Natural gas infrastructure “presents significant opportunities” in the long-term, but not so much today, TransCanada Corp. CEO Russ Girling said Tuesday.

The Calgary operator is continuing to expand its “natural gas footprint” in Alberta, the United States and in Mexico, but in the near-term, TransCanada is putting a lot of its chips into oil pipeline expansions, the CEO told financial analysts during a conference call to discuss 4Q2012 and year-end earnings.

TransCanada’s profits fell 19% year/year in 4Q2012 in part because gas pipeline shipments to U.S. markets declined. Net income declined to C$306 million (43 cents/share) from $376 million (53 cents). A gas glut in North America has reduced prices, which has resulted in more gas in storage.

Deliveries on TransCanada’s Canadian Mainline system dropped 19% to average 4.2 Bcf/d in the final three months of the year. In addition to Mainline, there was lower capacity on ANR and the Great Lakes system. A “continued weakness” is seen in some U.S. gas pipelines because of lower prices and higher operating costs. Combined, the U.S. and Canadian natural gas pipelines business comparable earnings were C$690 million in 4Q2012, down from C$716 million in the year-ago quarter. Gas pipeline profits fell year/year to C$2.74 billion from C$2.875 billion.

“While the majority of our assets continued to generate stable and predictable earnings and cash flow, plant outages at Bruce Power and Sundance A, along with a lower contribution from certain natural gas pipelines, did adversely affect our financial results,” Girling said. The U.S. Energy Administration reported that U.S. imports of Canadian gas dropped 7% to 5.7 Bcf/d in the first nine months of 2012 year/year.

The Mainline continues to be a “critical piece of infrastructure” for natural gas, but a top priority is to convert to crude the Alberta-to-Quebec section. That project has been in the works for close to a year (see Daily GPI, July 31, 2012). The National Energy Board is expected to issue a decision on whether to approve the project in late March or early April, Girling said.

While the management team waits on NEB’s decision, an open season for oil shippers is being readied, said pipeline chief Alex Pourbaix. Depending on the level of support, TransCanada plans to convert the pipe to carry about 1 million b/d of crude oil. As designed the converted pipe would carry light oil from Alberta and Saskatchewan, as well as synthetic crude from oilsands upgraders. Construction could begin in 2015, with operations ramping up by 2017.

“There is a great deal of interest,” Pourbaix said. “We are advancing discussions with shippers and are pleased the way they are going.” Once shippers’ intentions are clear, TransCanada officials plan to meet with affected stakeholders along the route.

The existing pipeline that terminates in Montreal has the necessary size for converting to an oil pipeline, but east of that terminus, TransCanada would have to install new pipeline along an existing right-of-way.

“We know there are 400,000 b/d of demand in the domestic market of Quebec and a further 400,000 b/d in the Maritimes, largely at Irving’s [Oil Ltd.] refinery in Saint John,” Pourbaix said.

Canada’s eastern markets would be the initial target but the U.S. eastern seaboard also could be on the drawing board eventually.

Girling noted that the United States “is importing 1.5 million b/d, and that suggests a market for domestic production to attach to that market.” A pipeline traversing Maine to shorten the route to the Maritimes system isn’t being considered, said Pourbaix. The NEB approval process offers certainty to project builders, he noted.

The stalled Keystone XL oil pipeline south to Oklahoma is an example of the kind of costly delays that TransCanada wants to avoid, he said. Keystone’s final approval by U.S. officials appears to be only a few months away, he told analysts. TransCanada’s supplemental environmental impact statement (SEIS), which includes Nebraska’s recent re-route OK, should be approved as soon as one or two weeks.

“At that point, we are of the view that the U.S. State Department will have every piece of information it could require to make a decision,” Pourbaix said. When the required statutory notice periods are included and the SEIS is approved, U.S. officials should be able to issue a final decision “within two to three months.”

If all of its planned projects get a green light, TransCanada should complete C$12 billion of projects now in advanced stages of development, Girling said. In the past year TransCanada also has secured C$13 billion of contracted energy infrastructure projects that should be placed into service in 2016 and beyond, he said. Among the projects in the queue are the Coastal GasLink and Prince Rupert Gas Transmission projects to move natural gas to Canada’s west coast for liquefaction and shipment to Asian markets. Also being readied are the Topolobampo and Mazatlan Gas Pipeline projects in Mexico.

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