The outlook for the future is what’s of keen interest these days for TC Energy
Sometimes, a team doesn’t need to hit a grand slam — and risk a strikeout — to win the game, when a series of base hits will do just nicely.
Having swung for the fences with its Coastal GasLink pipeline project and the now-defunct Keystone XL and Energy East initiatives, TC Energy signalled Tuesday it will focus on less-risky mid-sized developments in the heart of its natural gas and power development lineup.
And the outlook for both makes it easier to get runs across the plate.
“In my decades of working in this industry, I’ve never seen such strong prospects for North American natural gas and power demand,” TC Energy CEO Francois Poirier told the company’s investor day meeting in Toronto.
“It’s about energy addition, not just energy transition.”
Two are extensions tied to its Columbia natural gas pipeline system in the United States, including the US$400 million Maysville project and US$400 million Pulaski developments. These will supply natural gas for existing power plants to convert off of coal.
It also gave the go-ahead to a US$300-million natural gas storage project in Virginia. The company is advancing a project at the Bruce Power nuclear-generating facility to increase its power capacity by about 90 megawatts. TC Energy, which owns 48 per cent of Bruce Power, says its share of the capital cost is $175 million.
These four initiatives represent $1.5 billion earmarked for new developments, but they’re significantly smaller than some of the megaprojects TC Energy has tackled in the past.
The average size of capital projects in the company’s queue through the rest of the decade is $450 million, Poirier told analysts and investors.
“These (new) projects exemplify our forward focus on smaller brownfield, in-corridor expansions that offer more compelling economics . . . and overall, lower execution risk,” he added.
“We don’t need to adopt projects of a very large scale anymore.”
The midstream company has been moving aggressively on a plan to lower its debt, selling about $7 billion of assets in “what’s been a transformational few years for TC Energy,” Poirier said.
In the last decade, TC found itself at the centre of intensely complex and politically divisive debates over projects such as Keystone XL, Energy East and Coastal GasLink developments.
In 2017, it walked away from trying to build the $15.7-billion Energy East proposal, which would have transported oil from Western Canada to the Atlantic coast, citing the project’s “complexity and difficulty.”
After more than a decade of planning, construction on the Keystone XL oil pipeline began in 2020 following its approval by the Trump administration. However, it was cancelled the next year after President Joe Biden nixed its cross-border permits.
Coastal GasLink, a 670-kilometre pipeline that moves natural gas from northeast B.C. to LNG Canada’s export terminal at Kitimat, B.C., has been mechanically completed. However, the pipeline’s price tag jumped from an early estimate of $6.2 billion in October 2018 to about $14.5 billion.
With cost increases in the rear-view mirror, TC Energy is closing in on completing its Southeast Gateway project in Mexico, having reduced projected cost by 11 per cent to about US$3.9 billion to $4.1 billion. The natural gas pipeline is expected to be mechanically completed by year’s end or early in 2025.
Sticking to smaller developments should help TC Energy continue to deleverage its balance sheet and avoid large cost escalations that hit previous projects, say analysts and investors.
“One big thing they did say is no new big projects, because that’s technically where this company has gotten themselves into problems,” said Laura Lau, chief investment officer with Brompton Group, which owns shares in TC Energy.
“So that is definitely a good sign.”
The outlook for the future is what’s of keen interest these days for TC Energy.
Rising demand for natural gas for LNG and electricity generation opens new opportunities for the sector.
The pipeline giant expects total natural gas demand in North America will increase by almost 40 billion cubic feet (bcf) per day by 2035, with total consumption reaching 160 bcf a day, as power generation and the next wave of LNG facilities take off.
TC Energy said it sees a tripling of LNG exports across North America, from 13 bcf a day last year to more than 30 bcf a day by 2035.
The incoming Trump administration is expected to quickly lift the Biden administration’s moratorium on approving new LNG export projects in the United States, increasing the need for more natural gas — and infrastructure to get it to facilities for export.
TC Energy already operates 93,000 kilometres of natural gas pipelines in North America. The company’s planned additions to its existing Canada and U.S. gas networks will be driving a lot of future growth, and it can do so by advancing brownfield projects, said analyst Zack Van Everen at Tudor Pickering Holt & Co.
“The medium-sized . . . developments let them focus on the project more — and stay within budget,” he said.
“That strategy is a good one for them. And with the amount of gas projects in the U.S., I assume most of those would be brownfield projects, so you are not really going to see any new greenfield pipes from any of these companies.”
Chris Varcoe is a Calgary Herald columnist.