TC Energy Faces Policy Friction Amid Rate Headwinds
TC Energy's valuation has contracted as rising borrowing costs and provincial policy disputes threaten its expansion plans, despite a dividend yield exceeding 4%.
TC Energy Corp. shares have declined 15% from their twelve-month peak, trading near C$85 after reaching approximately C$100 earlier in the year. This correction has pushed the dividend yield above 4%, attracting income-focused investors while highlighting the company's exposure to macroeconomic pressures. The stock’s recent performance reflects a market reassessment of the pipeline operator’s ability to secure returns on capital in a high-interest-rate environment.
The primary driver of this valuation adjustment is the cost of debt. TC Energy relies heavily on borrowed capital for multibillion-dollar infrastructure projects that take years to become operational. With the European Central Bank already implementing rate hikes and markets pricing in further tightening by the Bank of Canada and the Federal Reserve, projected project returns are being compressed. The resurgence of crude oil prices above US$100 per barrel due to Middle East tensions has stoked inflation fears, reinforcing expectations for sustained higher borrowing costs.
Alberta Policy Dispute Over Gas Capacity
Compounding financial pressures, TC Energy’s core Nova Gas Transmission Ltd. system has become the subject of provincial policy controversy. A leaked Alberta cabinet report argues that the company’s planned expansions are misaligned with the province’s projected demand growth. The document asserts that TC Energy’s dominant market position has created a market failure, leaving fast-growing sectors such as artificial intelligence data centers and oil-sands operations without reliable natural gas supply. The report proposed the establishment of two Crown corporations to develop new transmission infrastructure.
Alberta Premier Danielle Smith subsequently indicated that the Crown corporation proposal was unlikely to proceed, citing sufficient private-sector interest to meet capacity needs. However, the cabinet document flagged potential legal challenges from TC Energy and ATCO Gas and Pipelines Ltd. should the government pursue this path. In response, TC Energy stated it remains prepared to invest in the provincial pipeline network to address what it termed generational demand for natural gas.
Infrastructure Scale Supports Long-Term Demand
TC Energy moves roughly three-quarters of Western Canada’s natural gas output through a network spanning Alberta and northeastern British Columbia. The system, first operational in 1957, ships an average of 15 billion cubic feet of gas per day. The company reports investing C$15 billion in system expansions over the past decade, with an additional C$1 billion in projects currently in the pipeline to expand capacity. Management asserts that natural gas demand is outpacing infrastructure build-out and that its capital commitment exceeds that of any other market participant.
Long-term fundamental drivers continue to support the business case for expansion. Within North America, construction of new gas-fired power plants is accelerating, driven largely by power-intensive AI data center complexes and oil-sands expansion. TC Energy operates more than 90,000 kilometers of gas pipelines and holds 650 billion cubic feet of storage capacity across Canada, the U.S., and Mexico. Its infrastructure handles approximately 30% of total natural gas consumed in North America, positioning it near clusters of new power generation and data center build-outs. Export opportunities also provide upside, as the Coastal GasLink pipeline delivers gas to the LNG Canada export terminal on British Columbia’s coast.
