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TransCanada CEO Russ Girling says the case remains strong for the Keystone XL pipeline, despite glut of U.S. crude.RICK WILKING/Reuters

TransCanada Corp. is girding for a scrap with corporate rivals over plans to ship western oil to Canada's East Coast ahead of regulatory hearings expected to begin next year.

Eastern distributors, including Ontario's Union Gas Ltd., Enbridge Gas Distribution and Gaz Métro in Quebec have said Calgary-based TransCanada's Energy East project would jack up costs and potentially curtail natural gas deliveries in the provinces during times of peak demand. In a year-end interview, TransCanada chief executive Russ Girling called such arguments "ludicrous" with no basis in fact.

He bluntly accused the gas distributors of fomenting public opposition to the project with misleading statements, including full-page newspaper ads that raised the spectre of gas shortages at hospitals and schools in Eastern Canada.

"I can't see it. The National Energy Board won't be able to see it, which is why we're having this argument today," Mr. Girling said at his Calgary office.

"The only reason we're having [this debate] today is because they don't want to have it in front of the National Energy Board. They want to appeal to heartstrings. Look at the ads: hospitals, schools, children – give me a break."

The comments – the starkest yet over the fate of the $12-billion pipeline – are a clear sign that TransCanada believes Energy East is on solid footing, despite noisy opposition from environmentalists and a commercial challenge the company says threatens the project's viability.

The massive development involves building new pipe and converting portions of TransCanada's existing mainline natural gas system to carry more than a million barrels a day of western oil as far as New Brunswick, giving oil sands players long-sought access to global markets. Startup is targeted for later this decade, pending approvals.

The pipeline, once considered a shoo-in by oil-patch supporters, has quickly become a flashpoint.

Earlier this year, TransCanada was forced to halt work on a related export terminal in Quebec amid concern that exploratory drilling would impact calving grounds for Beluga whales. The premiers of Quebec and Ontario have imposed approval conditions on the pipeline, although neither has opposed the plan outright. Meanwhile, efforts to build support for the project were marred by a public relations fiasco involving leaked documents and accusations that TransCanada was employing "dirty tricks" to win over doubters.

Mr. Girling said having multiple export terminals for the project is a "luxury, not an imperative," and that the company is studying alternatives to the current site at Cacouna, Que., although no decisions have been made.

TransCanada insists Energy East would benefit gas shippers by removing under-used export capacity from the mainline's rate base. In recent years, shipping tolls have spiked as less gas flowed on the network. The company is also planning to beef up another portion of the system to boost imports of U.S. shale gas, which has cut demand for western Canadian supplies in eastern markets.

However, the local distributors want TransCanada to build the new portions of Energy East starting in North Bay, Ont., instead of Cornwall as currently planned. That would leave much of the existing gas system through the province intact, but it would add to the pipeline's already hefty price tag – an approach Mr. Girling said jeopardizes the economics of the project.

"I think it burdens the project with unnecessary costs, and the more unnecessary costs you burden the project with, the more it potentially becomes an uneconomic project," he said. "It has to be competitive with alternatives."

The dispute comes as TransCanada awaits a decision on its contentious Keystone XL pipeline. U.S. President Barack Obama has sharpened his criticism of the $8-billion (U.S.) project in recent weeks, playing down its benefits for American motorists and saying the pipeline would merely export Canadian oil to global markets.

TransCanada has long insisted the Alberta-to-Texas conduit would deliver crude to U.S. refineries on the Gulf Coast. The project's northern leg has been tied up for years by environmental opposition and political wrangling. A ruling on the pipeline's route through Nebraska from the state's supreme court is expected within weeks, setting up a final decision on whether the pipeline is in the U.S. national interest.

U.S. Republicans have also vowed to bring forward a Keystone XL bill in the new year, potentially forcing the President's hand on the project.

Mr. Girling said the case for Keystone XL remains strong, despite a glut of U.S. crude that has helped drive prices to multiyear lows.

"Nothing has changed," he said. "So it's hard for me to imagine that there could be any other answer than yes at the end of the day."

Russ Girling: In his own words

On activist investors pushing to split the company between power and pipeline assets:

We've pretty clearly stated what we think is our best strategy going forward. It includes some of the themes that were raised by those parties but there wasn't anything new in what they raised in terms of what we had considered and what we wouldn't do ... From where we're sitting right now the power business is going to fund the $46-billion capital program. If we don't have the $46-billion capital program you might take a different view of these things. But there are other strategic benefits of having the gas business next to the oil business next to the power business. It's been very synergistic for us.

On crude by rail:

We've seen the amount of rail loading facilities in Alberta increase exponentially ... I think that rail is going to be a larger and more mainstay component of the transportation business than it has been historically. I think that it will come off from its highs. Once you get a pipe in place, everybody's going to want to use that pipe, but I don't think everybody's going to give up 100 per cent of their rail capacity either because it's pretty easy to keep that capacity in place."

On whether Energy East can work without a Quebec export terminal:

We want to be able to deliver to the refineries in Quebec, Montreal and Quebec City. That's an imperative. We want to get to a refinery in Saint John. That's an imperative. And we would like to have an export terminal. Whether you need multiple export terminals is a luxury, not an imperative.

Follow Jeff Lewis on Twitter: @jeffalewisOpens in a new window

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