Anxious times in Alberta's oilpatch with potential Trump tariff hit just days away
With oil and gas Canada’s largest exports to the U.S., Alberta is province most exposed to tariff disruptions
Canada and the United States have often been described as the best of friends and closest of allies. Two countries sharing the longest border in the world and intricately linked in countless aspects of life, especially as economic partners.
It's an adage that sure seems fraught right now on the eve of a trade war that could explode next week when Donald Trump returns to the White House.
The president-elect's threats of widespread tariffs, and Canada's threat of its own tariffs in response, has the potential to impact hundreds of thousands of jobs, ignite inflation pressures and bruise the financial health of many industries.
In particular, Alberta and its oilpatch are in the crosshairs as energy is Canada's largest export to the U.S., worth about $125 billion in 2023.
A massive tariff applied to the four million barrels of oil that flow south every day could drive down prices of Canadian oil, lead companies to pull back on production, and damage the bottom line of the provincial government.
"There's a lot of concern," said Jackie Forrest, executive director of the ARC Energy Research Institute in Calgary.
"I wouldn't say there's panic yet, because I think there's still the potential that we don't see the tariffs," she said.
The hope in the oilpatch is that the tariffs are just posturing and a negotiating tactic by Trump. There's also some belief the sector will be exempt or tariffs will be gradually introduced.
Tariffs would be paid by U.S. refineries and importers. The added cost could drive up the price of fuel for drivers, with estimates varying between an extra 25 to 75 cents US per gallon of gasoline in the Midwest.
Still, Canadian oil producers would likely feel financial pressure, too. For instance, some refineries may not be able to pass on the extra cost to consumers if they are competing in a market with refineries that process U.S. oil, or bring in fuel from other parts of the country.
"I do think we're going to see a reduction in demand for our crude oil in this scenario. And because we don't have alternative markets, we have very few outlets," said Forrest.
That would potentially result in companies in Western Canada filling storage tanks with oil to build inventories, she said, as well as "lower prices for Canadian crude oil."
Boardroom backup plans
Some Canadian oil producers have been trying to protect themselves from the potential of tariffs by hedging their risks, said Al Salazar, head of macro oil and gas research at Enverus Intelligence Research.
Hedging involves signing contracts to lock in the price of oil that will be sold over the months or year ahead.
"Producers here hedge and basically secure their price in advance," Salazar said of those in Alberta and Western Canada, noting that a couple weeks ago, some people noted that it felt like the volume of Western Canadian Select, crude oil from Canada's oilsands, had gone up in response to the risks.
"Certainly, I think there's a lot of folks that are taking it quite seriously."
That includes some of the biggest players in the industry. Earlier this week, five major Canadian energy industry groups released a statement, announcing that they had formed a joint working group to combat the threats of the tariffs.
Energy companies both large and small have also been pushing back against the tariffs. Cenovus Energy produces oil in Canada and ships it directly to the company's refineries in the United States.
"Any trade barriers that might be imposed on this free flow of trade could have a serious negative impact on the economies and consumers on both sides of the border," the company wrote in a statement.
Paul Colborne, president and CEO at Surge Energy, says if tariffs come into effect, it's likely that oil and gas could be exempted quickly out of sheer necessity.
But any extended scenario would have an impact on the Calgary-based junior oil producer that operates in Alberta and Saskatchewan.
"If this turned out to be a three, six-month deal … we already sell all our oil every day [to the U.S.], but we would look to sell to marketing companies that have access to TMX, or to rail, and find other ways to get our product to market," Colborne told The Calgary Eyeopener.
The Trans Mountain pipeline system, often referred to as TMX, exports oil from Canada's West Coast, so the oil can be sold to countries around the world, avoiding the U.S. tariffs.
Alberta rejects federal plan
After a recent visit to Trump's Mar-a-Lago residence, Alberta Premier Danielle Smith said her government would seek to work overtime to make a case for a "carve-out" for oil and gas exports if tariffs proceed.
"I think we'd have to be prepared that we would run deficits in Alberta," Smith said Monday, since every dollar drop in Canadian oil prices costs the treasury.
On Wednesday, Canada's premiers met in person and virtually with Prime Minister Justin Trudeau in Ottawa to discuss the tariffs and paths of possible retaliation.
Federal officials have refused to rule out taking action on oil, such as restricting energy exports to the U.S.
That idea is dead in the water as far as the Alberta government is concerned. On Wednesday, Alberta did not sign a joint statement between the Government of Canada and the Council of the Federation.
"Federal government officials continue to publicly and privately float the idea of cutting off energy supply to the U.S. and imposing export tariffs on Alberta energy and other products to the United States," Smith wrote in a statement.
"Until these threats cease, Alberta will not be able to fully support the federal government's plan in dealing with the threatened tariffs."
A 25 per cent across-the-board tariff by the U.S. could shrink Canada's economy by two to three per cent, according to an analysis by University of Calgary economics professor Trevor Tombe, although several factors could sway the figures.
Alberta is the most exposed province to tariff disruptions "by a wide margin," he said.
New alliance
The two economies "are effectively hard-wired," especially with energy and critical minerals, said federal Natural Resources Minister Jonathan Wilkinson, during an event in Washington, D.C., on Wednesday.
Tariffs will mean going down a "path that will inevitably be lose-lose" and cause financial pain for Canadian and American families, he said.
Instead, the two countries should double-down on their longstanding partnership and form a "U.S.-Canada energy and minerals alliance" to ensure less reliance on China and other foreign countries.
The alliance would not only focus on oil, natural gas and electricity, but a broad range of materials from potash and uranium to nickel and zinc.
"Put simply, the U.S. cannot be energy dominant without Canadian energy," he said.
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