* Pipeline, waning US demand would help cut OPEC imports
* One economist calls that scenario a "fairy tale"
By Timothy Gardner
WASHINGTON, Feb 1 (Reuters) - A proposed pipeline from Canada's oil sands to refineries along the Gulf of Mexico would help "essentially eliminate" U.S. oil imports from the Middle East in a decade or two, according to a new study commissioned by the Department of Energy.
Oil deliveries from the $7 billion pipeline, combined with a projected drop in U.S. fuel demand, would potentially turn the United States into a net exporter of products like gasoline, jet fuel and diesel, said the report, called "Keystone XL Assessment."
The Obama administration is divided over Keystone XL, a project that could ease reliance on oil from politically unstable regions, but boost dependence on Canadian oil sands, a crude that many environmental groups oppose. [ID:nN31239106]
The State Department, which is determining whether the pipeline would be necessary to improve U.S. energy security, recently put the report by energy consultancy EnSys on its website. .
The department says it is also considering input from the public and agencies as it decides whether to press ahead with the project.
The Environmental Protection Agency is worried about greenhouse gas emissions from production of Alberta's tar sands, and also has expressed concern the oil bounty could hurt efforts to produce more-efficient cars and electric vehicles.
Not everyone believes the pipeline would cut U.S. oil imports from the Middle East. Energy economist Phil Verleger characterized the report's findings of an essential elimination of those shipments as a "fairy tale."
"The United States believes in free trade, and if the oil is priced right, we will get it from the Middle East," he said.
Oil from Saudi Arabia is among the world's cheapest to produce. Crude from Canada's oil sands is more expensive because companies must use a lot of energy to separate usable crude from sticky grit.
Saudi Arabia's state oil company Saudi Aramco co-owns an oil refinery in Texas which probably would continue to process oil from the kingdom.
In addition, the West Coast gets large amounts of oil from Saudi Arabia and other Middle Eastern producers. That dependency could grow to 2 million to 2.5 million barrels per day by 2020 as production wanes in both California and in Alaska, Verleger said.
California's environmental concerns also make it less likely that a pipeline would be built from the oil sands to that state.
Reporting by Timothy Gardner; Editing by David Gregorio