TransCanada Corporation said Thursday it has struck a deal with ExxonMobil to develop an Alaska gas pipeline at an initial projected cost of $26 billion US.

The Alaska pipeline project would stretch approximately 2,737 kilometres from Alaska's North Slope through the Yukon and northeastern British Columbia to the British Columbia-Alberta border near Boundary Lake, where it would connect into existing pipelines.

"TransCanada's Alaska pipeline project will connect Alaska's natural gas resource to new markets," said Hal Kvisle, TransCanada president and chief executive officer.

Construction is projected to begin in April 2016, with pipeline expected to be in service by September 2018.

Alaska issued a licence to Calgary-based TransCanada in December 2008 for the construction of the pipeline, but it didn't have a gas producer lined up for the project until ExxonMobil was unveiled.

Threat to Mackenzie line?

The Exxon-TransCanada deal could hurt the proposed Mackenzie project, a competing plan to build a 1,220-kilometre pipeline along the Mackenzie Valley in the Northwest Territories to the Alberta border, where it would connect with existing pipelines and link to southern markets.

"It could cancel out the Mackenzie gas project," said Calgary energy consultant Doug Matthews.

The Exxon-TransCanada announcement was the second blow to the Mackenzie line this week. On Monday, the U.S. Congress backed a plan to increase the loan guarantees for the Alaska pipeline to $30 billion from $18 billion as part of the energy bill that is under consideration. That loan guarantee could make the Alaska pipeline more attractive to customers who could pay lower tolls.

But Canada's Environment Minister Jim Prentice is optimistic because he thinks the Mackenzie project is years ahead of the Alaska pipeline and will be built first. 

Prentice said Alaska still has to go through lengthy hearings into the pipeline's effects on the environment and aboriginal communities. "We still have a lot of work to do, but I think we are about four to five  years ahead of the Alaska project." he said.

Hearings have already been held in Canada and a final report is expected at the end of this year.

The Conservative government is also negotiating a fiscal package with companies backing  the Mackenzie Valley project. 

The Mackenzie project backers include ConocoPhillips Canada, Shell Canada, ExxonMobil Canada — an Exxon affiliate — and the Aboriginal Pipeline Group, in which TransCanada has invested $500 million.

TransCanada stock added 68 cents to $33.68 in TSX trading.

With files from The Canadian Press