In recent months, the Calgary-based company has been floating the idea of converting part of its natural gas mainline — the eastbound main artery for natural gas out of Alberta — partly to oil service to serve refineries in eastern Canada and the U.S. Eastern Seaboard that currently rely on pricey crude from overseas.
"We've now determined this project is both technically and economically feasible," CEO Russ Girling told analysts on a conference call to discuss the company's third-quarter results.
"Discussions with potential shippers and other stakeholders are underway to determine if this is a project that the market wants to see — and based on early indications, we believe that it is."
The project, 80 per cent of which would comprise existing pipe, could ship between 500,000 and one million barrels of oil per day, depending on demand.
A preliminary estimate puts the project's price tag at roughly $5 billion, but a lot still needs to be worked out.
TransCanada (TSX:TRP) would need to add new pump stations along the length of the pipeline and undertake a lot of work to make sure pipe is in good enough shape to ship oil.
It's not clear yet whether the line would stop at refineries in Montreal or extend all the way to the east coast. Nor is it known yet how much appetite there is to ship the crude offshore to Europe or Asia via a marine terminal in Quebec or the Maritimes.
The "obvious" market is in eastern North America, said Alex Pourbaix, TransCanada's president of energy and oil pipelines.
Eastern Canadian refineries process between 600,000 and 700,000 barrels a day and the U.S. Eastern Seaboard refines another million barrels on top of that.
Those refineries are geared to process light sweet crude, so TransCanada would likely be shipping them synthetic crude oil from Alberta's oilsands — rather than tarry bitumen that hasn't been upgraded — as well as high-quality oil from the lucrative Bakken formation, which stretches through parts of Saskatchewan, North Dakota and Montana.
In time, those eastern refineries may choose to reconfigure their equipment to handle heavy oil from Alberta, Pourbaix added.
Earlier Tuesday, TransCanada said its third-quarter profits fell slightly as improved earnings from the Keystone pipeline were offset by down time at key power plants.
The Calgary-based pipeline operator's net income was $369 million or 52 cents per share, down from $386 million or 55 cents per share.
Another measure of profitability, called comparable earnings, dropped more to $349 million or 50 cents per share from $416 million or 59 cents per share.
The more closely watched comparable earnings missed a Thomson Reuters consensus estimate by two cents per share.
TransCanada shares fell 25 cents to $44.65 on the Toronto Stock Exchange in afternoon trading.
TransCanada says reduced earnings from the Bruce Power nuclear generation complex in Ontario, its Western Power holdings and certain natural gas pipelines more than offset higher earnings from the Keystone oil pipeline, which delivers Alberta crude to Illinois and Oklahoma.
Revenue for the three months ended Sept. 30 was $2.12 billion, up from $2.04 billion in the third quarter of 2011.
TransCanada announced a partnership Monday with Phoenix Energy Holdings Ltd. to build a $3-billion pipeline connecting an emerging oilsands region to the Edmonton area.
The project — split 50-50 with Phoenix, a unit of China National Petroleum Corp. — would ship 900,000 barrels per day of crude oil south and 330,000 barrels per day of bitumen-thinning diluent north to the sites.
The growing presence in the inter-Alberta oilsands market comes as TransCanada looks to ship more Canadian crude south of the border.
The company began work this summer on a US$2.3-billion crude pipeline connecting an oil storage hub at Cushing Okla. to Texas refineries. It's expected to start up in mid to late 2013.
A supply glut at Cushing has dampened U.S. oil prices, which has hurt the bottom lines of North American producers. TransCanada's proposal — along with rivals' similar projects — aims to lessen that discount by connecting Cushing crude to the lucrative Gulf Coast refining market.
The Gulf Coast pipeline was initially part of TransCanada's $7.6-billion Keystone XL proposal, which would have sent Alberta crude to the Gulf via six U.S. states.
The U.S. State Department denied a permit for that project in its entirety in January. It said it rejected the pipeline because of Republican manoeuvring to speed up the process, not based on the merits of the project itself. The administration said it needed more time to review a new route through Nebraska to address ecological concerns.
After the decision, TransCanada opted to go ahead with the southern part of Keystone XL first, since it doesn't need a federal permit to proceed.
In May, TransCanada submitted a new application with the revised Nebraska route to the State Department for the northern part of the pipeline, which would run from the Canada-U.S.. border in Montana to Steele City, Neb. Approval for the Canadian portion has been in-hand for years.
A decision on the northern portion is expected early in the new year.
Critics of Keystone XL argue the project would increase U.S. dependence on "dirty" oilsands crude and cause harm to the American heartland in the event of a spill.
Supporters, however, say the project will offer a big boost to the U.S. economy and reduce the amount of crude the United States has to import from unfriendly regimes.