Oil's price plunge could raise Keystone carbon footprint - EPA

WASHINGTON (Reuters) - Oil prices have dropped so low that the Keystone XL pipeline could play a bigger role in the development of Canada's oil sands and raise greenhouse gas emissions, Obama administration environmental regulators said.

The U.S. Environmental Protection Agency's comments in a letter to the State Department give weight to President Barack Obama's view that the controversial pipeline should not be approved if it significantly increases carbon pollution. The letter, sent on Monday, was released on Tuesday.

The State Department, which is evaluating the project because the TransCanada Corp pipeline would carry oil from a foreign country, is expected to make a recommendation to Obama soon, after reviewing comments from the EPA and other federal agencies.

Obama will make the final decision on Keystone, which has been pending for more than six years. He has said the project should not be approve if it substantially raises emissions linked to climate change.

Crude prices have fallen by more than half since June. The EPA said more attention should be paid to the "potential implications of lower oil prices on project impacts, especially greenhouse gas emissions."

In January 2014, the State Department's environmental review of Keystone XL concluded that it would not affect the rate of oil sands development or significantly raise emissions because other forms of transportation, including rail, would carry the oil to U.S. markets even if the pipeline was not built.

But transporting oil by rail is more expensive than shipping it by pipeline. So, the lower oil prices go, the more likely a new pipeline would speed up the rate of oil sands development. Keystone XL would ship some 800,000 barrels per day of petroleum from Alberta's oil sands to refineries and ports on the Gulf Coast.

Last year's State Department review found that oil sands production is expected to be most sensitive to transport costs when prices are $65 to $75 per barrel. If prices fell to that level, "higher transportation costs could have a substantial impact on oil sands production levels," the review said. On Tuesday, U.S. oil futures were trading at about $51 a barrel .

The EPA also said the State Department's final review showed that until efforts to cut emissions from oil sands production are more widespread, development of the resource "represents a significant increase in greenhouse gas emissions."

Lawmakers are trying to push through the Keystone project on their own. Next week, the House of Representatives will take up a Senate bill passed last week to approve Keystone. Obama is expected to veto the bill.

Environmental groups seized on the EPA letter, saying it paves the way for Obama to reject the pipeline.

"Keystone XL continues to be a step backwards and simply does not make sense given low oil prices and the high carbon content of tar sands," said Jane Kleeb, president of activist group Bold Nebraska.

Oil interests slammed the EPA comments saying that the price drop was likely temporary. Louis Finkel, a vice president at the American Petroleum Institute, said the EPA letter was "another attempt to prolong the KXL review."

(Reporting by Timothy Gardner, Valerie Volcovici and Patrick Rucker; Editing by Susan Heavey and Jonathan Oatis)