TransCanada Corp. is "actively" pursuing a move to ship oil rather than natural gas along a key pipeline network, as prices for the Alberta gas fetch low profits.
Eastern Canadian refineries have enquired about the possibility of moving oil through the Calgary-based company's Mainline network instead of natural gas, said Russ Girling, the company's chief executive officer.
Those refineries are now importing oil at higher prices because they are paying the international rate, which outpaces prices in North America by about $15 because of a glut of crude at refining hubs in the United States. That gap has spurred domestic producers to seek ways to sell their oil at higher prices, which means reaching the global market by way of eastern Canada.
Putting oil in the underused Mainline system could make that happen. But if it is to transform the line, TransCanada must first please current natural gas shippers, potential oil shippers and refineries.
"That's the conversation we have going on right now," Mr. Girling told reporters after the company's annual meeting Friday. "But at the 30,000-foot level, it seems to make sense to people. We're going to actively pursue it."
TransCanada's first-quarter results were hurt by weak demand for natural gas thanks to this year's warm winter. Because natural gas shippers were not filling the pipelines, TransCanada's profits were dinged. This creates a second problem: Underused pipes come with higher toll charges for shippers, which has upset TransCanada's natural gas customers. This is another reason why the energy industry might support converting the Mainline, Mr. Girling said.
The largest challenge with swapping commodities would be pipeline "integrity" issues, he said, noting it is too early to speculate on the timing of any possible conversion. The switch would cost billions to pull off.
Chad Friess, an analyst at UBS Securities, expects current natural gas customers, as well as TransCanada, to welcome the transformation. If the project goes ahead, he expects light oil to fill the line.
"It would free up [TransCanada's]stranded capital in the natural gas Mainline, and solve a lot of the problem they are fighting with producers on over tolls," he said. "If a portion of that rate base was transferred towards an oil pipeline, it would be very attractive for both. It is like a win-win situation."
TransCanada made $352-million, or 50 cents a share, in the first quarter, compared to $411-million or 59 cents per share, in the same quarter last year. When one-time expenses are excluded, the power and pipeline company said it raked in $363-million, or 52 cents a share, compared to $423-million, or 61 cents per share, in the first quarter of 2011.
Mr. Girling said TransCanada will soon file its revised application to build its proposed Keystone XL pipeline project. The project needs approval from the U.S. State Department, which rejected TransCanada's original plans because of environmental concerns in Nebraska.