Finance Minister Jim Flaherty says the decision to delay approval of the Keystone XL pipeline may kill the project and could add momentum to efforts to open up the Asian market for Canadian oil.

The U.S. State Department announced the delay Thursday, saying it wanted to look at other possible routes for the $7-billion pipeline which Calgary-based TransCanada has proposed to carry mostly Canadian crude from the Alberta oilsands to the U.S. Gulf coast.

The department said it wants to consider routes that would bypass the Sandhills, an ecologically sensitive area in Nebraska as well as avoid crossing over the Ogallala aquifer, which supplies drinking water to 1.5 million people in eight states.

“The decision to delay it that long is actually quite a crucial decision,” Flaherty told Bloomberg News at the Asia-Pacific Economic Cooperation summit in Honolulu.

“I’m not sure this project would survive that kind of delay."

A new environmental review of the alternative section is expected to take until early 2013...