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CALGARY, Alberta—Kinder Morgan Inc.'s proposed expansion of a crude oil pipeline connecting Alberta's oil sands to the Canadian Pacific coast cleared a key hurdle on Thursday after a government advisory panel recommended it, subject to dozens of conditions.

Canada's National Energy Board urged Prime Minister Justin Trudeau's administration to approve the controversial project, known as the Trans Mountain pipeline, if 157 conditions are met. A cabinet decision isn't expected until December.

"The board found the benefits of the project would outweigh the residual burdens" on the environment and nearby communities, Robert Steedman, the NEB's' chief environmental officer said at a press conference.

Kinder Morgan applauded the finding and said in a statement that it is reviewing the conditions spelled out for it by the NEB, Canada's top federal energy watchdog.

The proposed 5.4 billion Canadian dollar ($4.1 billion) project, which involves nearly tripling the capacity of an existing pipeline, would carry 890,000 barrels of crude a day to Canada's Pacific Coast. The country's energy industry has lobbied hard for the expanded pipeline capacity, arguing it is needed to allow more of landlocked Alberta's oil sands crude to reach global markets.

The project involves twinning, or laying another pipe, alongside a 710-mile pipe stretching from northern Alberta and across the 4,000-foot elevations of the Continental Divide in the Canadian Rockies to the coast of British Columbia. It is one of several proposed crude oil projects, including the Keystone XL pipeline, that has faced strong opposition from environmental critics.

The most contentious part is the last mile, which runs through a wealthy and leafy suburb of Vancouver to a marine terminal on the Burrard Inlet. Opponents, including the mayor of Vancouver and Premier of British Columbia, have cited the threat of a spill.

Environmental groups have argued that expanding the capacity to ship crude oil will lead to increased greenhouse gas emissions and some aboriginal communities in British Columbia say it will disrupt their native traditions and way of life.

Kinder Morgan, which has said it has an adequate spill response plan, applied with the NEB in December 2013 and has said the impact on the environment and local communities will be minimal.

Prime Minister Trudeau's government won't issue a decision on the project until the end of the year to provide additional time for consultations with interest groups such as aboriginal groups affected by the project.

Resources Minister Jim Carr has said tests on what impact this and other pipeline projects would have on carbon emissions will factor into the government's decision-making calculus, although he has declined to say how much weight that would carry.

The NEB's move was greeted warmly by Alberta's oil sands producers, whose crude is heavily discounted in the U.S. due to high shipping costs and limited access to other markets. It comes after U.S. President Barack Obama last November rejected the Keystone XL pipeline, which would have carried more Canadian crude oil to refineries on the U.S. Gulf Coast.

"This decision is a milestone for the future of Canada," Tim McMillan, president of the Canadian Association of Petroleum Producers, an industry lobby, said in a statement.

Kinder has plans to increase shiploads of crude oil to foreign markets, including China, to 34 ships a month, up from five now if the project is allowed to go ahead. The company wants to begin construction next year and bring the expanded capacity online in 2019.

Even a favorable ruling from Ottawa may not necessarily allow the project to proceed as planned. Enbridge Inc. received cabinet approval for a new crude oil pipeline in June 2014 after receiving a recommendation from the NEB, but the company has yet to start construction amid ongoing consultations with aboriginal groups along the planned route.

Earlier this month, Enbridge asked the NEB for a three-year extension to its permit, which is set to expire unless construction begins by year-end.

Write to Chester Dawson at chester.dawson@wsj.com

(END) Dow Jones Newswires

May 19, 2016 18:05 ET (22:05 GMT)

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