TransCanada's Keystone XL pipeline project cleared a key regulatory hurdle this week with the issue by the United States State Department of its supplemental draft environmental impact statement.

The supplemental report confirms the conclusions in the original report, issued in 2010, that the Keystone XL project meets all applicable environmental and safety standards. The State Department will be accepting comments on the supplemental report until June 6, 2011. Then, after publication on the final environmental impact statement, U.S federal agencies such as the Environmental Protection Agency will have a further 90 days to make submissions as to whether the pipeline is in the national interest. The State Department expects to make its final decision on the pipeline by the end of 2011.

The $13 billion, 1,700 mile pipeline would carry up to 700,000 barrels per day of Canadian crude oil from Hardisty, Alberta to Cushing, Oklahoma and then on to the U.S. Gulf Coast refining complex.

Among the key findings in the supplemental report:

  • the pipeline would fill growing demand from gulf coast refiners for a more "stable and reliable" source of crude oil as compared to existing import sources
  • the primary sources of crude for the gulf coast are now Mexico, Venezuela, Saudi Arabia and Nigeria, all of which raise reliabilty concerns for the state department. There is currently minimal pipeline access for Canadian crude to the gulf coast
  • while Canadian heavy crude is associated with greater greenhouse gas emissions, the gap between Canadian crude and existing U.S. sources is shrinking, particularly as the U.S. crude slate becomes heavier. In addition, rejection of Canadian crude would not affect global greenhouse gas emissions as that production would merely be directed elsewhere

The focus of the State Department on Canada as a stable and reliable source of crude oil is particularly important in light of President Obama's speech on energy security last month, in which he singled out Canada as a "stable and steady" source of foreign crude oil.