Trade and Energy

Background#

Trump Administration has threatened 25% USA protective tariff on Canadian exported goods, with 10% applied to oil and gas and their products.

Canada government threats of retaliatory export tariff on Canadian oil and gas products to the USA.

Alberta government is opposed to any tariffs on the export of Canada's oil and gas products from Alberta.

Costing#

Canada imports $27.9B in Energy products from the USA. Comparable with metal, electronics, and paper products categories.
Canada export 4 million barrels a day to the USA.
Canada's trade surplus with the USA that is cited by the Trump Administration is only because of energy exports.
Cenovus (and other extraction companies) have refineries that they own in the USA where tariffs will have limited effect.

Prices and price changes:

Western Canadian Select (WCS): $66/b
The break-even price for Canadian oil sits somewhere around $45-$50/b.
West Texas Intermediate (WTI) oil price of $71 per barrel is expected at year-end 2025; responses ranged from $53 to $100 per barrel. (Dallas Fed)
WTI oil price of $74 per barrel expected two years from now and $80 per barrel five years from now. But, could go as low as $66/b by 2026. (Dallas Fed, Kansas City Fed)
The discount on Canadian oil (price between WCS and WTI) increased to $17.75 less per barrel than WTI on Wednesday, compared with $14.70 on Monday.

Impact on the USA: An 25% export tariff on Canadian crude could increase gas prices at the pump by up to 30 cents or more per gallon.

However, the slightly un-intuitive part of tariffs is the likelihood that WCS will decline in price as much or more than it will affect the price at the pump for the American consumer.

There are a lot of moving parts to the oil export market, the price of gasoline, other oil products, and price of Canadian oil.

Additional concerns#

Canadian refineries in Ontario and Quebec rely on western Canadian oil shipped via pipelines that cross into the US. Therefore, Canadian refiners could end up subject to American tariffs on Canadian crude.

Only 16% of Canada oil exports can be shifted to markets in Asia via the expanded Trans Mountain pipeline to the Pacific Ocean.
Only 4% of offshore production in the Atlantic also could be routed to new buyers.

Canadian (WCS) oil sells at a discount to US benchmark (WTI), allowing the US to sell its higher-value crude and products abroad while keeping American fuel prices low.

Alberta Oil#

Increased costs of imported pipeline oil will increase the rate of change in the sector over the medium to long term. In the short term, it is likely that refiners will simply pay in the increased costs that tariffs add.

USA refinery investment is based on the import of heavy Canadian oil.
Canadian crude oil accounted for 24% of all its refinery throughput.
Canadian crude is refined in the USA at the Rocky's and Midwest refining centres.
Heavy crude results in a different mix of oil products which could lead to a reduction in supply of those products to the USA market, including lubricants, diesel, and jet fuel. Fuel makers in the region rely on Canada for 46% of the crude that they turn into gasoline and diesel.
Refiners are making investments to adapt their production to lighter crude, but the investment cost is significant.
Current infrastructure and expertise is aligned with heavy Canadian crude and the debt on that investment has not been paid off. Changes at mid-life investment is doubly expensive.

Newfoundland Oil#

Offshore deep water Hibernia-style extraction is sweet crude.
Export of Hibernia oil is to the Texas/Gulf of Mexico region refineries.
Gulf refinery imports have increased faster than the rest of the USA.
Sweet crude is used to balance significant refining processes in the USA Gulf of Mexico region.
New deep water extraction that has come online will affect this export market.
Export tariffs will likely have limited impact on USA import as those refineries need Canadian sweet crude to continue to operate.

Natural Gas#

Without LNG terminals for export, all natural gas production in Canada for export is dependent on the USA.

The USA has increased natural gas production to a point that it is now a net exporter, displacing Canadian export growth in natural gas.

It is likely any tariff action around natural gas will continue the decline in imports of Canadian natural gas.

Analysis#

Trump is not likely to have much impact on global oil production and use.

prices are near $73 per barrel
Current American producer breakeven price is near $64 per barrel
To increase drilling the price needs to be $89 per barrel (30% higher)

There is slow demand growth for oil and oil products because the slowdown of the global economy, which is keeping a lid on production. This tendency in the global economy dwarfs even the USA's power of the energy markets.

However, tariffs on Canadian oil imports and exports can change this price calculation in the USA, making the market more susceptible to local conditions. Moves to increase the price of oil in the USA will bring more domestic production online and will speed-up ongoing transition of refineries and pipelines to use Permian/fracked oil.

