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The Lac-Mégantic rail tragedy has prompted some instant analysis that pipeline companies will profit from new concerns about shipping oil by train. But the future of one pipeline, the Keystone XL into the U.S., depends on the oil industry's ability to ship its product by rail.

This is the counter-intuitive intersection of oil business and American politics. U.S. President Barack Obama has essentially said he'll only approve Keystone XL if there are other ways to ship oil out of Alberta.

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And the U.S. State Department has already opined that there is another way: the railway. In its draft report on Keystone XL, released in March, State said the pipeline will have little impact on climate change – because if it's not built, Alberta oil will be transported by other means, notably by train.

The use of rail to transport oil has expanded exponentially – Canadian railways carried 500 carloads of crude in 2009 but are expected to carry 130,000 this year, according to the estimates of the Railway Association of Canada. That, even more than proposals to build pipelines to the West Coast to ship Alberta oil to China, has sent a signal that the shipments of Alberta oil are inevitable.

There will still be debates about whether pipelines are safer than transporting oil by rail, which will have an impact on proposals to reverse the flow of pipelines or build new ones to transport Alberta oil across eastern Canada.

But in the U.S., the approval of Keystone XL has turned into a symbolic debate over the expansion of oil sands production and its impact on climate change.

Last month, in a major speech on climate change, Mr. Obama made it clear that that is the factor, and set the a key criteria for approval of Keystone XL: that the pipeline must not make carbon emissions worse.

"Allowing the Keystone pipeline to be built requires a finding that doing so would be in our nation's interest," he said. "And our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution."

Some environmentalists took that as a sign he will stop the pipeline: after all, Keystone XL would carry 830,000 barrels a day, and, according to the U.S. State Department, emissions from that oil are about 17 per cent higher than the average barrel of American oil.

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But the U.S. State Department, in its March draft report on the impact of Keystone, noted that there are other ways to transport Alberta oil "particularly the proven ability of rail to transport substantial quantities of crude oil profitably under current market conditions and to add capacity relatively rapidly."

In other words, the State Department found that if Alberta oil is not piped through Keystone XL, it can always be loaded on a train. Because of that, the draft report found that "approval or denial of the proposed project is unlikely to have a substantial impact on the rate of development in the oil sands..."

That draft report isn't the last word – a final report is being prepared, and Mr. Obama makes the decision on Keystone XL. But Mr. Obama has apparently set the criteria, and the State Department has already expressed a view. And the shipment of oil by rail is proving crucial to Keystone XL.

Campbell Clark covers foreign affairs in Ottawa.

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