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TransCanada sees US gas supply, demand growth seen as keys to future

TransCanada's US natural gas pipeline business is expected to provide thecompany its biggest financial boost by segment through the end of the decadethanks to growing Appalachian production and Gulf Coast demand for LNGexports, the operator said Tuesday.

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The efforts -- designed to carry more gas to residents, businesses,industrial plants and export terminals -- are bolstered by forecasts thatoutput from the Appalachian Basin, which includes the Marcellus and Uticashale plays, will grow to over 40 Bcf/d in 2027 from 25 Bcf/d this year. Thecompany also estimates that Gulf demand will increase by over 14 Bcf/d duringthe next 10 years.

The outlook highlights TransCanada's increased focus on the US marketthrough billions of dollars in new projects and expansions of existingpipelines. While adding long-term transportation contracts provides stability,the strategy also comes with potential roadblocks, especially on theregulatory front amid aggressive resistance from environmental and communitygroups.

"As a company, we are prepared for those challenges that lie ahead," CEORuss Girling said during TransCanada's annual investor day presentationwebcast from Toronto. "While pipelines aren't perfect, we continue tobelieve they are by far the safest and most efficient method of moving bothnatural gas and crude oil to markets that need them."

KEYSTONE XL QUESTIONS

On the oil front, TransCanada has been working on boosting optionalitythrough upgrades and cross-border opportunities.

The company filed a "procedural" motion last week with the NebraskaPublic Service Commission seeking permission to raise questions regarding thestate regulator's decision on the new routing of the proposed Keystone XLcrude pipeline, Dean Patry, senior vice president of TransCanada's liquidspipelines unit, said during the presentation.

NPSC spokeswoman Deb Collins said in an email that TransCanada's motionfor reconsideration is a routine filing with the commission having 60 days torule on it.

The NPSC ruled in a 3-2 vote on November 20 approving the company's"mainline alternative" for its Keystone XL pipeline, rather than the directroute.

The alternate route in eastern Nebraska heads east sooner toward theexisting Keystone pipeline and parallels it for 96 miles.

The Keystone XL pipeline is aimed at delivering 830,000 b/d of WesternCanadian heavy barrels from Hardisty, Alberta, to Steele City, Nebraska, fromwhere crude will flow along the existing Keystone pipeline to either Cushing,Oklahoma, or Patoka, Illinois.

A mainline alternate route will unlikely result in any cost inflation forthe planned project, which will require an estimated $6.3 billion (C$8billion) investment, Patry said.

Separately, the 1,179-mile Keystone pipeline that was shut in since aleak in South Dakota on November 16, was started up Tuesday, TransCanadaspokesman Matthew John said in an email.

TransCanada said late Monday the 600,000 b/d pipeline that runs fromHardisty to Cushing and Patoka will be started up at low pressure before crudethroughput would be ramped up.

FERC APPROVALS COULD 'SLIP INTO JANUARY'

At home, TransCanada has already faced headwinds on several projects andrecently scrapped three of them.

In the US, the company received a bit of good news on the gas sideearlier this month when Columbia Gas Transmission won certificate approvalfrom the Federal Energy Regulatory Commission for the 1.3 Bcf/d WB XPress gaspipeline expansion. It is holding to an expected November 2018 startup on thewestern path, but the eastern path could be delayed a month or two, StanChapman, president of TransCanada's US natural gas pipelines business, toldinvestors.

But Columbia Gas' largest expansion, the 2.7 Bcf/d Mountaineer XPressproject, and the proposed Gulf XPress project on Columbia Gulf Transmissionare still awaiting FERC nods. While the company still expects those twoprojects to be approved by the end of the year, it is possible that go-aheadcould "slip into January," Chapman said. TransCanada said that under thatscenario, it believes it would be able to maintain the projects' in-servicedates.

In its investor presentation, TransCanada maintained that it expected itsunder-construction Leach XPress project to be in service early next year. Itwas recently delayed from its scheduled November 1 in-service date. Once inservice, the project will add up to 1.5 Bcf/d of incrementalproduction-takeaway capacity from core producing counties in the US Northeastto flow toward markets in the US Southeast region.

"We are starting to see the benefits of years of negotiations and hardwork," Chapman said.

--Harry Weber, harry.weber@spglobal.com

--Ashok Dutta, ashok.dutta@spglobal.com

--Edited by Richard Rubin, richard.rubin@spglobal.com