Concerns over pipeline safety are threatening to complicate the relationship between the U.S. and Canada, and possibly a key decision on the expansion of an oil route that brings crude to the U.S. from its largest petroleum supplier.

The U.S. State Department will decide in the first quarter whether it will approve another TransCanada Corp. (TRP) pipeline that will bring crude from Alberta's oil sands to the Gulf Coast refineries. But a group of environmentalists, politicians and regulators says the State Department should take a closer look at the especially corrosive nature of the crude oil itself.

If the agency commissions further study of the project, which would double the Keystone pipeline system's total capacity to 1.1 million barrels a day, TransCanada could miss its planned 2013 opening date for the expansion. U.S. President Barack Obama and Canadian Prime Minister Stephen Harper discussed the project at a meeting in Washington Friday.

Worries about the pipeline and the crude it will transport are growing even though half of the nearly 2 million barrels of oil a day coming into the U.S. from Canada is from the oil sands. In the wake of two environmental disasters last year--the Deepwater Horizon oil rig explosion in April that resulted in nearly 5 million barrels of oil spilling into the Gulf of Mexico and the September leak in an Enbridge Energy Partners' (EEP) pipeline that discharged 19,500 barrels of Canadian crude oil in Michigan--TransCanada is facing a wave of protest against their new project.

"I don't think a good environmental study has been done yet," said Sen. Mike Johanns (R., Neb.) in a telephone interview. "I don't believe they've dotted the i's and crossed the t's."

The controversy is the latest surrounding the use of crude oil derived from Alberta's oil sands. Environmental advocacy groups have for years argued that producing hard-to-extract oil sands crude is a major contributor to global warming. But proponents hail it as a better way to satisfy the U.S. energy appetite than depending on supply from less friendly nations. If the U.S. keeps blocking attempts to ship Canadian crude southward, Canada will supply China through a West Coast pipeline instead, analysts say.

TransCanada's project would add a second pipeline to the existing Keystone system. It would transport ultra-heavy crude from Alberta to Steele City, Neb., and eventually to the U.S. Gulf Coast. But critics say Alberta's thick, molasses-like crude contains about 10 times more corrosive sulfur than average crude and could damage the pipeline. The existing Keystone line has spilled a total of 57 gallons of oil from six separate leaks since May, according to government filings. While industry experts say this is normal, environmental advocates say it is not good enough for a line TransCanada touts as being the "safest pipeline ever built in Nebraska."

The U.S. Environmental Protection Agency last July asked the State Department to further study the expansion's potential environmental consequences before issuing a permit.

"It may not be appropriate to assume this (oil sands) crude shares the same characteristics as other oil," EPA Assistant Administrator for Enforcement and Compliance Cynthia Giles wrote to State Department officials in the July letter. "The sulfur content of the oil sands crude should be specifically considered in making the decisions on the pipeline wall thickness."

The State Department is now weighing whether to grant TransCanada the necessary permit for the cross-border expansion or continue its study of the proposal, agency spokeswoman Kerry Humphrey said.

But TransCanada spokesman Terry Cunha said fears surrounding the pipeline stem from "inaccurate information." The relatively small amount of oil spilled from the original Keystone line is proof that the company can shut down the system quickly enough to prevent further oil from being released, he added.

"All the pipeline operators have to follow regulations for this crude. We don't ship out any crude that's different from what's already used all over the United States," Cunha said.

Alberta has some of the world's largest oil reserves, and the U.S. has burned its crude for decades. Of the 1 million barrels a day of oil sands crude exported to the U.S. in 2009, nearly half is processed to remove the corrosive elements before final export to the U.S., according to Alberta's Energy Resource Conservation Board.

Companies transporting Alberta oil sands crude need to heavily dilute it with chemicals and may also apply large amounts of heat and pressure to make it move through pipelines. There are no specific guidelines for pipelines transporting it, according to the Pipeline and Hazardous Material Safety Administration, the federal agency in charge of pipeline safety.

The American Petroleum Institute, a trade association that sets the guidelines for pipeline construction, said its specifications do not specifically address the chemical makeup of Alberta oil sands crude. API standards take into account crudes with similar chemical make up, while companies can add anti-corrosive chemicals to the product for shipment, API Downstream and Industry Operations Director Peter Lidiak said.

API called the Keystone expansion "a matter of critical national interest." Copyright (c) 2011 Dow Jones & Company, Inc.