TransCanada Corp.'s extensive infrastructure in Canada could be expanded and transformed with options to convert part of its natural gas mainline pipeline to carry crude oil and its western assets growing to include a possible interest in facilities for liquefied natural gas (LNG) exports, CEO Russ Girling said during a conference call with financial analysts Friday.

Some analysts sought to verify Canadian industry reports related to what might be done with part of TransCanada's massive mainline gas pipeline system, given current results that show profits and volumes declining. The context for speculation also includes Canada's ongoing imports of 500,000 bbl/d of high-priced foreign oil supplies, and Canadian government, business and industry sources clamoring for ways to reduce those imports.

As an answer to this dilemma, TransCanada is looking at the option of converting an additional portion of the nationwide gas pipeline system to carry oil, Girling said.

"From a Canadian perspective, we have had interest from both producers and refiners asking about a way to resolve this situation," Girling said. "For our assets [moving gas east and west] we always look to what is their best value and best use for all of our stakeholders, including shippers, municipalities along the rights-of-way, provinces and producers. We try to maximize the value as much as possible for the greatest number of stakeholders.

"Obviously, conversion of a portion of our gas pipeline is a possibility, but this is still pretty early in the process. Previously, we converted Line 1 to crude service, and basically the process we went through was to look at whether that pipeline had a greater value to the Canadian public interest as gas or crude oil service, and it was determined its best value was in oil service."

Girling said that if TransCanada considers another conversion, the broad public interest questions would be the "parameters" under which the company would consider making the move. "Economically right now, at least on the oil side, that seems to make a lot of sense," he said. "We've done the conversion before, so technically it is possible we could do this conversion. It seems to be feasible, but there is still a lot of conversation that will have to occur with those shippers that want it to happen and the impact on our existing position."

TransCanada is just in the "early stages" in responding to market interest in this regard, Girling said.

Girling said there are no specifics on the potential size of a line, the potential volumes and the capital involved in any conversion.

While repeating that it is too early to tell, Girling did not rule out the possibility of TransCanada taking an interest in a West Coast LNG export terminal in addition to providing the major infrastructure for getting Alaskan and the rich British Columbia shale play supplies to the liquefaction facilities.

"When we originally conceived the Alaska Highway project with ExxonMobil it included the upstream gas processing plant as part of the project, so if a West Coast LNG project is conceived as an upstream gas processing plant, pipeline and liquefaction facilities as things all project participants would be involved in, then we would likely participate," Girling said. "However, it could also be conceived with the LNG facility as a separate operation.

"The primary objective of the Alaska state government is to assure there is open access to the pipeline to all participants who want to drill in Alaska. The same requirement at this time would not necessarily relate to a LNG facility, so our participation is required in the pipeline, but not necessarily in the LNG facility. We're open to any way it breaks."

Saying that Alaska is anxious to monetize its gas resources from the North Slope, Girling said there needs to be two parallel initiatives -- completion of a feasibility study for a new pipeline project, and negotiations between the state and producers to create what he called "a fiscal framework" that would make it economic for North Slope producers to move forward.

Girling said the lower 48 Alaska gas pipeline project is being suspended temporarily while a West Coast alternative is explored. "The project could be used as an alternative for a West Coast LNG project and it would continue to be run under the Alaska Natural Gas Export Authority."

For 1Q2012, TransCanada reported net income of $363 million (52 cents/share), compared with $423 million (61 cents/share) for the first quarter of 2011.

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