The US Department of State has approved a permit allowing TransCanada's stalled Keystone XL oil pipeline to cross the US-Canada border, the first step in a still-lengthy process to build the Alberta-to-Nebraska project.

"This is a significant milestone for the Keystone XL project," Russ Girling, TransCanada's president and CEO, said in a statement Friday.

"It's going to be an incredible pipeline," President Donald Trump said during a White House announcement Friday where he was joined by Girling, Energy Secretary Rick Perry and others.

Related: Find more content about Trump's administration in our news and analysis feature.

Trump issued an executive memorandum days after his inauguration directing the State Department to make a decision on the presidential permit within 60 days of receiving TransCanada's application, which the company filed January 26. The review relied on a 2014 environmental impact statement issued during the Obama administration.

Highlights of the project, the challenges it faces and the market impacts are as follows:

PROJECT SPECS

Proposed in 2008, the 36-inch-diameter pipeline would carry Canadian crude from Alberta oil sands operations 1,200 miles to Steele City, Nebraska. Bakken crude would enter the system from an "on ramp" in Montana.

The 830,000 b/d system would link in Nebraska with the existing Keystone pipeline that runs through Cushing, Oklahoma, and onto the Texas Gulf Coast, where the oil would be refined or exported.

TransCanada said it needs two years to build the pipeline.

MARKET IMPACT UNCERTAIN

Keystone XL would compete with crude imports from Mexico and Venezuela currently used by Gulf Coast refineries configured to process heavier grades. It could also flow onto the export market from Gulf Coast terminals, an option not available when the project was unveiled long before the US eased crude export restrictions in 2015.

Canadian crude oil exports from the US Gulf Coast could grow by 450,000 b/d over the next five years as Asian refineries intensify their search for a "diet" of medium-to-heavy crude feedstock, according to Sarah Emerson, president of Energy Security Analysis.

During a five-year period starting 2016, new investments in coking and desulfurization facilities in Asian refineries will result in incremental demand of a total of 1.2 million b/d of heavy and medium grades, she said.

Marketable crude oil from Western Canada is expected to average 5.4 million b/d in 2021, which is more than 1 million b/d above where production is expected to be in 2017, according to Platts Analytics' Bentek Energy.

The Keystone XL approval was not moving crude futures this week since the project completion is years away.

NEBRASKA ROADBLOCK

While the earlier proposals received approvals in Montana and South Dakota, its fate in Nebraska looks less certain. Several landowners in the state who held out against selling their property to TransCanada remain opposed to the project and are in court suing the company.

The Nebraska Public Service Commission has until mid-September to decide on TransCanada's latest Keystone XL application, plus an additional five months "for just cause," which would put the project on hold until February 2018.

At the White House on Friday, Girling said TransCanada still has "some work to do" on getting permits for the pipeline through Nebraska.

"I'll give them a call," Trump said.

CRUDE TRANSPORT

While Trump on Friday repeated his claims that construction of Keystone XL will reduce US "dependence" on foreign oil and create "thousands" of jobs he added that it would provide an option which would be safer than transporting crude oil by rail or truck.

In 2016, an average of two to three unit trains per day were need to move crude oil out of Western Canada due to constrained pipeline takeaway capacity. This is expected to climb to four to five unit trains per day by 2019 due to the projected increase in production, according to Platts Analytics.

Keystone XL and the Energy East pipeline are expected to come online in 2021, but will fill quickly and overall pipeline utilization will exceed 75% on average in 2022.

"By late 2025, using a modestly optimistic outlook for additional production from greenfield oil sands projects and continuing the current trend in drilling activity, pipeline takeaway will once again become constrained, necessitating some barrels to move back to crude-by-rail," Platts Analytics said. "With much uncertainty remaining around whether Energy East pipeline will ultimately be approved, the appeal of moving forward with Keystone XL becomes all the more evident."

HALF THE STEEL TO COME FROM US

The White House said Keystone XL is exempt from a Trump executive memorandum encouraging the use of US steel in pipeline projects because the project is already under way. TransCanada has already sourced the pipe, with half of it coming from US steel mills and the rest from mills in Canada (24%), Italy (16%) and India (10%).

Nevertheless, the president continues to tout the project and the "Buy America" provision in the same breath.

"I've cleared the way for the Dakota Access and Keystone XL pipelines and added a requirement that American pipelines be constructed with American steel," Trump said Tuesday. "I said, from now on, we've got to build them here. You want to put pipelines under our lands, you're going to make the pipe in this country."

--Meghan Gordon, meghan.gordon@spglobal.com

--Brian Scheid, brian.scheid@spglobal.com

--Edited by Jason Lindquist, jason.lindquist@spglobal.com

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