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TransCanada Corp. 's only competitor in the race to build a natural gas pipeline in Alaska has called it quits, but its decision to drop out highlights the largest difficulty the Canadian company will have to overcome to go forward with the multibillion-dollar project.

TransCanada's rival, called Denali - the Alaska Gas Pipeline, said on Tuesday that it did not have enough customer support to build the proposed $35-billion (U.S.) line from Alaska's North Slope to major gas markets in the United States.

Denali is owned by BP PLC and ConocoPhillips Co., two of the three largest companies operating in Alaska's Arctic. Exxon Mobil Corp., the other major player, backs TransCanada's effort.

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Denali bluntly identified the culprit: the prolific amounts of natural gas shale deposits that are now being extracted in regions closer to major markets - a factor that equally affects TransCanada's proposal. Canada's Arctic effort, the Mackenzie Valley natural gas line, is also challenged by the same gas glut, although should both Alaska projects fall through, it would give Mackenzie a better shot at survival.

"The overriding issue [in shelving Denali]is the North American gas market is oversupplied with the advent of shale gas and it has weakened the gas prices," Bud Fackrell, Denali's president, said in an interview Tuesday. "It has weakened the price of natural gas in the lower 48 [states]"

Denali, formed about three years ago - as TransCanada was being awarded a $500-million subsidy from Alaska - has been negotiating with the major producers for three years. "We felt like we turned over every rock," Mr. Fackrell said. It spent about $165-million on Denali, and will now archive its work for its owners in the event they want to revive efforts later.

TransCanada said Denali's decision does not affect its plans, and it is still making progress with BP, ConocoPhillips and Exxon. However, TransCanada's Tony Palmer, vice-president of major projects development and quarterback on the company's Alaska project, said one of the customers' concerns is the state's tax structure, a factor out of TransCanada's control.

Despite current low gas prices, Russ Girling, TransCanada's chief executive officer, said producers are still working to build the line.

"They're still talking. Exxon and the producers are still talking 2020-ish as the right timeframe for that gas to come on," Mr. Girling said in a recent interview. "The gas is being produced today. It's seven billion cubic feet a day of gas being produced."

He held out less hope for Canada's Mackenzie pipeline, the undertaking of a consortium led by Imperial Oil Ltd. TransCanada has also supported that pipeline, through its backing of the Aboriginal Pipeline Group which holds a one-third ownership interest. But Mr. Girling said competition with huge new North American reserves makes that line "very difficult."

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He suggested Mackenzie gas may not be produced for decades, unless Canada looks to the project as a nation-building exercise.

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About the Authors

Carrie Tait joined the Globe in January, 2011, mainly reporting on energy from the Calgary bureau. Previously, she spent six years working for the National Post in both Calgary and Toronto. She has a master’s degree in journalism from the University of Western Ontario and a bachelor’s degree in political studies from the University of Saskatchewan. More

Asia Bureau Chief

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More

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