TC Energy Coastal GasLink Expansion|Near-Double Capacity on a 35% Stake and No New Pipe?

Doubling the flow without a new pipe

TC Energy will nearly double the capacity of its Coastal GasLink pipeline after LNG Canada approved its own expansion. Yet it will lay no new pipe, owns only 35 per cent of the line, and has handed construction management to LNG Canada. The pipeline runs 670 kilometres, from Dawson Creek to the LNG Canada export terminal at Kitimat, British Columbia. TC Energy's announcement calls the project a go.

It gives no estimate of what Phase 2 will earn. The trigger came from the coast. Shell and its partners in LNG Canada approved a $33-billion second phase at Kitimat. Two new processing trains will lift the plant's capacity from 14 million tonnes a year. The new total is 28 million tonnes. All of that extra gas has to reach the coast first. Coastal GasLink carries it, at about 2.1 billion cubic feet a day today.

Doubling the plant requires a near-doubling of the pipeline that feeds it. The obvious way to double a pipeline would be to lay a second one. That is not the plan. TC Energy will add five compressor stations along the existing route and upgrade the facilities already there. Compressor stations push more gas through the same pipe. The expansion needs no new pipeline route. The steel in the ground stays the same.

What changes is who does the building.

Who carries the construction risk

The terms were set months before the terminal decision. Under agreements dated March 25, LNG Canada becomes execution manager for the pipeline's Phase 2 construction. Coastal GasLink keeps ownership of the pipeline and stays its operator and permit holder. TC Energy supplies technical, procurement and operational support. The arrangement is designed to limit Coastal GasLink's direct capital commitments.

It also reduces the line's exposure to construction costs and schedule risk. TC Energy had already approved a conditional investment decision. LNG Canada's go-ahead met those conditions. TC Energy's share is also smaller than its name on the project suggests. It owns 35 per cent of the Coastal GasLink partnership.

So TC Energy keeps the operator role, holds a minority share of the line, and puts limited capital directly at risk. The other side of the deal is harder to see. Neither the March statement nor the September one says how long the agreements run. That structure matters to TC Energy's own shareholders. In the three months before the decision, the stock lost 14.4 per cent of its market value.

A Motley Fool Canada writer tied the pullback partly to profit-taking and interest rates. The writer also pointed to closer market scrutiny of the company's multi-billion-dollar spending program. The same month, TC Energy agreed to sell a Mexican gas pipeline. Expected proceeds are about $560 million, with closing targeted for the first half of 2027.

Against that backdrop, chief executive François Poirier said: "By nearly doubling the capacity of this world-class infrastructure, we are maximizing the value of this asset." An expansion that avoids a new pipeline and limits direct capital fits that message. What's missing is the return. The release gives no earnings estimate for Phase 2. For now, shareholders are asked to judge the value without the number.

What the terminal is betting on

In Vancouver, the terminal decision became a government milestone. Phase 2 was one of the first five projects sent to Ottawa's Major Projects Office, a little over a year earlier. Prime Minister Mark Carney said: "Twelve months from referral to final investment decision is the pace that this pivotal moment in Canada's history demands." LNG Canada's chief executive, Chris Cooper, told it differently.

He said current market conditions did not necessarily speed up the decision. Instead, they put into "sharp focus the benefit of an additional supply hub." The record supports a longer timeline. Governments approved two phases of the Kitimat plant in 2015. Cooper said the project was always envisioned as a four-train facility, producing 28 million tonnes a year.

Seen that way, Phase 2 is the rest of an original design, not a sudden reaction. That matters for the pipeline, because its extra capacity only pays off if gas keeps flowing to Kitimat. Cooper described the goal plainly: "generating cash flow for decades." The obvious reading is that the decision is riding a crisis. Wars in Iran and Ukraine have disrupted global gas supplies and pushed up prices.

In March, Qatar, which supplies about 20 per cent of traded LNG, halted production. LSEG data then showed LNG Canada running close to its full 14 million tonnes a year. Cooper said the decision rests on a longer view. "You may argue that there's some uncertainty right now," he said. Then he pointed to the long-term outlook: "we think we'll invest through that cycle."

Shell forecasts global LNG demand of nearly 700 million tonnes a year by 2050.

Where the risk went

This is where the pipeline deal meets the terminal. TC Energy's structure hands construction management to LNG Canada. So LNG Canada's view of construction risk matters to the pipeline as well. Cooper names going over budget as a big risk for LNG projects. His answer is repetition. Phase 2 duplicates equipment that has been running since last year, which he says lowers that risk.

The partners have already spent $100 million preparing. But the plant being copied has not been trouble-free. The Narwhal reports that the first phase still faces equipment problems. The outlet first reported an integrity issue with the facility's flare stack, found early in commissioning after testing began in late 2024. LNG Canada later reported the problem to the BC Energy Regulator.

None of the reports links those problems to the pipeline. What they do show is where the risk now sits. The exposure TC Energy stepped back from rests with a partner that is still fixing its first plant. The terminal's biggest owner adds one more complication. Shell holds 40 per cent of LNG Canada. It expects nearly 6 million tonnes a year of extra LNG from Phase 2, and double-digit returns.

On September 22, Bloomberg reported that Abu Dhabi's XRG was seeking a stake in LNG Canada. According to the report, Shell has been considering selling as much as 75 per cent of its stake. That would be a large block. Measured against the whole venture, it equals 30 per cent of LNG Canada.

What decides the deal

Shell has not confirmed a sale. In April, chief executive Wael Sawan said the company was "not necessarily looking at reducing" its equity interest. He also said Shell wanted to generate cash where it was not the natural owner. The reports do not say what a sale would mean for Coastal GasLink. They do show that even the partner leading the expansion is weighing how much of it to keep.

That puts more weight on execution itself. TC Energy expects construction to begin in early 2027. It targets the early 2030s for the expanded system to enter service. Those are company targets. The release gives no order or delivery date for the compressors that would supply the added pressure. The whole expansion depends on that equipment. The opening puzzle now looks different.

TC Energy can nearly double a pipeline on a 35 per cent stake because LNG Canada manages the building. The price is visibility: no earnings estimate, no disclosed agreement length, and no compressor dates. The thing to watch is whether construction starts in early 2027 as targeted, with compressor orders disclosed.

If it does, TC Energy shareholders get nearly double the capacity with limited direct capital, as the structure intends. If it slips, the arrangement built to shield Coastal GasLink from schedule risk faces its first real test. TC Energy has not disclosed how long those agreements run.

Informational only, not investment advice. Figures and quotes come from the linked reports.