The Alaska legislature has signed off on a licence for Calgary-based TransCanada Corp. to start the $26-billion Alaska Pipeline Project.

The legislature's decision Friday represents "a significant milestone in advancing this major natural gas pipeline project" that would connect Alaskan natural gas to customers in Alaska and the continental U.S., known as the Lower 48, TransCanada president and CEO Hal Kvisle said.

"This ratification of our licence under AGIA will facilitate TransCanada's continuing commercial negotiations with potential shippers, improving the likelihood of a successful open season and the construction of a natural gas delivery system from Prudhoe Bay to Lower 48 markets."

TransCanada said it will move forward with project development, which will include engineering, environmental reviews, aboriginal relations and commercial work.

TransCanada is targeting to have the pipeline in service by September 2018.

The approval of the licence by Alaska's state senate on Friday follows approval by the state's House of Representatives last week.

Alaska governor backs the plan

It only awaits the signature of Gov. Sarah Palin, who has backed the proposal from the start.

"It will be our Alaska gas flowing to provide aid to those in the Lower 48, who are turning to Alaska, waiting and wanting Alaska to help," Palin said after the legislature's support was announced.

The approval ends a decades-long battle to open up North Slope natural gas for use on the North American market.

Two years ago, the Alaska legislature failed to support a contract on fiscal terms — long-term taxes and royalties — that former governor Frank Murkowski set with North Slope leaseholders BP, ConocoPhillips and Exxon Mobil Corp.

That proposed contract did not guarantee a pipeline, either. At the time, too many lawmakers felt the deal gave too much to the oil companies by locking in a tax rate for up to 45 years.

The decision Friday does not guarantee construction, but it means TransCanada must move forward on U.S. federal permitting applications for the pipeline.

The state approval comes with up to $500 million in state seed money. It also sets up a race with a competing pipeline venture established by oil giants BP PLC and ConocoPhillips.

TransCanada applied to build a natural gas pipeline running 2,760 km from a new natural gas treatment plant at Prudhoe Bay, Alaska, to Alberta with provisions to expand its capacity.

Gas pipeline would parallel oil route

The proposed pipeline would parallel the route of the existing trans-Alaska oil pipeline to a point south of Fairbanks, Alaska.

It would then follow the Alaska Highway, continuing through northern British Columbia to link with the Alberta Hub on TransCanada's pipeline grid in northwestern Alberta.

BP PLC and ConocoPhillips, two of the three major Alaska natural gas producers, have proposed a competing pipeline, called Denali, which has not been endorsed by the Alaska government.

TransCanada is also involved in another major Arctic pipeline project — the Mackenzie Gas Project.

The most recent cost estimate of that project from March of last year was $16.2 billion, though analysts have said it could now be as high as $20 billion.

Its expected startup date is 2014.

With files from the Associated Press