No one knows exactly what the mercurial Mr. Trump will do when he takes office early next year. But there are compelling reasons why oil will be seen as its own special trade category by the Trump administration 2.0. Pumpjacks operate as wildfire smoke hangs in the air near Calgary, Alberta, May 12.Jeff McIntosh/The Associated Press
President-elect Donald Trump has promised across-the-board tariffs on imports, and countries that trade with the United States are bracing for how exactly this will play out – nowhere more so than export-focused Canada.
But if there is a bit of economic solace, it’s that oil, Canada’s largest export, is likely to be viewed and treated differently than auto parts or steel.
No one knows exactly what the mercurial Mr. Trump will do when he takes office early next year. But there are compelling reasons why oil will be seen as its own special trade category by the Trump administration 2.0.
First of all, gasoline prices will weigh on Mr. Trump, as they have on Democrat Joe Biden. As a Rystad Energy report says, “U.S. consumers prefer an oil and energy-intensive lifestyle, and for this energy to come at a low cost.”
This sentiment is true no matter who is in the White House. To try to dampen down unease on gasoline prices two years ago, Mr. Biden unleashed his country’s emergency supply of oil, urged domestic producers to drill, and pled with Saudi Arabia to produce more crude, amongst other actions.
Mr. Trump, who has promised to slash energy bills by “more than half,” will also do what he must to keep gasoline prices steady, including making sure that his country has enough diluted bitumen from Canada.
That comes to another point, that even as the U.S. has become the world’s biggest oil producer in recent years, its consumption of Canadian oil has never been higher, reaching a record 4.3 million barrels per day in July.
Many U.S. refineries are set up to process heavy sour crude, exactly the kind that comes from the oil sands. Kevin Birn, of S&P Global Commodity Insights, said that feedstock goes to refineries specifically calibrated to process that grade. Profits for these refineries are strong are because Canadian crude is less expensive than other blends, but can be turned into high-value products.
“It‘s truly an integration of two systems – heavy production in Canada with heavy demand in the United States,” Mr. Birn said.
Thirdly, any description of the strong economic and business ties between Calgary and Houston would likely be an understatement. The energy industry in North America flows north-south, not east-west.
For instance, on the natural gas front, product from Canada makes its way to the U.S. for domestic use there, or for international export from U.S. LNG export facilities. An American pause on approvals for new LNG export terminals, implemented by the Biden administration this year for a study on climate risks, is likely be one of the first items a Trump Administration dumps. That will be a net positive for Canadian natural gas producers, who won’t have their own export facility until next year.
Another reason energy is likely to be a special category for trade isn’t as complicated. Some of Mr. Trump’s largest backers and donors are energy CEOs. Because of the simple fact that Mr. Trump‘s friends likely want oil and natural gas to keep flowing across the border, it probably will. (The incoming president’s tone on electric vehicles, for instance, became more positive over the course of the presidential campaign as Tesla CEO Elon Musk became an increasingly integral part of his run.)
Mr. Trump has promised to increase U.S. oil production, which, as The Globe has noted, could push down global prices, to the detriment of Canadian producers. But, according to Eric Nuttall of Ninepoint Partners LP, declining reserves in U.S. shale fields makes a sudden uptick in production unlikely.
Still, energy work has to be especially appealing to a protectionist like Mr. Trump. Unlike manufacturing jobs, the labour done by energy workers in the U.S. cannot be sent offshore. That applies to building cross-border pipelines, too.
Mr. Trump was of course the president who approved the Keystone XL oil pipeline in his first days in office in 2017. But it would be an error to focus too much attention on a revival of that project, which was cancelled by Mr. Biden in 2021.
Given the high costs and risks of a political pendulum swing in the years ahead, it’s unlikely to proceed without a huge infusion of government money. Deborah Yedlin of the Calgary Chamber of Commerce said we are in a “watershed moment,” where Canada could move to diversify its trading partners.
But at the same time, it can’t be forgotten that Canada’s energy producers need the U.S., too. We export most of the oil our country produces. And of those exports – even with the Trans Mountain pipeline expansion, which allows oil to be sent to Asia – well north of 90 per cent of Canadian oil exports still go to the United States.