TC Energy Approves $2B U.S. Pipeline Expansion and Coastal GasLink Upgrade

What happened

TC Energy has greenlit approximately $2 billion in new U.S. natural gas pipeline expansions, explicitly citing surging electricity demand from data centers and AI as a key driver, alongside a C$4.9 billion upgrade to the Coastal GasLink system to capture growing LNG export volumes. These projects solidify the company's pivot to a gas-centric midstream model following the 2024 spin-off of liquids business South Bow and the in-service of Coastal GasLink, reinforcing its regulated and contracted revenue base. The announcements align with industry expectations that North American LNG export capacity will more than double by 2028 and that gas-fired power demand will remain robust, supporting sustained throughput on TRP's 92,000 km network. Management is effectively deploying capital into high-visibility expansions, leveraging existing rights-of-way and storage assets to serve new demand without taking on direct commodity price risk. While execution and permitting risks remain, the company's disciplined focus on contracted or regulated projects enhances cash flow predictability and growth visibility.

Implication

Near-term, the market should view these projects as confirmation of management's growth strategy, likely supporting modest multiple expansion as investors recognize the improved risk mix. The $2B U.S. expansion capitalizes on AI-driven power demand, which is a secular tailwind, while the Coastal GasLink upgrade directly ties to LNG Canada's ramp, providing contracted cash flow upside. However, investors must monitor execution budgets and timelines, as cost overruns on large pipeline projects have historically pressured returns. Regulatory and permitting hurdles in the U.S. and Canada could introduce delays, though the projects appear to be brownfield expansions on existing corridors, which typically have lower risk. Overall, the company's continued investment in gas infrastructure aligns with our base case that North American gas demand will grow through 2028, keeping TRP as a BUY with a stable outlook.

Thesis delta

The news does not alter our thesis; it reinforces the existing BUY stance by providing concrete evidence of management's commitment to growth in gas infrastructure. The expansion announcements validate our assumption that LNG and power demand tailwinds would drive selective expansions. Confidence in the longevity of contracted cash flows increases modestly.