June 11 (Bloomberg) -- Exxon Mobil Corp., the largest U.S. energy company, plans to help TransCanada Corp. finance and build a $26 billion pipeline to carry North Slope natural gas to U.S. markets.

The 1,700-mile (2,700-kilometer) pipeline will haul gas from Alaska’s North Slope to a network of conduits in Alberta, Canada, that serve industrial and residential demand in the U.S. Midwest. TransCanada of Calgary announced the agreement today in a statement.

Irving, Texas-based Exxon is joining the pipeline project less than six months after Alaska state officials abandoned plans to evict Exxon and partners that include BP Plc and ConocoPhillips from the Point Thomson field for decades of inaction. Today, Exxon declined to say what size of a stake it will hold in the project or how much it will invest.

“Exxon Mobil has always been considered the ‘big gorilla’ necessary for this project to succeed, so their willingness to get involved and make a substantial financial investment is warmly welcomed,” U.S. Senator Mark Begich, an Alaska Democrat, said today in a statement.

Exxon expects Point Thomson, which holds enough gas to supply 20 months of U.S. household demand, to begin production in 2014. The field 50 miles (80 kilometers) east of Prudhoe Bay has lain dormant since its discovery in the 1970s because there was no conduit to ship the fuel to markets.

TransCanada won state government support for its pipeline proposal and a promise of a $500 million subsidy last year, beating out a rival proposal by Houston-based ConocoPhillips and BP. The ConocoPhillips-BP project, known as Denali, unsuccessfully courted Exxon to join.

Minority Stake

“We’re not afraid of competition” Steve Rinehart, a BP spokesman in Anchorage, said in a telephone interview. “We compete all the time.” The Exxon-TransCanada deal won’t derail the Denali project or prompt its sponsors to alter plans, said Scott Jepsen, vice president of external affairs for the venture.

Bill Brackin, an Anchorage-based spokesman for Exxon Mobil, said the company will own a minority stake in the pipeline. Other details of the project structure have yet to be worked out, he said.

“We’re not disclosing the commercial arrangements,” Margaret Ross, a Houston-based spokeswoman for Exxon Mobil, said today in a telephone interview.

Ice-Roads Built

Exxon Mobil had $25 billion in cash and near-cash equivalents at the end of the first quarter, a public filing showed. The company began building ice-roads earlier this year and making other preparations to begin a $1.3 billion drilling program at Point Thomson.

Spending on the line will be $150 million through the end of the open season, which ends in July 2010, Tony Palmer, TransCanada’s vice president of Alaska business development, said today on a conference call. Open season is a solicitation of interest from potential shippers. Initial spending was $83 million before Exxon’s involvement, he said.

Exxon will be reimbursed for some expenses under TransCanada’s agreement with Alaska, Palmer said.

The pipeline may be an ill-conceived investment, said Peter Linder, president of DeltaOne Energy Fund in Calgary. New wells in Texas, Arkansas and the Rocky Mountains have already created a surfeit of gas in the U.S., collapsing prices, and imports of liquefied fuel in coming years are expected to swell the glut, he said.

“It really doesn’t make sense in the foreseeable future,” Linder said. “There’s too much onshore gas now.”

Higher Prices Seen

The companies expect higher long-term gas prices to make the project competitive with U.S. sources, Marty Massey, Exxon’s U.S. joint interest manager, said on the call. Keeping the project on schedule and maintaining costs will hold prices in line with mainland gas, he said.

The companies will have a new estimate of the line’s cost by the end of the first quarter, Palmer said. Exxon hasn’t had any talks with the state about tax terms, Massey said.

“A deal between TransCanada and Exxon is a major sign of progress toward our shared goal of commercializing Alaska’s vast natural-gas reserves,” U.S. Senator Lisa Murkowski, an Alaska Republican, said today in a statement.

Murkowski, the highest-ranking member of her party on the Senate committee overseeing energy legislation, wants to almost double federal loan guarantees for the project to $30 billion and streamline the permitting process.

“This is a significant step forward on a project very important to the president and the Department of the Interior as a way to get American energy to the lower 48” states, U.S. Interior Secretary Kenneth Salazar said in a statement.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

Last Updated: June 11, 2009 17:36 EDT