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A pipeline in peril Add to ...

Even in the midst of a potentially life-threatening challenge, TransCanada Corp.’s Mainline carries more natural gas than any other pipeline system in North America. Quiet and unseen, it is Canada’s underground energy superhighway, a network of pipes crossing from Prairies to Canadian Shield to urban centres that for more than half a century has carried Alberta’s gas to the eastern stretches of the continent.

The Mainline fuels assembly lines, power plants and home furnaces from the Alberta-Saskatchewan boundary to Montreal and beyond. It has long been so important to Canada that it is routinely compared to the Canadian Pacific railway, both ribbons of steel that have sewn this country together.

Trouble on the Mainline, then, means trouble for the country – and there is indeed trouble on the Mainline. It isn’t moving enough gas. In the past five years, contracted volumes for its cross-Canada service have fallen 70 per cent. Its once-full pipes now run, on average, half empty, and as a result, it is nearly 2½ times more expensive to ship a molecule of gas from one end to the other as it was five years ago.

Eager to slash those costs, some who ship gas through the Mainline are seeking ways to force TransCanada to mothball parts of the system, urging a move that would force the company to erase billions in asset value.

The unrest comes amid a series of profound changes in how energy moves across North America. The Mainline is a 14,101-kilometre system built to connect the gas-rich west with the gas-poor east. Now, however, companies are discovering huge new quantities of shale gas in places like Pennsylvania, New York and even Quebec. And it’s no longer a given that those in the west want their gas to flow east, as companies explore numerous ways to export product to Asia.

In regulatory documents, TransCanada acknowledges that it is “acutely aware of the competitive situation of the Mainline,” although its chief executive officer argues that there’s little reason for worry. “Our system has been in place for almost 60 years,” Russ Girling said in an interview. “It will be in place for another 60 years.”

But increasingly, those looking at shifts in the continent’s energy geography see a threat to the very foundation of his biggest asset. If the east has its own gas, and the west wants to send its gas across the Pacific, what’s left for the Mainline?

“I don’t know how they keep it alive,” said Ian Mondrow, a Gowling Lafleur Henderson LLP lawyer who has represented Ontario electrical generators against TransCanada in an ongoing battle over pipe tolls.

“If there’s a lot of gas in the east which is cheap and easy to move around, then no one’s going to ship gas from Western Canada,” he added. “That would basically end the relevance, to a large extent, of that Mainline pipe.”

The Mainline is a major pillar for TransCanada, providing a fifth of the company’s pretax earnings. But the viability of the Mainline is not merely a corporate concern. It poses a set of vexing but critical questions for Canada’s energy policy. Significant parts of the country have no other source of natural gas. And the health of the Mainline plays an important role in Canada’s economic well-being. Problems with the pipe have already raised the cost of gas in the east, and those costs stand to threaten Canada’s industrial competitiveness.

Further, any move to have Eastern Canada rely more heavily on U.S. gas also threatens to erode Canada’s energy independence. For these reasons, even critics of the Mainline are rooting for it.

“I don’t see any advantage to be gained in the market by TransCanada failing,” said Murray Newton, president of the Industrial Gas Users Association, whose members represent about one-third of Ontario and Quebec’s industrial gas consumption.

“Matter of fact, I think that would be catastrophic for everyone. It would be catastrophic for Western Canadian producers, for gas marketers, for the Canadian market and the U.S. northeastern market. All of TransCanada’s stakeholders have an interest in TransCanada’s Mainline becoming more competitive and more healthy.”

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