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Russ Girling, president and CEO of TransCanada Corp., addresses the company's annual meeting in Calgary, Friday, April 27, 2012.THE CANADIAN PRESS/Jeff McIntosh

Jeff McIntosh/THE CANADIAN PRESS

It has all the makings of a bare-knuckle brawl, as corporate giants from across the country line up to fight for their interests.

At 1 p.m. Monday, Ontario utilities and Alberta energy heavyweights and one of the country's biggest pipeliners, TransCanada Corp., will settle in to a 110-seat hearing room in downtown Calgary to air their complaints before the National Energy Board.

On its surface, this is a battle over how much it costs to bring natural gas from Alberta to Ontario. It's a fight over pipeline tolls – a dispute about who should bear the costs of the pipe – and it falls to the NEB to play Solomon.

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In reality, though, this is a battle over the future of a critical piece of infrastructure, a network of pipe called the Mainline that was built in the 1950s and has, ever since, served as one of the most important threads lacing together the energy fortunes of the country. It is no exaggeration to say that for many years it kept Ontario from going cold, and Alberta from going poor.

But the NEB hearing is set against a backdrop of rapidly changing fortunes for the Mainline, which now flowing two-thirds empty some days. TransCanada has argued that the current pain is temporary, and that within a couple of years, gas will charge back into the system.

The gas molecules, for now at least, say differently.

In the past few years, as the cost of shipping on the Mainline has doubled, traders and utilities have secured alternate routes to bring their gas to market. Today, pipelines flowing to the West Coast are far more full than the Mainline. The Alliance and Vector pipelines, which carry western gas to Chicago and then back into Ontario, have more than doubled their throughput into Ontario since 2006, and run completely full. When several pipeline retrofits are done this November, large quantities of U.S. natural gas will line up at the Canadian border, waiting to displace Alberta product. TransCanada itself is racing to expand its pipeline network to connect that U.S. product into its Mainline. Each of these is taking gas away from the cross-country Mainline spans, and it's accelerating.

Users are already bringing in U.S. gas "from the [Pennsylvania] Marcellus [shale] or from the Gulf," said Rob MacDonald, a marketer for NGX, the electronic natural gas exchange. "It's been a huge shift."

Data gathered by NGX show the change: exchange-traded volumes in Alberta fell last year to their lowest level since 2004. In Ontario, where gas is traded at Dawn, a hub not far from Sarnia, volumes have more than tripled since 2004.

The Mainline, with a capacity of over 5.5 billion cubic feet a day, currently flows about 2.1 bcf; this past winter, which was unusually warm, it peaked at just under twice that. But pipes carrying a total of 2.5 billion cubic feet of U.S. gas into Ontario are being proposed for construction by 2017, according to Platts data. That includes a Spectra Energy project under development that would bring gas from Appalachian fields to Ontario.

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Some of that could be used to feed new demand from gas-fired power plants that have replaced decommissioned coal-fired plants. But much of it stands to displace Mainline gas. At the same time, there will be less gas in Alberta for the Mainline. The oil sands, according to a recent Ziff Energy forecast, will burn an additional 2 bcf a day in a decade's time. Plus, gas export projects planned for the B.C. West Coast promise to ferry away even more gas.

Add it all together, and there's an outside possibility Mainline volumes "will go from two to zero," said one gas trader. "This is a major issue for the Canadian natural gas industry."

TransCanada has a very different view. The company has proposed diminishing the cost of shipping on the Mainline, largely by shifting it to other pipes in Ontario and Alberta. The result, the company says, will be an increase in Alberta gas production, an increase in Mainline volumes, accompanied by an increase in gas prices.

But TransCanada's forecasts are optimistic relative to other predictions. It says gas prices will hit $6.30 per gigajoule by 2015. Gas for 2015 delivery current trades around $4. The company expects Mainline throughput to rise well past 4 bcf a day – double current levels – as western Canadian natural gas production rises to 17.2 bcf/day by 2020. The National Energy Board forecast is for 14.9 bcf/day by 2020 for all of Canada.

TransCanada, however, draws some of its confidence from the immensity of Alberta and B.C. gas resources.

"The reserves in Alberta have never been higher. They're probably twice as high as what we've considered normal," said Karl Johannson, TransCanada's senior vice-president of Canadian and eastern U.S. pipelines.

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"We expect with our tolls being lower, our system and the Western Canadian Sedimentary Basin is going to be more economically viable, and we will capture its fair share of that incremental production."

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