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A depot used to store pipes for Transcanada Corp's planned Keystone XL oil pipeline is seen in Gascoyne, North Dakota in this November 14, 2014 file photo.ANDREW CULLEN/Reuters

TransCanada Corp. says it aims to have its new, discounted tolling system to help natural gas producers in Western Canada compete with abundant U.S. shale gas in place in the fall of 2017.

The pipeline and power company has been in talks with producers to gauge whether there is an appetite to sign decade-long pipeline transport contracts in exchange for a reduction of about 50 per cent on its Mainline tolling tariffs. While no contracts have yet been signed, oil and gas producer Encana Corp. revealed last week that it is one potential customer.

The transport of natural gas played a prominent role in TransCanada's second-quarter results, reported on Thursday. The company trumpeted its $10.3-billion (U.S.) acquisition of Columbia Pipeline Group Inc., finalized on July 1, as giving it a firm foothold in the northeastern United States, including the low-cost, fast-growing Marcellus and Utica shale gas plays.

But it gave further details about its push to use spare capacity on its west-east Mainline to offer bargain rates to transport gas from British Columbia and Alberta to markets in Central Canada. The move would provide long-term certainty about utilization for TransCanada.

The plan could help make Western Canadian natural gas producers, who have long endured lower prices and have lost competitive ground to the United States in the past decade – and who are making fewer bets on liquefied natural gas terminals being built off the West Coast – present a new challenge to the growth in U.S. natural gas production.

"The lowest-cost basins will produce the gas for the continent," TransCanada CEO Russ Girling said in an interview. "Our job is to interconnect them."

TransCanada, which says it delivers about 20 per cent of the natural gas consumed in North America each day, has said since last fall that it is looking to find ways to provide reduced-cost services to its customers in a lower-price commodity market.

The company has taken great pains to say its proposal to Western Canada producers is a new service that would supplement flows and revenue. The economies that could come with increased throughput will decrease tolls for existing customers. TransCanada will probably launch this fall an open season – which gives potential customers the chance to sign up for a portion of the capacity that will be available – but the plan requires National Energy Board approval.

"I would suspect the actual physical movement would not start until November, 2017," said Karl Johannson, TransCanada's president of gas pipelines.

Goldman Sachs analyst Brian Singer has said the Montney shale supplies in British Columbia and Alberta could displace a significant 1.5 billion to three billion cubic feet a day of U.S. production growth in the 2019-2020 period. The Montney's ability to compete with U.S. natural gas plays results from the abundance of condensate in some parts of the formation, the low Canadian dollar and the low cost of production – plus favourable infrastructure pricing dynamics in Western Canada because of spare pipeline capacity, Mr. Singer said.

Concerns about the overall health of the energy industry rocked TransCanada stock in 2015. Washington's rejection of the Keystone XL project last fall and continuing controversy about the construction of the Energy East pipeline have added to the company's challenges.

But with a focus on cost cutting and acquisitions, such as the Columbia Pipeline, shares have rebounded from lows of just above $40 (Canadian) and have been sitting above $60 in most of July, closing at $60.35 Thursday on the Toronto Stock Exchange.

The company announced a second-quarter profit of $365-million, or 52 cents a share, compared with $429-million, or 60 cents a year earlier. Earnings were affected by a one-time, dividend-equivalent payment related to the acquisition of Columbia, and to a lesser extent by a restructuring charge, and maintenance and liquidation costs for Keystone XL.

TransCanada is still looking to sell northeastern U.S. power assets and a minority interest in its Mexican pipeline business – the latter of which could attract bids from Canadian pension funds, according to reports this week. The company said on Thursday that it would provide an update on the sales process later this year.

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TC Energy Corp
+0.06%54.52

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