The National Energy Board has approved an application by Calgary-based TransCanada Corp. to build its Keystone XL pipeline project, an expansion of its Keystone pipeline to the U.S. Gulf Coast.

The approval on Thursday by the federal energy regulator includes 22 conditions regarding safety, protection of the environment and landowner rights. The board also imposed an obligation to monitor greenhouse gas emissions.

The Canadian portion of the project, which will cost $1.7 billion, involves the construction of approximately 529 kilometres of new pipeline and related facilities and stretches from Hardisty, Alta., to Monchy, Sask.

TransCanada said Keystone will be the first pipeline to directly connect a Canadian crude oil to the largest refining market in North America.

"Our shippers have committed crude oil that amounts to 75 per cent of the expansion capacity for an average term of 17 years reflecting the value the project has to the overall market," TransCanada president and chief executive Hal Kvisle said in a statement.

The company said applications for U.S. regulatory approvals are proceeding and a decision is expected in the fourth quarter.

It will have an initial capacity of approximately 700,000 barrels per day and will be expandable to 900,000 barrels per day.

The Keystone pipeline currently runs from Hardisty, Alta., to refining hubs in Illinois. Commercial operations are expected to begin in the middle of this year.

Keystone XL, will extend it to the U.S. Gulf Coast, where refineries are hungry for heavy crude like that produced in Alberta's oilsands.

Construction on the expansion is expected to begin around the beginning of 2011.

The 529-kilometre Canadian portion of the project stretches from Hardisty, Alta., to Monchy, Sask. (National Energy Board)