An oil pump jack operates near Longview, Alta., on March 15.Todd Korol/Reuters
Canada’s energy industry was blindsided by U.S. president-elect Donald Trump’s threat of across-the-board tariffs on imports, which it said would disrupt decades of free trade in oil and gas, reduce production and push up fuel prices for American consumers.
Mr. Trump’s shot across the bow from his social media platform late Monday, raising the prospect of 25-per-cent import duties on Canadian and Mexican products, did not mention oil and gas specifically – and the odds of this becoming reality were viewed as slim. It is a familiar bargaining pattern from the incoming leader.
Still, the sector was not prepared for such brinksmanship from Mr. Trump before he even took office, and the prospect complicates an increasingly rocky relationship with its own federal government.
“The Canada-U.S. energy partnership is more than 100 years old and is highly correlated to national security, energy security, economic security and geopolitical security. As such, we must do everything in our power to protect and preserve this energy partnership,” Lisa Baiton, chief executive officer of the Canadian Association of Petroleum Producers, said in a statement.
“A 25-per-cent tariff on oil and natural gas would likely result in lower production in Canada and higher gasoline and energy costs to American consumers while threatening North American energy security,” she said.
At more than four million barrels a day, Canadian crude makes up about half the supply imported into the United States. The oil is a mainstay primarily for refineries located in the U.S. Midwest that have been configured to process the heavier Canadian blends.
“It comes down to: The type of quality that U.S. refineries need is what we have here in Canada, and to apply a tariff on that doesn’t make sense when you can’t produce it yourself,” said Jeremy McCrea, analyst at BMO Capital Markets.
Following Mr. Trump’s threat, Canadian producers quickly found U.S. allies, with representatives of the oil, gas and petrochemical sectors warning of threats to security and higher domestic prices, as tariffs are paid by the country that is importing the products.
Canadian energy shares were under pressure on Tuesday in response to what was perceived by investors as an unexpected new risk that could limit production. The S&P/TSX Capped Energy Index fell 2.2 per cent, with companies such as Tourmaline Oil Corp. TOU-T, Suncor Energy Inc. SU-T and Cenovus Energy Inc. CVE-T among the losers on the day.
Mr. Trump said the tariffs would be applied on his first day back in the White House and remain in place until the U.S.’s two neighbouring countries stop migrants and fentanyl from entering the country. Drugs and illegal immigration from Canada pales in comparison with Mexico.
One of the top U.S. presidential campaign issues was inflation, so import duties causing higher pump prices could prove unpopular with U.S. mid-term elections for the House of Representatives and Senate in 2026 now on the horizon, said lawyer Thomas Timmins, leader of the energy group at Gowling LLP.
“Anything that creates uncertainty and risk, or perceived risk, is bad for business,” he said. “That said, there is a long way between an initial pronouncement by a politician of any stripe in any country or any jurisdiction, and an actual black and white text on the law on the law books.”
Donald Trump isn't even president yet, and he may have touched off the start of a trade war. On Nov. 25, Trump vowed sweeping new tariffs on Mexico, Canada, as well as China on day one, as part of his effort to crack down on illegal immigration and drugs.
The Associated Press
Alberta Premier Danielle Smith took the opportunity to use the threat as a new wedge issue in her government’s battles against Ottawa. She said Mr. Trump’s border concerns were valid, and urged the federal government to resolve the issues to help avoid tariffs on Canadian oil being exported to the United States.
“Fortunately, the vast majority of Alberta’s energy exports to the U.S. are delivered through secure and safe pipelines which do not in any way contribute to these illegal activities at the border,” she said in a social media post. “As the largest exporter of oil and gas to the U.S., we look forward to working with the new administration to strengthen energy security for both the U.S. and Canada.”
The United States is Alberta’s largest international trading partner, with crude petroleum making up the bulk of exports. Alberta’s total international merchandise exports reached $15.1-billion in September and the U.S. accounted for $13.3-billion of that, according to provincial data published in November.
Ms. Smith’s United Conservative Party government has begun strengthening its ties with U.S. officials. Days after Mr. Trump’s election victory, she signed on to a key energy pact with a dozen American states. By joining the Governors’ Coalition for Energy Security, the province hopes to leverage a network of influential state governors should Mr. Trump follow through with tariffs.
Alberta is forging new inroads in the U.S. as it escalates its battle with Prime Minister Justin Trudeau’s government over a proposed oil and gas emissions cap. On Tuesday, Ms. Smith said she plans to use her signature legislation, the Alberta Sovereignty Within a United Canada Act, to defend against what she considers to be Ottawa’s unconstitutional intrusion into provincial jurisdiction.
Ms. Baiton said on Tuesday the tariff threat underscores CAPP’s demand to abandon the emissions cap, which the industry and provincial government have complained would force a cut in production. Ottawa disputes this.
With a file from Carrie Tait