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Pipes sit stacked at the TransCanada Corp. Houston Lateral Project pipe yard. TransCanada is aiming to make shippers on the company’s traditional west-to-east pipeline system more competitive with gas sources outside Western Canada.Scott Dalton/Bloomberg

TransCanada Corp.'s once bullet-proof position in the North American natural gas pipeline game was shaken over the past decade as supply boomed from new sources outside Western Canada.

A new move aimed at making shippers on the company's traditional west-to-east pipeline system more competitive against those sources is worth watching. It looks to be gaining early interest among producers.

With this initiative, and TransCanada's $10.2-billion (U.S.) takeover of U.S.-based Columbia Gas, it's clear the company has no intention of standing aside in its bread-and-butter business.

They involve moving gas to a major hub in the crucial Ontario market regardless of where it's produced, marking the latest transformations in a market where weak prices have forced creativity on the industry.

The company is pitching gas producers on the idea of signing up for 10-year contracts to move their supplies to the Dawn pipeline hub, south of Sarnia, Ont., from Alberta. The service would be in addition to those under its current tolling settlement.

The long commitment would offer shippers tolls that in some cases would be half the current rate charged for "firm," or longer-term reserved, pipeline service. It would allow Western Canadian supplies to compete in that market against gas from the Marcellus region.

TransCanada owns the lion's share of the West's pipeline network. Besides the Mainline through the Prairies and Northern Ontario and the Great Lakes system through the northern United States, it operates the vein-like Alberta network. It bought the system from the old Nova Corp. back when producers essentially carpet-bombed Alberta with cheap, shallow wells, secure in the belief that they would be an increasingly important source of supply for Toronto, Chicago and New York.

But then came the Marcellus, the seemingly bottomless U.S. Northeast shale formation that has disrupted the continent's supply picture. From nothing 10 years ago, the play now pumps more than all of the gas produced in Western Canada. Basically, it has eaten a big chunk of TransCanada's lunch, and shipments on its Mainline are down significantly as a result.

The trick, says Steve Clark, TransCanada's senior vice-president of Canadian gas pipelines, is providing an opportunity to put big Canadian resource plays – the Montney, Duvernay and Deep Basin – on equal footing with gas delivered through planned routes from the much-closer Marcellus. The three deposits, located in Alberta and British Columbia, are the targets of hefty spending among gas producers, even as gas prices languish.

"That's what this deal is really all about – making sure that our existing pipelines that have been in service for some length of time and have depreciated costs can compete with new-build pipelines from emergent basins," Mr. Clark says. He stresses that the Mainline is not in financial trouble as it stands now.

Big-league Canadian gas producers seem excited about the concept, he says, although he won't name names or give volumes. Steven Paget, an analyst at FirstEnergy Capital Corp. who published a research note on the proposal on Tuesday, said he has heard "anecdotally" that two large producers have pledged enough supply to make up the minimum one-billion-cubic-feet-a-day commitment.

Of course, TransCanada has hedged its bets on supplying Southern Ontario and points south with its acquisition of Columbia Gas, a deal that closed on Friday. The new business has a solid foothold in the Marcellus, so even as the company works to make Canadian gas more competitive, it's now got a stake in the competitor.

It all spells major evolution in both the business and TransCanada's franchise in it, as well as a way to breathe new life in the company's original asset, even as it seeks to move forward with pricey and contentious projects like the Energy East oil line.

"What the National Energy Board said to TransCanada was, 'You guys need to be creative and make sure that your pipelines are competitive.' That's really what this is all about," Mr. Clark says. "We've moved away from the old world of pure cost-of-service regulation and we're moving into one that's more light-handedly regulated."