An oil pump jack on the prairies near Claresholm, Alta. on Jan. 18.Todd Korol/Reuters
Canada’s oil and gas sector remains under the shadow of tariff threats, but officials breathed a temporary sigh of relief Monday when U.S. President Donald Trump did not immediately follow through on imposing duties on energy imports.
However, the new president’s vision of U.S. energy independence via a massive boost to domestic production – “drill, baby, drill” – means more uncertainty for a Canadian industry that relies heavily on the U.S. market.
Canada and the U.S. have by far the largest bilateral oil-trading relationship in the world. Last year, Canada accounted for 60 per cent of U.S. crude imports, hitting a record of 4.3 million barrels a day. That was up from 33 per cent of imports just a decade earlier, according to the U.S. Energy Information Administration (EIA).
Tariffs are not off the table altogether, as Mr. Trump directed federal agencies to evaluate trade relationships with China, Mexico and Canada. He also told reporters Monday evening that he was thinking of imposing 25-per-cent tariffs on imports from Canada come Feb. 1. But Rory Johnston, oil analyst and founder of Commodity Context, said the fact that they weren’t officially imposed on inauguration day was “a deep, deep relief” for the Canadian oil and gas sector.
Mr. Trump’s step back gives Canada ample opportunity to keep highlighting the value of its energy to the U.S. market, Mr. Johnston said.
Lisa Baiton, chief executive of the Canadian Association of Petroleum Producers, said Mr. Trump sent a clear signal that the U.S. is going to try to achieve energy dominance.
“That was a very clear signal that the United States is going to undergo a seismic policy reset,” she said in an interview. “Canada needs to pay attention to that, and figure out how we’re going to be competitive with a neighbour next door that is taking all of the shackles off business.”
About 40 per cent of U.S. refineries are specifically tooled for heavy crude – the kind produced in Canada, predominantly from the oil sands. The EIA says Canadian crude accounted for about 24 per cent of U.S. refinery output in 2023. That’s about 3.9 million barrels a day – an increase from 17 per cent in 2013.
Decades of that stable, co-dependent relationship meant that Canada’s energy industry was blindsided in November by Mr. Trump’s threat of across-the-board tariffs on imports, which it said would disrupt decades of free trade and push up fuel prices for American consumers.
Ottawa-based trade lawyer Rambod Behboodi, senior counsel with Borden Ladner Gervais LLP, said tariffs will remain a major worry.
“We know that Mr. Trump loves tariffs. He’s done it before, and we know that sometimes they’re driven by strategic considerations,” Mr. Behboodi said.
“The connection of that tariff framework to the energy issue is even more challenging because it would essentially mean jacking up gasoline prices in the U.S. by limiting imports into the U.S. of Canadian oil, and that’s a no-go.”
Ottawa and the Alberta government have loudly been making that case since November. Last week, federal Natural Resources Minister Jonathan Wilkinson was in Washington. The weekend before, Alberta Premier Danielle Smith went to Florida to lobby Mr. Trump at his resort.
“Avoiding tariffs will save hundreds of thousands of Canadian and American jobs across every sector,” she said in a statement Monday. “As an example, declining to impose U.S. tariffs on Canadian energy preserves the viability of dozens of U.S. refineries and facilities that upgrade Alberta crude, and the jobs of tens of thousands of Americans employed at them.”
Andrea van Vugt – a former trade adviser to then-prime minister Stephen Harper, who leads trade practice at Wellington Advocacy – said Mr. Trump’s comments don’t change the fact that “the energy relationship between Canada and the United States is one of the most important elements of the relationship between our two countries.”
Energy independence is not going to happen overnight, and Canada remains a preferred partner, she added in an interview from the U.S. capital. “It is something that we are going to have to actively work on to ensure that, whether it’s the United States’ pursuit of energy independence or a potential implementation of tariffs, that we have a plan to make sure that that is as limited as possible.”
It’s hard to say how well more lobbying will work. Mr. Trump made a point of saying Monday that the United States has “the largest amount of oil and gas of any country on Earth, and we are going to use it” to fill the country’s strategic reserves and become an export powerhouse.
If drillers ramp up and cause an oil glut, that could lower prices – something that would mean more to U.S. producers than in the Canadian oil sands, where a $10 swing in price doesn’t impact investment as much because the operations are so massive, Mr. Johnston said.
“Whereas in the U.S., because of that cycle of investment, drilling and production, you’re thinking about months rather than years of turnaround and payback. So I do think that they would reaccelerate much faster,” he said.
Canada has been by far the most successful globally at supplying the United States after years of production increases from the oil sands and pipeline expansions.
The most recent of the latter was the $34-billion Trans Mountain expansion, which nearly tripled capacity to ship Alberta crude to the Pacific Coast to 890,000 barrels a day. That project has meant a major increase in tanker shipments to Asia, but also the U.S. West Coast.