HOUSTON -- The company behind the controversial Keystone XL pipeline project announced this morning that it will break ground on the first leg of the project, a link between an oil storage hub in Oklahoma and Houston-area refineries.

TransCanada Corp. said it will proceed with the southernmost stretch of the project, a pipeline that will connect the enormous crude oil storage hub of Cushing, Okla., to storage and refining centers along the Houston Ship Channel. That portion of Keystone XL will be the second major project to relieve the crude oil bottleneck at Cushing by moving more crude to Houston after companies announced that they would reverse the flow of the Seaway pipeline, bringing product out of the glutted Midwest and toward the Gulf Coast.

The company also confirmed that it will file a new application to the federal government for a permit to build a pipeline across the U.S.-Canadian border and south to Houston. The new application will reflect a rerouting of the pipeline in Nebraska aimed at keeping the pipeline away from the Ogallala Aquifer.

In a statement issued late this morning, TransCanada executives said they have "sent a letter to the U.S. Department of State informing the Department the company plans to file a Presidential Permit application (cross border permit) in the near future for the Keystone XL Project from the U.S./Canada border in Montana to Steele City, Nebraska."

But construction will soon commence on the Cushing-to-Houston link, the company said. That section of the pipeline does not require federal approval to get built because state governments will have jurisdiction, so long as it does not cross federal land.

"What had been the Cushing to U.S. Gulf Coast portion of the Keystone XL Project has its own independent value to the marketplace and will be constructed as a stand-alone Gulf Coast Project, not part of the Presidential Permit process," TransCanada said.

There is very strong demand among oil producers for new pipeline capacity to move crude out of Cushing since a growth in onshore production from shale zones has led to a flood of new supplies. Record volumes of crude oil in storage there has led to North American-based oil contracts fetching a price that is often significantly lower than the international Brent Crude benchmark contract.

The Obama administration rejected TransCanada's original request for Keystone XL, an international project that would move Canadian heavy oil derived mostly from the oil sands to Houston's refineries, which are well equipped to process oil with high concentrations of sulfur. Laying a pipeline over the international border requires approval by the Department of State.

But the Keystone XL link from Cushing to Houston also faces some headwinds.

Earlier this month, Julia Trigg Crawford, a landowner in north Texas, won a restraining order against TransCanada aimed at preventing the company from declaring eminent domain over her property to build the pipeline. Landowners and others aligned with the national tea party movement recently held a protest rally in Paris, Texas, calling for lawmakers to protect private property against the company's push to build Keystone XL.

The issue led to an unusual alliance between the state's environmental community and the tea party. But TransCanada now appears to have the upper hand in the dispute after its lawyers successfully persuaded a court to dissolve the restraining order. Activists are now countering with an online petition aimed at pressuring lawmakers to stop the company from seizing private land to build Keystone XL.

"They are cloaking themselves in common carrier regalia and exercising eminent domain against Texas citizens, but there is no evidence that they have the legal authority to seize property in Texas," said Debra Medina, director of the tea party group We Texans, in a news release.

Industry trade groups in Washington expressed support for TransCanda's announcement. The Consumer Energy Alliance argued that building the Cushing-to-Houston link will alleviate high gasoline prices.

"The Gulf Coast Project's construction is critical as gasoline prices have increased by more than 20 cents a gallon since the Obama Administration rejected a permit to build the Keystone XL project in its entirety," CEA Vice President Michael Whatley said in a statement. "We are also pleased that TransCanada has indicated that it will file a new permit application for the cross-border leg of the original Keystone XL proposal."

Last month TransCanada's Keystone XL project director Les Cherwenuk told Greenwire that his firm was also considering moving forward with constructing nearly the entire length of the project in an effort to bring North Dakota's Bakken Shale oil supplies to Houston. Western North Dakota's oil industry also suffers from a dearth of transportation infrastructure.

The Keystone XL Gulf Coast link and Seaway pipeline reversal represent a major shift in the way crude oil is moved in the United States.

Though Houston has traditionally supplied Cushing with crude to send to Midwest refineries, the relationship will be reversed once both projects are completed. And the idling and possible loss of refining capacity in the Northeast will make that region more dependent on fuels refined along the Gulf Coast.

Oil producers mainly want the link so they can earn a better price for domestically produced crude oil, hoping that tying Cushing to the ship channel will help crude prices rise to better international rates. West Texas Intermediate crude oil now sells for around $109 a barrel, while Brent is fetching prices closer to $125 a barrel.