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Canada is telling the U.S administration it will see a sharp increase in cross-border crude-oil shipments by rail if President Barack Obama fails to approve the controversial Keystone XL pipeline.

In a telephone interview from Washington, Canadian Ambassador Gary Doer said oil companies are increasingly turning to trains – and even trucks – as the construction of pipelines has failed to keep up with the boom in North American crude production, and that trend will grow if the President turns down Keystone XL.

"His choice is to have it come down by a pipeline that he approves, or without his approval, it comes down on trains. That's just the raw common sense of this thing, and we've been saying it for two years and we've been proven correct," Mr. Doer said Sunday. "At the end of the day, it's trains or pipelines."

The ambassador made his comments to The Globe and Mail after Mr. Obama questioned the much-touted economic benefits of the $7.6-billion project in an interview published in the U.S. on the weekend. The President also suggested Canada could do more to reduce greenhouse-gas emissions to help win approval.

The risks of the growing volume of oil being shipped around North America by rail was highlighted this month with the derailment and explosion of a crude-carrying train in Lac-Mégantic, Que., killing 47 people. The U.S. Energy Information Administration says trains are now carrying nearly a million barrels a day of crude oil in North America, with volumes in Canada expected to more than double in the next two years.

In the interview with The New York Times, Mr. Obama fired back at Republican critics who said he could jump-start the U.S. economy by approving the pipeline project, which would stretch 2,500 kilometres and deliver oil from Alberta and Montana to a massive refining complex on the U.S. Gulf Coast.

Mr. Obama said Keystone would create only 2,000 construction jobs, which he described as a "blip relative to the need" for employment growth.

He reiterated his promise to evaluate the project on whether it "significantly" contributes to growing greenhouse-gas emissions. And he said Canada "could potentially do more to mitigate carbon release" from the oil sands. He acknowledged that there would be a benefit to increasing U.S. reliance on Canadian crude – from a "reliable ally," as he put it – as opposed to imports from the Middle East or Venezuela.

Mr. Obama is not expected to make a decision on the project until the end of this year, despite efforts by Republicans in Congress to speed up the approval.

Mr. Doer noted that the U.S. State Department, in a draft report released in March, said the pipeline would have little impact on emissions because Canadian producers will find a way to get the oil sands crude to markets, whether in the U.S., Asia or Eastern Canada. And he said growing use of rail is part of that effort. Advocates on both sides will be watching for the State Department's final environmental report – expected around the end of the summer – to see whether it maintains its contentious view that the project won't drive up emissions.

However, environmentalists say the pipeline-versus-rail argument is a false choice, that governments should reject pipelines that would increase production from the greenhouse-gas-intensive oil sands, even as they move aggressively to impose new regulations that will ensure safety and limit rail shipments.

Mr. Obama's focus on climate impact of the proposed pipeline puts pressure on Ottawa to come up with long-promised regulations to restrain greenhouse-gas emissions in the oil sector. The Canadian government had vowed to release draft rules by July 1, but missed that deadline. They are expected later this year.

"Right now, the federal government is doing nothing in terms of regulating emissions from the oil sands, so it is a no-brainer statement to say we could be doing more," Gillian McEachern, a climate campaigner with Toronto-based Environmental Defence, said Sunday. "Canada needs to step up or else its credibility with its major trading partner is in jeopardy. We've been promising regulations for years, and nothing concrete materializes."

On the jobs front, TransCanada Corp. defended its claim that the project would be a major source of new jobs. It calculates the direct employment on the pipeline will tally 13,000 jobs, though won't say how many of those are part-time or short-term.

"We have dealt with criticism of our job number totals for over two years and we stand by them," company spokesman James Millar said. "It's not logical to think a $7.6-billion infrastructure project stretching across the entire breadth of the continental U.S. wouldn't employ thousands of workers both in the manufacturing sector and in constructing the pipeline."

In addition to the promised 13,000 construction jobs, TransCanada said it has more than 50 suppliers in places like Ohio, Indiana, Arkansas and the President's home state of Illinois for steel pipe, valves and motors needed to pump the crude through the line.

Canadian Natural Resources Minister Joe Oliver said he remains confident the pipeline would be approved. Increased imports from Canada would replace oil from Venezuela, which has similar greenhouse-gas emissions, he said.

"So it will have no net impact, which is the test President Obama imposed for approval of the project," he said in a statement Sunday.

Follow Shawn McCarthy on Twitter: @smccarthy55Opens in a new window

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