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TransCanada CEO Russ Girling speaks to the media in this file photo.Jeff McIntosh/The Canadian Press

TransCanada Corp. has removed a key obstacle to its proposed $12-billion Energy East pipeline by agreeing to address the concerns of three big natural gas utilities.

Calgary-based TransCanada and the three gas distributors – Gaz Métro Ltd. Partnership, Union Gas Ltd. and Enbridge Gas Distribution Inc. – said on Monday they have signed an agreement in principle to ensure the natural gas supply in Ontario and Quebec is not threatened by the conversion of a gas pipeline to carry crude oil from Alberta and Saskatchewan to the Ontario-Quebec border .

The three local distribution companies (LDCs) had opposed Energy East, arguing it would unfairly force gas users in Ontario and Quebec to help pay for the conversion, which is aimed at providing market access to western oil producers.

Natural gas customers, including industrial users, would be forced to pay higher energy costs in winter without guarantees that an adequate supply of natural gas would be maintained without additional costs, the LDCs contended.

The utilities expressed particular concern over the loss of a North Bay, Ont.-to-Cornwall, Ont. stretch of the existing line that carries U.S. gas to eastern Ontario and Quebec., which is generally underused but operates close to capacity for much of the winter. TransCanada proposed replacing that capacity with a new, smaller-capacity line from Southern Ontario to Quebec.

Provincial energy regulators have also raised concerns over making gas consumers subsidize oil shipments.

The agreement in principle announced Monday ensures an adequate gas supply for Ontario and Quebec and provides for a benefit of about $100-million to natural gas customers through 2050. The entente also stipulates that gas users will not subsidize the pipeline project.

"We have heard the LDC's concerns and worked with them to address issues in a way that best met our collective objectives," TransCanada president and chief executive officer Russ Girling said.

"It is my belief that the public consultation process undertaken by the governments of Ontario and Québec helped the agreement," Enbridge Gas president Glenn Beaumont said.

The 4,600-kilometre Energy East pipeline would be able to ship 1.1-million barrels of crude per day from Alberta and Saskatchewan to refineries and port terminals in Eastern Canada. A new pipeline would be built from the Ontario-Quebec border to transport the oil to the port of Saint John, N.B.

TransCanada said on Monday it expects to amend its application for its Eastern Mainline project – the addition of between 250 and 300 kilometres of new natural gas pipeline in the Toronto-Montreal corridor – to reflect the content of the agreement with the LDCs; the application is before the National Energy Board.

The parties said they are aiming for a definitive agreement no later than Oct. 30.

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