While uncertainty on whether the U.S. tariffs are here to stay grips Canada, the oil and gas sector may not need to worry given the U.S. need for Canadian energy, analysts say.
Richard Masson, executive fellow at the University of Calgary School of Public Policy, said the 10 percent tariff adds roughly $6 to the price of a barrel of oil and won’t change import and export patterns much.
“The oil we send is getting to the U.S. because they want it and they need it,” Masson said in an interview. “The higher price is not going to change that. We don’t have lots of other places to sell it. They don’t have any alternative sources of supply.”
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“These are the big, most complicated units in refineries, typically a billion dollars to put in a coker or more. That capital has already been invested, and so the only way they can make a return on that is to be able to buy heavy oil,” he said.
“People will carry on, and we probably won’t start to see a difference in investment until capital budgets [are] set next fall, when we have some more certainty on how this is all playing out,” he said.
While Trump has said on various occasions that his country doesn’t need any Canadian products, he has also said that he wants the Keystone XL pipeline revived, raising questions as to what his plans with the tariffs are. Keystone was meant to transport crude oil from Canada into the United States but was cancelled by the Biden administration.
“It’s not clear if this tariff is going to apply to oil that’s transiting through the U.S., or just oil that enters the U.S. I’ve seen some companies think the transiting oil will be exempt, but that remains to be proven,” Masson said.
Kevin Birn, a Calgary-based energy analyst with S&P Global, said Canada’s lack of pipelines to tidewater have already lowered what Canadians get from U.S. buyers.
“People want to know what that [tariff] impact is on a dollar value,“ he told The Epoch Times. ”It really looks like the last decade, where Canada had almost like a self-imposed tariff due to the pipeline egress issues.”
A lack of pipelines to tidewater leaves Canadian producers stuck with a lower price from American buyers. The differential between Western Canadian Select oil and West Texas Intermediate, a light oil, was about US$12.88 per barrel in mid-January, but it had been higher prior to that in recent years.
“The oilsands sector is large-scale, and it’s proven to be resilient through these kinds of turmoil,” Birn said, counting the new tariffs as yet one more factor.
Birn expects that light crude producers may feel the negative effects of tariffs more than heavy oil producers from the oilsands because it’s harder for the United States to find other sources for heavy oil.
“Is it the destruction of that industry? No,” he said. “The Canadian producer will bear some cost because of its lack of optionality of our egress situation. The U.S. refiners will likely bear some cost because of the inability to obtain alternative sources of heavy oil.”
Although market impacts are unclear, tariffs could become just another reason for U.S. buyers to offer less for Canadian oil, something that translates into lower royalties for provinces like Alberta.
American motorists, and especially investors, may also feel the pain.
“Behind the corporate headquarters being in Canada, there’s still a lot of U.S. money that actually owns the production. So this is a little bit like taxing your left arm and your right arm at the same time,” Birn said.
Like Masson, Birn is wary of how the tariffs could compromise a strong and reliable trade network between the two countries.
“What this is going to do is increase cost and probably sour relations and complicate the future relations between these countries,” he said.
