The fate of TransCanada's controversial Keystone XL pipeline was put squarely in the hands of the U.S. State Department on Tuesday after Nebraska's governor approved a new route amid fierce opposition from environmental groups.

Nebraska Gov. Dave Heineman sent a letter to U.S. President Barack Obama confirming that he would allow the Alberta-to-Texas oil pipeline to go through his state along a revised route that skirts an environmentally sensitive area.

Because the Keystone XL would cross an international border, it requires approval from the U.S. State Department and President Barack Obama.

"Our government welcomes the positive decision by the Nebraska governor, Dave Heineman, to approve the rerouting of the Keystone XL pipeline," said Canada's Natural Resources Minister Joe Oliver. 

"We support the Keystone XL project because it benefits jobs and the economic growth of both Canada and the United States. This important project is expected to create thousands of jobs and generate revenue to governments to support our critical social programs, including health care and education."

Oliver said the Canadian government will work with the Obama administration on achieving final approval.

"We believe Keystone XL will enhance the future economic prosperity and security of both Canada and the United States," he said. 

A threat to the environment, say critics

The $7-billion project would carry bitumen extracted from Alberta's oilsands to refineries along the U.S. Gulf Coast.

Some critics of Keystone see it as an environmental threat and symbolic of a wrong-headed energy policy, both because of potential oil spills and because of the amount of carbon released by the oilsands extraction process.

The project has faced some of its strongest resistance in Nebraska from a coalition of landowners and environmental groups who say it would contaminate the Ogallala aquifer, a massive groundwater supply.

Calgary-based pipeline giant TransCanada, which operates throughout Canada and the United States, and some workers' unions say the project is safe and will create thousands of jobs.

The original route would have run the pipeline through a region of erodible, grass-covered sand dunes. The new route skirts that area, although the pipeline's most vocal critics remain firmly opposed to it as well.

TransCanada welcomes move

TransCanada said the Nebraska governor's approval brings the United States one step closer to "enhanced energy security."

"The need for Keystone XL continues to grow stronger as North American oil production increases and having the right infrastructure in place is critical to meet the goal of reducing dependence on foreign oil," TransCanada president and CEO Russ Girling said in a statement.

"Keystone XL is the most studied cross-border pipeline ever proposed, and it remains in America's national interests to approve a pipeline that will have a minimal impact on the environment."

While the issue now goes to the State Department, Senator John Kerry has provided no clues about Keystone's prospects since being tapped by the Obama administration as Hillary Clinton's replacement as head of the State department.

Kerry is expected to breeze through his U.S. Senate confirmation hearings later this week to become America's next top diplomat, one whose devotion to environmental issues has been making proponents of Keystone XL nervous.

The legislator has long been one of the most fierce environmentalists on Capitol Hill, leading unsuccessful efforts three years ago to push greenhouse gas legislation through Congress.

Alberta politicians weigh in

Alberta Premier Alison Redford welcomed Nebraska's approval of the Keystone XL route.

Redford said her government is pleased that Heineman accepted a state report that concludes a pipeline carrying oilsands crude should not be treated differently than any other pipeline.

Alberta's energy minister hopes full approval of the pipeline is in the near future, but Ken Hughes said he still wants to see expansion into more than just the American market.

"Keystone is actually very important as one piece of the puzzle, but in addition to that we need West Coast access," he said. "It would be helpful to have better access to central Canada and to Atlantic Canada [as well]."

The U.S. State Department said it does not expect to make a decision on the pipeline before the end of March.

State Department spokeswoman Victoria Nuland said more work is needed.

"We will, obviously, take that letter and the Nebraska environmental report into consideration as we continue our federal review process," she said.

Kerry investments

Last week, The Canadian Press reported that Kerry — the unsuccessful Democrat candidate in the 2004 presidential election — owns stock in two Canadian oil companies that have pushed for approval of Keystone XL — Suncor and Cenovus Energy.

Kerry's office said those investments were in a blind trust. But the lawmaker will likely have to divest of them following an ongoing federal ethics review that is standard procedure for would-be U.S. cabinet secretaries.

Gov. Heineman said previously that he would oppose any pipeline route through the Sandhills region. In his letter to Obama, he said the new 320-kilometre route through Nebraska avoids the Sandhills but would still cross part of the aquifer. Heineman said any spills would be localized, and the clean-up responsibilities would fall to TransCanada.

The governor said the project would result in US$418.1 million in economic benefits for the state and $16.5 million in taxes from the pipeline construction materials.

Jane Kleeb, executive director of the group Bold Nebraska, said Heineman's decision is "one of the biggest flip-flops in Nebraska history.

With files from The Associated Press and CBC News