* Trains poor alternative to pipeline for oil sands, minister says
* He says oil sands output would be dented if rail only option
* Upbeat view of crude-by-rail of State Dept. questioned
By Patrick Rucker
WASHINGTON, April 24 (Reuters) - Using trains to move heavy crude oil out of Western Canada would be a poor alternative to the controversial Keystone XL pipeline, Canada's top energy official said on Wednesday, and a rail-only plan would likely put a dent in future oil sands development.
U.S. officials are weighing whether to approve construction of the proposed Keystone pipeline that could deliver as much as 830,000 barrels a day of mostly Canadian and some U.S. crude oil to refiners in Texas and Louisiana.
Joe Oliver, Canada's natural resources minister, said costs and logistical challenges make crude-by-rail a poor second choice for oil sands producers trying to reach the U.S. Gulf Coast.
"I don't think anybody feels that it could be a substitute for pipelines," Oliver told Reuters.
In a report that weighed the environmental impacts of the Keystone pipeline, the U.S. State Department concluded that blocking the 1,200 mile project would do little to slow the oil sands sector since crude-by-rail was such a close second choice.
"Limitations on pipeline transport would force more crude oil to be transported via other modes of transportation, such as rail, which would probably (but not certainly) be more expensive," the State Department said in the report released in early March.
But Oliver said pipelines reliably beats crude-by-rail which "is more expensive for longer hauls than pipelines."
"It is a good supplement but not the longer-term solution," he said. "I don't think anybody would suggest it is."
Industry officials, energy analysts and recent data raise questions about whether the industry is really eager to adopt crude-by-rail should the U.S. government rule against the TransCanada Corp pipeline. [ID: nL2N0D502L]
The State Department on Monday closed a public comment period on Keystone with the Environmental Protection Agency criticizing officials' conclusion that crude-by-rail is a likely alternative to Keystone.
The State Department should conduct a new study of crude by rail, the EPA says, and "include further investigation of rail capacity and costs, recognizing the potential for much higher per barrel rail shipment costs."
The State Department said this week it would hold another public comment period after it decides, with the help of federal agencies including the EPA, whether the pipeline is in the national interest.
Oliver, who said advocating for Keystone is one of his top priorities. He is in Washington this week to meet with lawmakers and other officials. Asked if a rail-only scenario would put a dent in oil sand production, he said "Yes, I would say it would. But we don't see that happening."