TransCanada Corp. (TRP) struck back at environmentalists and some lawmakers vying to stop its effort to expand shipments of crude from Canada's oil sands to the U.S., saying development of the emissions-intensive oil source will expand regardless of where the crude ends up.

Calgary-based TransCanada, Canada's largest oil and natural-gas pipeline company, is seeking regulatory approval to expand an oil pipeline from Canada's oil-sands region down to the refineries in the Gulf of Mexico, more than doubling the flow to 1.1 million barrels a day from 435,000 by the time it's completed in 2013.

But the $12 billion project has come under fire by environmentalists and some U.S. Democratic lawmakers who object to the higher greenhouse-gas emissions and ecological damage caused by oil-sands development. Last week, a group of 49 Democratic members of the House of Representatives signed a letter urging Secretary of State Hillary Clinton to reject TransCanada's request for a presidential permit allowing it to build the pipeline across the U.S.-Canadian border.

The State Department will finish taking public comment on the project on Friday and issue a final environmental-impact statement on the pipeline expansion this fall. The results of this will determine whether TransCanada gets the presidential permit. Keystone is TransCanada's largest single growth project, and its first venture in oil transportation, at a time when oil prices are strong and natural gas demand is lagging.

Robert Jones, a TransCanada executive in charge of the Keystone project, said during a conference call Tuesday that the fate of the Keystone expansion will have "no impact on oil sands production," because if the U.S. blocks the flow of more oil sands south, it will just go overseas through one of the pipelines proposed to bring oil to China and other Asian markets.

"There are two projects under consideration to take oil sands to the West Coast," Jones said, referring to plans by rival pipeline companies Enbridge Inc. (ENB) and Kinder Morgan Energy Partners (KMP), to build lines linking the Alberta oil sands to a marine terminal in Kitimat, British Columbia. "Whether they are successful or not depends upon whether the U.S. continues to be an accessible market for oil sands production," he said.

Enbridge's proposed C$5.5B Northern Gateway project envisages an underground pipeline exporting up to 525,000 barrels a day of oil-sands crude through Kitimat, while Kinder Morgan is proposing an expansion of its Trans Mountain line through the Canadian Rockies that could transport more than 300,000 barrels a day. However, both West Coast projects face their own home-grown opposition from people worried about the possibility of oil-tanker spills.

Canada is the largest exporter of oil to the U.S., sending an average of 1.88 million barrels a day to the U.S. in March. About half of the Canadian crude shipped to the U.S. is derived from the oil sands. Oil-sands production is expected to more than double over the next 10 years, to more than 3 million barrels a day, making it one of the few major sources of growing production in the world.

A letter to Secretary of State Clinton by Congressman Peter Welch (D., Vt.) asking her to reject the Keystone expansion until completion of further "lifecycle" tests of oil-sands greenhouse-gas emissions was co-signed by 48 other Democratic members of Congress.

Oil-sands production can generate about three times as much carbon dioxide as conventional oil production. However, oil sands' supporters say that since about 80% of emissions are created when oil is burned by consumers rather than when it's produced, oil sands is unfairly criticized for its effect on overall emissions.

Copyright (c) 2010 Dow Jones & Company, Inc.