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Quebec Premier Philippe Couillard, left, and Gaz Metro chief executive Sophie Brochu arrive at a news conference Tuesday, September 30, 2014 in Montreal. Gaz Metro and the Quebec government announced a partnership to increase the natural gas liquefaction capacity at the Gaz Metro plant in eastern Montreal.

Ryan Remiorz/The Canadian Press

The head of Quebec's leading gas utility says TransCanada Corp. has badly fumbled its effort to line up Central Canadian support for the proposed $11-billion Energy East pipeline project and can expect fierce resistance from natural gas interests when it seeks federal regulatory approval

In an interview, Gaz Métro chief executive officer Sophie Brochu said natural gas customers in Quebec and Eastern Ontario need assurances the new system will deliver as much gas, at the same price as the current one.

"I refuse [to accept] that the Children's Hospital of Montreal pays a higher price for its gas because Western Canada needs to export its oil to the international markets," Ms. Brochu said. "What TCPL [TransCanada Pipelines Ltd.] is asking now is that the gas customers subsidize the oil shippers and I don't believe this is in the best interests of Canada."

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Executives from TransCanada insisted Wednesday that there is no cross-subsidization, and that any reduction in volumes simply reflects lower demand for Canadian gas in the United States.

"What we're really redeploying here is that capacity that is not used for export anymore," said Karl Johannson, the company's executive vice-president in charge of gas pipelines. "We're not redeploying any of the capacity that we have traditionally serviced the Canadian domestic market with."

He added that gas customers should benefit as underutilized capacity is taken out of the system.

TransCanada is proposing to convert capacity on its natural gas mainline to carry 1.1 million barrels a day of Western Canadian crude to refineries and export terminals in Quebec and New Brunswick.

The company will use an existing gas pipeline as far as Cornwall, Ont., and then build a new line through Quebec and New Brunswick.

Prime Minister Stephen Harper hailed the project as a nation-building exercise when it was officially unveiled in August, 2013, as did a host of politicians from across the country. But Ontario and Quebec governments have both held hearings, and are being urged by their gas utilities to oppose the project in its current form.

The dispute raises the spectre of an east-west battle over the proposed pipeline when TransCanada files for regulatory approval later this month.

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At issue is a 420-kilometre section from North Bay to Cornwall, which carries not only Western Canadian gas but supply coming up from the United States. The local gas distributors, including Ontario's Union Gas and Enbridge Gas Distribution, insist all the capacity on that section is required.

Ms. Brochu said the distributors will ask the National Energy Board to force TransCanada to build a new oil pipeline from North Bay, and leave the gas line intact, an approach TransCanada rejects.

"Our position would be the same in Ontario and Quebec," Ms. Brochu said.

"We are of the strong view that all the current capacity on the North Bay-to-Cornwall segment is fully required, which means there is no surplus line that can be removed from service."

Quebec has ambitious plans to increase the use of natural gas in communities not currently serviced, and in transportation. The TransCanada plan could undermine that effort to make the province more competitive and environmentally sustainable, she said.

TransCanada's Mr. Johannson said the Central Canada gas utilities and industrial users have enjoyed years of surplus capacity on the gas line, which has given them to negotiating power, and potential for customer growth.

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"But the reality is that there is far more capacity than the domestic market needs and by us redeploying that right now, we can reduce the cost of service on our system, and get an opportunity to make our system more efficient at a reduced cost for our customers," he said.

In order to make up for lost capacity on the mainline, TransCanada has pledged to build a new gas pipeline from Southern Ontario to Cornwall.

As a result, the gas utilities say they'll face higher tariffs, especially if there are cost overruns. TransCanada argues the overall costs on the system will be lower.

Both sides say they're confident the National Energy Board will accept their arguments.

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