Demonstrators against the proposed Keystone XL pipeline, protest outside the law offices of Nebraska Speaker of the Legislature Mike Flood, in Norfolk, Neb., Tuesday, Oct. 11, 2011, while Alex Pourbaix, president of TransCanada Corp.'s energy and oil pipelines, holds a meeting inside with state senators to discuss the proposed route of the Keystone XL pipeline through the state.

By MATTHEW DALY

Associated Press

The State Department is considering a plan that would reroute the proposed Keystone XL oil pipeline from Canada away from environmentally sensitive areas of Nebraska, an action that could delay a final decision on the project until after the 2012 election.

A U.S. official said told The Associated Press on Wednesday that rerouting the pipeline was a key issue that came up during public meetings and this fall in the six states through which the pipeline would run. The official asked not to be identified because no decision has been made.

Calgary-based TransCanada Corp. is seeking to build the $7 billion pipeline to carry oil derived from tar sands in Alberta, Canada, to refineries on the Texas Gulf Coast. A portion of the 1,700-mile pipeline would pass through Nebraska's Sandhills region and the massive Ogallala aquifer, which supplies water to eight states.

A State Department decision to reroute the pipeline would require an environmental review of the new section, a process that would likely push a final decision on the pipeline past the 2012 election.

The heavily contested project has become a political trap for President Barack Obama, who risks angering environmental supporters if he approves the pipeline and could face criticism from labor and business groups for thwarting jobs if he rejects it. Some liberal donors have threatened to cut off funds to Obama's reelection campaign if he approves the pipeline, which has become a major focal point of environmental groups who say it would bring "dirty oil" that requires huge amounts of energy to extract. They also worry that the pipeline could cause an ecological disaster in case of a spill.

Thousands of protesters gathered across from the White House on Sunday to oppose the pipeline. The crowd linked hands to surround the White House, keeping pressure on Obama as his administration decides whether to approve the project. The State Department has authority over the project because it crosses a U.S. border.

The Keystone XL pipeline would double the capacity of an existing pipeline operated by TransCanada, and supporters say it could significantly reduce U.S. dependence on Middle Eastern oil while providing thousands of jobs. TransCanada has said any delay in the approval process could cost it millions of dollars and keep thousands of people of from getting jobs.

State Department spokesman Mark Toner said deliberation over whether to reroute the pipeline is part of a broad review of issues that include environmental concerns, energy security, jobs, economic impacts and foreign policy.

"So all of these are blended together. It's not just one issue. It's a range of issues that we're looking at," Toner said.

Meanwhile, the department's inspector general has launched a review of the Obama administration's handling of the pipeline request. The review is being conducted in response to complaints from Democratic lawmakers about possible conflicts of interest in the review process.

Deputy Inspector General Harold W. Geisel said the special review will center on whether the State Department "and all other parties involved" in the project followed federal laws and regulations related to the pipeline, which would travel through Montana, South Dakota, Kansas, Nebraska and Oklahoma before reaching Texas.

Associated Press writer Matthew Lee contributed to this story.

Matthew Daly can be followed at http://twitter.com/MatthewDalyWDC