Regardless of US Tariffs, Canada’s Oil Industry May Remain Unaffected

March 5, 2025 TruthUSA

As Canada grapples with the uncertainty surrounding the permanence of U.S. tariffs, analysts suggest that the oil and gas industry may not face significant concerns due to the U.S.’s ongoing demand for Canadian energy.

On March 4, U.S. President Donald Trump implemented sweeping 25 percent tariffs on Canada, reducing the tariffs on Canadian energy to 10 percent. The following day, he declared a one-month exemption for automakers.

In 2023, the United States accounted for roughly 97 percent of Canadian crude oil exports, with a majority (87 percent) coming from Alberta, the largest oil producer in Canada. The remaining 3 percent was sent to the Netherlands, UK, Germany, Spain, France, Norway, Italy, and Hong Kong.

Richard Masson, an executive fellow at the University of Calgary School of Public Policy, noted that the 10 percent tariff effectively adds around $6 to the price of each barrel of oil, which is unlikely to alter import and export trends significantly.

“The oil we sell flows to the U.S. because they want and need it,” Masson stated in an interview. “A higher price won’t change that situation. We lack alternative markets, and they have no substitute supply options.”

Almost half of these exports are directed to refineries located on the Gulf Coast. According to Masson, these facilities are designed to process the oil produced in the oilpatch and convert it into diesel fuel.

“These refineries are large, complex facilities, often costing a billion dollars or more to establish a coker. Such investments have already been made, and the only way to recoup that expenditure is to purchase heavy oil,” he explained.

The price of Western Canadian Select oil, a heavy oil mixed with bitumen and diluents, ranged from US$73.21 per barrel on April 5, 2024, to US$51.95 on September 10, 2024. On March 4, 2025, it was priced at US$55.91. According to Masson, the $6 tariff per barrel is relatively minor in comparison.

“Operations will continue as usual, and any noticeable differences in investment are likely to be seen only when capital budgets are set next fall, assuming we gain more clarity on the situation,” he mentioned.

Despite Trump’s assertions that the U.S. does not require Canadian products, he has also expressed a desire to revive the Keystone XL pipeline, raising questions about his intentions regarding the tariffs. The Keystone was designed to transport crude oil from Canada to the U.S. but was halted by the Biden administration.

There are still uncertainties regarding the application of the 10 percent tariff. One pipeline transports Canadian oil to refineries in Sarnia, Ontario, and Montreal, but it crosses the United States en route. Some oil or bitumen heading to the U.S. for refinement is then directly exported.

“It’s currently unclear whether the tariff will apply to oil that transits through the U.S., or only to oil that actually enters the U.S. Some companies believe that oil in transit will be exempt, but this is yet to be confirmed,” Masson stated.

Kevin Birn, an energy analyst based in Calgary with S&P Global, noted that Canada’s insufficient pipeline capacity to reach tidewater has already diminished the returns for Canadian producers from U.S. purchasers.

“There’s a growing need to understand the dollar value impact of this tariff,”” he told The Epoch Times. “It mirrors the previous decade, as Canada has effectively implemented a self-imposed tariff due to pipeline access issues.”

A lack of sufficient pipeline infrastructure to tidewater confines Canadian producers to lower prices offered by American buyers. The price differential between Western Canadian Select oil and West Texas Intermediate, a lighter oil, was approximately US$12.88 per barrel in mid-January, although it had been higher in preceding years.

At the start of November 2018, the price difference surged to a record high of US$46 per barrel, leading the Alberta government to impose production limits. In 2022, this differential peaked at approximately US$30 per barrel in December, averaging around US$18.22 for the entire year, while in 2023, it concluded the year at roughly US$26 per barrel with an average of about US$18.65, according to the Alberta Energy Regulator.

“The oilsands sector is expansive and has demonstrated resilience in the face of such upheavals,” Birn remarked, considering the new tariffs one more element of the equation.

Birn anticipates that light crude producers may suffer more from the tariffs than heavy oil producers from the oilsands, as finding alternative sources for heavy oil is more challenging for the U.S.

“Does this spell the end of that industry? No,” he said. “Canadian producers will incur some costs due to the limitations in our egress situation, while U.S. refiners will likely experience some expenses as well due to their inability to source alternative heavy oil supplies.”

While the market implications remain uncertain, tariffs could further incentivize U.S. buyers to reduce their offers for Canadian oil, resulting in decreased royalty revenues for provinces like Alberta.

In 2023–24, Alberta garnered over $14.5 billion in royalties from bitumen, nearly $3 billion from crude oil, and around $1 billion from natural gas and byproducts. The province expects bitumen royalties to exceed $16.8 billion in 2024–25, while royalties from crude oil and natural gas will likely remain stable.

U.S. motorists and investors may also feel the repercussions.

“Despite the corporations being Canadian, a significant portion of the production is actually funded by U.S. investors. This situation resembles taxing both arms at the same time,” Birn commented.

Similar to Masson, Birn expresses concern about how the tariffs might disrupt the robust and reliable trade relationship between the two nations.

“Ultimately, this is likely to lead to increased costs and may tarnish relations, complicating future interactions between the two countries,” he warned.

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