A worker stands on a steam-assisted gravity drainage pad at Cenovus' Sunrise oil facility northeast of Fort McMurray on Aug. 31, 2023.Victor R. Caivano/The Associated Press
Cenovus Energy Inc. CVE-T will likely send more crude to Asia should the United States’ threat of a 10-per-cent tariff on Canadian energy imports be realized, as the energy sector as a whole works to find more ways to get its product to market.
Energy imports were among the many tariff targets of U.S. President Donald Trump when he took office, though he granted a 30-day pause earlier this month and it’s unclear what will happen when that is up in early March. While there is little political or market appetite to impose export restrictions in response, Canadian producers are nonetheless looking at alternate plans for their barrels to avoid the worst financial hit.
In the case of Calgary-based Cenovus that means Asia, said Geoff Murray, executive vice-president of commercial operations, on Thursday.
The expanded Trans Mountain Pipeline System is running at capacity for contracted volumes, with the destination of the oil that hits the West Coast split roughly 50/50 between Asia and California, Mr. Murray told analysts on an earnings call.
But tariffs would mean an economic rebalance that tips further toward Asia, he said.
“We expect that would obviously drive as much volume as possible through Trans Mountain – perhaps beyond the contracted capacity, provided that that volume could find a home on the dock – and then it would preferentially head globally, rather than to California,” Mr. Murray said.
“We believe that demand at the dock will be robust for folks that want to come and pick it up there and take it and move it to the best global location.”
The Trans Mountain Pipeline expansion has resulted in five-year lows in the differential between Canadian and U.S. oil prices, he said. But at some point – likely later this decade – it will hit capacity.
That has the sector looking carefully at “different forms of future egress” to address potential bottlenecks, Mr. Murray said.
“There are a number of really interesting opportunities coming to market right now that have us believing in good opportunities for the differential to stay relatively narrow over time.”
On the tariff front, Cenovus chief executive Jon McKenzie said Thursday that they would not affect the company’s spending or production plans this year or in the near future, even if they do come into play.
But there’s no doubt the industry would take a hit from tariffs, he said, because they would affect so many of the variables that have consequences on cash flows, including the price of oil.
“There’s also knock-on impacts on the price of condensate, the price of natural gas, which are all inputs to our business … as well as what happens to refining margins in the U.S.” he said.
“We’re watching the price signals very closely to get a feel for that. And if we are in a world, unfortunately, in March where tariffs do come, we will watch those price signals and react accordingly.”
A report from S&P Global on Thursday concluded that Canadian oil producers will likely be resilient to tariffs, given how much U.S. refiners rely on crude imports from the country as feedstock.
It said that the financial burden of potential tariffs will be shared by U.S. refiners – and ultimately U.S. consumers – and Canadian producers, though a relatively weak Canadian dollar will limit the financial and credit rating hit to companies north of the border.
Cenovus posted a fall in fourth-quarter profit on Thursday, as lower commodity prices and weak refining margins offset higher production.
The company’s shares were down 4.5 per cent in mid-morning trading.
The decline in oil prices year-over-year negatively affected Cenovus’ revenues, even as the company reached a quarterly record for oil sands production, at 628,500 barrels of oil equivalent per day.
But Cenovus’ results also reflect general weakness in the North American refining sector. Integrated oil companies, including Exxon and Chevron, have seen a drop in profitability in their refining segments as margins return to normal levels after a period of extraordinary gains that were driven by sanctions on producer Russia over its invasion of Ukraine.
With a report from Reuters