmland. This would necessitate a new environmental assessment. He assured Mr. Harper the call wasn’t a game changer; neither a yes nor a no, just a delay.
Mr. Harper was far from assured — he was irritated. The project had already undergone three years of study and was, so the Canadians believed, on the cusp of approval. Delay, he told Mr. Obama, served no one’s interest.
By the time Mr. Harper hung up, according to people with knowledge of the episode, he had sized up the potential economic calamity for Canada and its oil ambitions. Western Canada’s land-locked Alberta oil sands hold roughly 168 billion recoverable barrels of heavy crude known as bitumen. The U.S. gobbles up almost all Canada’s oil exports.
An energy research group in Calgary had run the math: If Keystone died, it could cost Canada $632-billion in foregone growth over 25 years, 94% of it from the economy of Alberta, the province Mr. Harper calls home.
So here was Mr. Obama, in Mr. Harper’s view, jeopardizing Canada’s welfare by throwing a sop to his anti-Keystone environmental supporters. He had blinked and might well blink again. A year or two could be three or four. Or never.
That the U.S. couldn’t be counted on to take Canada’s oil came as a shocking epiphany, said a former senior government advisor with knowledge of the call who asked not to be identified because the person isn’t authorized to speak publicly.
The president’s call that day jolted Ottawa awake. It convinced Mr. Harper Mr. Obama was treating a long-presumed “special relationship” between Canada and the U.S., enshrined in the 1989 Free Trade Agreement, as a political football. It would set a brittle tone on both sides of the border as the Keystone battle became a contest of contrasting political wills and sensibilities as much as a fight over oil development.
Canada was so blinded by its long-held expectation the U.S. wanted to buy its oil as much as Canada wanted to sell it, it missed critical cues — including the hydraulic fracturing revolution that was starting to flood the U.S. with vast new energy supplies — Keystone was running into political trouble.
This story of the two leaders’ frayed relations and how Keystone got bogged down was put together after on- and off-the-record interviews with more than 75 people. They included current and former Canadian and U.S. government officials; Mr. Harper’s political advisors; industry executives; and Nebraska and Alberta politicians involved in the Keystone fray. Several well-placed Canadian officials in a position to know the inside story asked not to be identified because they aren’t authorized to speak.
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