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TransCanada Corp. is filling part of its proposed Keystone XL pipeline with U.S. crude, a move it hopes will mute some of the fierce opposition that has erupted south of the border against the project.

TransCanada has signed contracts to bring 65,000 barrels per day from a booming northwestern oil play through the 500,000-barrel-a-day Keystone XL project.

It's a move that allows TransCanada to cash in on the red-hot Bakken play, which has seen Montana and North Dakota furiously increase their crude output in the past half-decade. U.S. Bakken production now stands at roughly 350,000 barrels per day, and the industry expects it to grow by more than 50 per cent in coming years. The new contracts also substantially boost the economics of Keystone XL, increasing its committed capacity from 75 per cent to just under 90 per cent.

The Bakken contracts represent a win for the company against its main competitor, Enbridge Inc., which has also proposed major growth into the Bakken play, where much oil now moves by rail and road.

"We've been playing catch up in the Bakken almost from day one," in that there has been far more oil that could be produced than pipeline capacity, Enbridge chief executive officer Pat Daniel said Thursday. "The main reason is that they're smaller players in the Bakken and they're not able to make the 20-year commitments."

TransCanada, however, has signed up shippers for just five years, enough to succeed in what may be the most important element of the new contracts: Bakken crude could boost the company's standing in the eyes of increasingly skeptical United States. It helps eliminate the argument that the pipeline is solely a conduit for dirty and dangerous oil sands output, as some have argued.

"The fact that we're also now moving U.S. production to U.S. markets provides a visible and a direct benefit to the United States - the United States producer and the United States refiner," Paul Miller, TransCanada's senior vice-president of oil pipelines, said in an interview Thursday.

The $7-billion Keystone XL is a major project for both the Canadian oil patch and TransCanada, designed to bring oil sands crude to refiners on the Gulf Coast who are thirsty for a new supply in the face of falling Mexican and Venezuelan imports.

It has, however, triggered substantial opposition, coming at a time of increased focus on greenhouse gas emissions and not long after the BP oil spill trained huge new attention on the risks of hydrocarbons. Though trade unions have supported it and energy analysts have endorsed it as a source of secure energy supply, environmental groups, land owners and some powerful politicians have worked to block its approval.

U.S. Congressional representatives have written letters in opposition and demanding further review, ranchers have held anti-Keystone rallies, and one family of landowners has launched a legal challenge to the company's bid to expropriate property. That legal argument stems in part from the fact that the pipe would carry Canadian crude and belong to a Canadian owner, limiting its local benefits.

Introducing U.S. crude wasn't in the original plan - TransCanada only began considering it in the last year. It may, however, help TransCanada fight arguments against it. It will cost an additional $140-million to connect the Bakken crude, which requires construction of an eight-kilometre, 100,000-barrel-per-day pipeline.

"If it's home-grown crude that would be flowing down this pipe in addition to Canadian crude, it's positive for getting this pipeline approved," said Chad Friess, an analyst with UBS Securities.

Critics, however, point to the fact that the bulk of Keystone XL's throughput will remain oil sands product.

The Bakken deal "may assuage some of the concerns of U.S. oil companies, but most Americans are more concerned about protecting our water and protecting our air," said Alex Moore, dirty fuels campaigner for Friends of the Earth. He accused TransCanada of putting the U.S. "environment at risk."

But the company remains confident it can build Keystone XL. It has said publicly it expects to receive full regulatory approval - including a presidential permit - by the end of June, and believes the pipe should be in service by the first quarter of 2013. In fact, it has already acquired most of the materials needed.

"We've procured much of the pipe, the pumps, the motors and the land," Mr. Miller said. "We are a shovel-ready project."

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