U.S. President Barack Obama's rejection of the Keystone XL pipeline is a "catalyst" for Canada to expand its oil export industry to other markets, Alberta's Energy Minister Ted Morton says.

"U.S. is the best energy market in the world … but it's only one customer," Morton told CTV's Power Play on Thursday, a day after TransCanada Corp.'s pipeline permit application was denied.

"The obvious new market is Asia," Morton said.

Prime Minister Stephen Harper has already told Obama the pipeline rejection reaffirms Canada's need to diversify its energy exports.

Obama said Wednesday he didn't reject TransCanada's application on its merits. Rather, the 60-day deadline imposed by Congressional Republicans did not give the State Department enough time to properly vet the permit and review the amended route that would avoid the sensitive Sands Hill region in Nebraska.

Under the current proposal, the pipeline would traverse six U.S. states, transporting more than 100 million litres of bitumen from Alberta to the Texas Gulf Coast refining hub daily.

TransCanada Corp. and the Canadian government are calling the Keystone rejection a "disappointing" delay, but say they're not giving up on the $7-billion project.

The company will re-file its application and Canada is "solidly behind it," Minister of Foreign Affairs John Baird told Power Play on Thursday.

"We're going to fight hard for Canada's interests. This is a really important project, not just for Alberta but for the entire country," Baird said.

"We're frustrated, we're disappointed," Alex Pourbaix, TransCanada president, energy and oil division, told CTV News Channel. "They are the largest importer of oil on the planet and Canada is sitting right above them with the third largest reserves on the planet."

Pourbaix says the new proposal with be similar to the previous one, with the exception of a "modest re-route" in Nebraska. The hope is that the pipeline would be in service by 2014.

Baird insisted that the Keystone controversy won't damage U.S.-Canada relations.

His comments were echoed by David Jacobson, the United States Ambassador to Canada, who told Power Play that the two countries remain great trading partners and allies.

TransCanada has said the Keystone project could create as many as 20,000 jobs in two years, but its opponents say that number is greatly overstated.

Oil industry analyst Roger McKnight, appearing on Canada AM earlier Thursday, said the winners are Obama and environmentalists, while the losers will be American consumers.

"In the long run, if this project does not get approved, it's going to increase gasoline prices and diesel prices and it's going to increase inflation as a result," he said.

McKnight said if he was in the oil sands business right now he would be getting nervous.

"The problem is that there's so much oil sands product trying to go to the Gulf, it's creating a glut . . . so basically there's nowhere for it to go," McKnight said.

The result will be lower return on investment for new oil sands projects in Alberta and potential investors will simply stay away, he said.

To help solve the problem, Harper needs to push more aggressively to get the Northern Gateway pipeline project approved, which would carry Alberta oil to a shipping port in British Columbia where it could then be moved to Asian markets, he said.

-- With files from CTV's John Size