In both alternatives, the oil would be shipped in rail cars as bitumen, a thick, tar-like substance, rather than as a liquid.
The State Department was required to conduct a new environmental analysis after the pipeline's operator, Calgary-based TransCanada, changed the project's route though Nebraska. The Obama administration blocked the project last year because of concerns that the original route would have jeopardized environmentally sensitive land in the Sand Hills region.
The administration later approved a southern section of the pipeline, from Cushing, Okla., to the Texas coast, as part of what Obama has called an "all of the above" energy policy that embraces a wide range of sources, from oil and gas to renewables such as wind and solar.
The draft report issued Friday begins a 45-day comment period, after which the State Department will issue a final environmental report before Secretary of State John Kerry makes a recommendation about whether the pipeline is in the national interest.
Kerry has promised a "fair and transparent" review of the plan and said he hopes to decide on the project in the "near term." Most observers do not expect a decision until summer at the earliest.
Canadian Natural Resource Minister Joe Oliver said Friday that Canada will respect the U.S. review process and noted the importance of the pipeline to the Canadian economy.
Obama's initial rejection of the pipeline last year went over badly in Canada, which relies on the United States for 97 percent of its energy exports.
Associated Press writers Rob Gillies in Toronto and Dina Cappiello in Washington contributed to this report.
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