By Lesley Wroughton and Jeff Mason
WASHINGTON, Jan 31 (Reuters) - The U.S. State Department is poised to issue an environmental review of the proposed Keystone XL oil pipeline that will likely say the project will not appreciably increase carbon emissions, sources said late Thursday, forcing President Barack Obama closer to a tough decision.
Rumors swept through Washington late Thursday that the long-delayed review of the 1,179-mile (1,900-km) pipeline to bring oil from Canada to Nebraska would finally be released as soon as Friday.
"The Environmental Impact Statement is in the final stages of preparation and we anticipate a release of the document soon," a senior State Department official said late on Thursday, speaking on condition of anonymity.
The comment gives a clearer insight into where the long-awaited assessment stands. One government official said the overdue report, part of a process lasting more than five years that has strained relations with Ottawa, would be released on Friday.
Supporters say the TransCanada Corp project would create thousands of jobs and reduce U.S. reliance oil imports from nations that are less friendly than Canada. They also point to U.S. government reports about the dangers of moving crude oil by rail as an alternative to the pipeline.
Critics of the pipeline plan say it would harm the environment and hasten climate change by promoting oil-harvesting methods in Alberta that produce high levels of carbon dioxide emissions.
After several more steps that could take months, the final word on Keystone will come from the president.
A decision in favor of the pipeline could undermine Obama's environmental credentials and anger activists who are some of the Democratic Party's strongest supporters. A decision against the pipeline could undercut Obama's pledge to boost employment and U.S. energy security while alienating an important international ally and oil supplier.
REPORT MAY DISAPPOINT ENVIRONMENTALISTS
Canadian officials said this month they expected the report to come out soon after Obama's annual State of the Union speech, which took place Tuesday.
And the American Petroleum Institute, the oil industry's top lobbying group, has predicted that the report could be released this week, citing administration sources.
"We're expecting to hear the same conclusion that we've heard four times before: no significant impact on the environment," Jack Gerard, API president, told Reuters in an interview last week.
Most indications for some time have been that the updated report will hew close to last year's draft, which said the project will not add substantially to carbon emissions.
That is sure to disappoint environmentalists. But the report is likely to show a nuanced interpretation of the environmental benefits and costs of Keystone.
The project involves building a pipeline from Alberta, Canada, to Steele City, Nebraska, where it would connect with a previously approved line. That would create a system that could move more than 800,000 barrels of crude per day from Alberta's oil sands to refineries on the U.S. Gulf Coast.
The State Department official emphasized that the release of the final environmental statement for the pipeline was "not a decision but another step in the process prescribed by the executive order."
The release of the environmental review starts the clock running on another review period, during which eight U.S. federal agencies will have 90 days to comment on whether Keystone XL is in the national interest.
Some agencies, including the Departments of Defense, Commerce, and Energy, are expected to focus on the energy security and economic case for the pipeline.
But the Environmental Protection Agency and the Department of Interior, which have expressed reservations about the pipeline in public comments, are among the other bureaus that will weigh in.
Sources on Capitol Hill and in the administration said recent talk about the review was that the environmental community would be disappointed, suggesting a favorable view, on net, of the pipeline's benefits.
But the findings will not be a one-way street. "Environmentalists will likely be disappointed until they read the whole report," said an official who had seen a draft but declined to discuss the findings in detail.
A report pending from the State Department's independent Inspector General was likely to be issued at the same time as the State Department's review, sources said.
The Inspector General has been investigating a possible conflict of interest surrounding the company that did the original environmental review, Environmental Resources Management.