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Keystone review eyes oil-by-rail potential

WASHINGTON (Reuters) — U.S. officials weighing the climate impact of the proposed Keystone XL oil pipeline connecting Canada to U.S. Gulf Coast refiners are zeroing in on the question of whether shipment by rail is a viable alternative to the controversial project, industry sources say.

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As it prepares a final environmental review of the $5.3 billion oil pipeline, the State Department has asked crude-by-rail executives about supply-chain logistics, market dynamics and potential obstacles to delivering 830,000 barrels per day of Canadian crude to Gulf Coast refiners, as Keystone would do.

The fate of the pipeline may hinge on the answers.

If there is enough evidence that the oil sands region will quickly grow with or without the 1,200-mile line, that would undercut an argument from environmentalists that the pipeline would turbocharge expansion.

President Barack Obama, who will have the final say on the project, has said he could bless the pipeline if it does not significantly worsen climate change — a move that would satisfy the oil industry and the Canadian government.

In March the State Department concluded that halting the project would do little to slow oil sands output, since crude-by-rail transport could nearly fill the gap. But the Environmental Protection Agency disputed that, saying higher rail costs could limit growth.