Trump’s Tariff Threats Prompt Canada’s Largest Oil Producer to Reduce Reliance on the U.S.

HOUSTON — The highly integrated North American oil and gas sector finds itself at a pivotal moment, with Canada’s leading oil producer indicating a shift towards diversifying its exports from the United States unless President Donald Trump’s tariff threats come to a halt.

On Wednesday, Alberta Premier Danielle Smith outlined two potential scenarios for the continent. The first envisions a collaborative “Fortress North America” agreement between Canada and the U.S., allowing for new pipeline infrastructure to facilitate an increase of 2 million barrels per day in exports to the U.S. market, as stated by Smith at the CERAWeek energy conference.

This initiative would support Trump’s “energy dominance” policy, enabling the U.S. to boost its exports to the global market by compensating for those barrels with imported oil from a neighboring ally. This approach would help keep U.S. consumer prices low, which aligns with Trump’s campaign promises.

Alberta aims to provide the energy necessary for the U.S. to outpace China in establishing superiority in artificial intelligence, Smith remarked. “None of us want a totalitarian regime to emerge as a global leader in AI,” the premier added.

The alternative scenario suggests that if Trump persists in his trade aggression towards Canada, Alberta will commence seeking oil and gas buyers in regions outside the U.S., Smith warned.

Canada ranks as the fourth largest oil producer worldwide, with Alberta being the top producing province. In 2023, a staggering 97% of Canada’s 4 million barrels per day of oil exports were directed towards the U.S., with the remainder going to several European countries and Hong Kong, according to the energy regulator. Alberta contributed 87% of the oil that Canada exported to the U.S. in 2023.

“At least six or seven projects are being initiated in Canada if we are unable to forge a partnership with the U.S.,” stated Smith.

The uncertainty stemming from Trump’s tariff threats has already prompted Alberta to explore “more opportunities to export our barrels beyond the U.S.,” noted provincial energy minister Brian Jean on Tuesday.

Alberta is actively negotiating with South Korea, Japan, and several European nations regarding potential oil exports, the energy minister highlighted. “Currently, we are looking in all possible directions except the United States regarding our priorities,” Jean expressed.

The recent imposition of tariffs by Trump has unsettled financial markets, leading to confusion among investors. On Wednesday, the president enforced 25% tariffs on steel and aluminum imports from Canada, while delaying penalties on Canadian oil, gas, and compliant goods until April 2.

The Trump administration has not clarified how much of Canada’s energy exports to the U.S. adhere to the trade agreement. Oil and gas exports deemed non-compliant could face a 10% tariff. U.S. Energy Secretary Chris Wright refrained from providing additional details when queried by CNBC on Monday.

During the Wednesday address, Smith mentioned that Canadian oil producers are diligently completing the necessary paperwork to ensure conformity of their U.S. exports.

“Our companies encountered some paperwork challenges,” said Smith. “Previously, registration wasn’t required, but now it is. I suspect they have consulted with their legal teams and are in compliance. I wouldn’t anticipate much of our oil and gas being subject to tariffs at all.”

However, there remains uncertainty regarding whether Trump will implement tariffs once his pause concludes on April 2. Wright mentioned Monday that a deal between Canada that avoids energy tariffs is “certainly possible,” but added that “it’s too early to say.”

“We can move towards no tariffs or very low tariffs, but it has to be a reciprocal arrangement,” Wright remarked in an interview with CNBC’s Brian Sullivan.

Should tariffs be enacted, Alberta will face significant challenges in turning to markets beyond the U.S. Nearly all Canadian pipelines are designed to move southward into the U.S., while Canada only possesses one pipeline extending from Alberta to the West Coast in British Columbia, which services Asian markets. Notably, there are no pipelines directing oil from Alberta to the East Coast.

Smith indicated that Canada is assessing three distinct pipeline proposals to the West Coast, along with at least one to the Northwest Territories, one to Manitoba, one to the Hudson Bay, and one reaching Eastern Canada.

“These are discussions we weren’t engaging in three months ago,” Jean commented regarding the pipeline developments. However, it took Canada 12 years to expand the Trans Mountain Pipeline that connects to the West Coast.

Alberta is hesitant to emulate Ontario’s strategy, where Premier Doug Ford imposed a 25% surcharge on electricity exported to the U.S. in retaliation for Trump’s tariffs, only to suspend the penalty later when talks resumed.

“We don’t believe that approach is effective,” Jean stated regarding Alberta’s stance. “We aim to de-escalate the current situation.”

Canada has presented several options to the U.S., according to the Alberta energy minister. Although Jean didn’t disclose specifics, he emphasized that the Trump administration requires a robust strategic petroleum reserve to achieve its energy dominance objectives.

“This also entails ensuring a consistent and reliable supply of products from Canada,” he noted.

If tariffs are enforced, they will adversely affect both Canadians and Americans, particularly those unable to bear a price increase. The price hike will be divided “fairly evenly” between U.S. consumers and Canadian producers, he added.

“The impact will be felt by all parties, and there are numerous people who are currently […] unable to afford the increases,” he remarked. “We must consider those individuals who are less fortunate and have no alternative but to purchase fuel.”

Jean also responded to Trump’s frequent comments suggesting Canada should become the 51st state.

“As long as we remain in control, we’re open to the idea,” Jean quipped. “However, the reality is the Republicans would never regain power again.”