This is not the first time the USA has used geopolitical and trade responses to change its local energy program.

Canadian oil imports into the USA was used to remove the dependency on Saudi oil since 2003. This has worked as oil imports from Saudi Arabia have gone down from 1.6 million b/day to below 0.3 million b/day.

Moves to affect local prices in the USA of certain oil products could affect investment decisions of refineries. The long-term consequences is a decline in reliance on Canadian oil exports. This is likely the goal of the USA irrespective of Canadian response to current tariff threats.

Unifor Energy Narrative#

Prepared by Comms

Canada exports large quantities of crude oil to the United States – particularly from Alberta.

It’s hard to imagine that President-elect Trump truly intends to punish Canadian energy suppliers, given America’s oversized dependence – and the short-term cost implications on U.S. industry. U.S. refineries have tailored investments to process Canadian bitumen. It was disappointing to hear Premier Smith dismiss the threat of cutting off exports, that would give Canada a leg up in any trade war.

What’s important to remember is that the recent surge in Canadian energy demand by the U.S. is a result of a slowdown in U.S. shale gas production, under Biden. Shale is an energy resource Trump has promised to expand.

A 25% tariff would increase the price of oil for Americans but also incentivize more expensive extraction in the US to come back online, including large deep-sea extraction.

Substituting Canadian oil isn’t realistic in the near-term. However, declining dependence is a longer-term threat. Canada has no other real export markets for that oil to pivot to.

As for natural gas, the U.S. is currently our sole export market. The U.S. is slowly becoming a net exporter and isn’t as dependent on Canada’s natural gas as it once was.

What this means is that our natural gas export market is effectively hostage to American tariffs, unless Canada builds new export capacity via LNG or uses that natural gas and low-cost energy to produce our own chemicals and plastics.

For electricity, Canada currently exports significant hydro and nuclear generated electricity to the U.S. meeting their regulated demand for lower carbon energy. This could change, of course, depending on America’s restart of nuclear production and changes to federal regulations on emissions. However, soaring energy needs – including in things like bitcoin mining and AI data centres,– keep demand for Canadian energy high.

Let’s not forget, Canada is also the world’s second largest uranium producer – which is the fuel for the burgeoning nuclear industry. We are a natural source to fill U.S. demand, outside of Russia. CANDU-generated nuclear power and cheap hydro will help Canada export electricity, but also make products with low-cost power to deal with tariffs around the world.

Sarnia Impact Analysis#

Sarnia is an essential location for refining oil from Western Canada into products necessary for industrial production in Canada.

Many workers are unionized and the community relies on the good jobs that these industries provide.

Investment in Sarnia has been strained by the lack of regulation and enforcement of environmental laws, supports for production, and lack of coordination for community input into the production process.

Products essential to industrial production in Canada include:

diesel, petrol, kerosene, jet fuel
pure chemicals, solvents
heavy oils and lubricants
heating fuels (propane, liquified petroleum gas)
butane
asphalt
plastics precursors/feedstock (Benzene, Toluene, Xylene)
plastic products (polystyrene, polyester) for car and other manufacturing.

Sarnia is also the centre for research and engineering around chemical and refining production, employing researchers and technicians to advance the safety and lower the environmental impacts of these processes.

Products are distributed by rail and pipeline to marine vessels and other rail transport.

Most of this production is for Canadian use.

Most product arriving in Sarnia comes through the USA from Western Canada.

Most of the product arriving in Sarnia travels through pipelines that travel through the USA.

Tariffs will have a negative impact on necessary supply to Sarnia and therefore all the “downstream” production that requires the inputs from Sarnia (and Quebec refineries).

This includes gasoline and diesel that transport in Canada is still dependent on, but also the production of chemical and plastic products.

The biggest threat from the tariffs is the loss of investment and the shutting down of productive, value adding assets in Sarnia. This would shift Canada to relying on oil and oil products made in the USA from our own oil and gas from Alberta.

We have already seen the impact of relying on foreign ownership in Ontario within this sector.

Examples of dependence on foreign ownership include

the recent shutdown of INEO Stryrolutions which, until this year, operated the privatized Crown company originally called the Canada Polymer Corporation (that used to be on the $10 bill). Unifor has asked the Ontario and Canadian governments to intervene to keep the site open and ensure the necessary investments to make the site safe under necessary and strict environmental regulations.
Biox/World Energy (in Hamilton) lost investment and closed biofuel production, which is essential to meet biofuel minimum levels into fuel production in Sarnia. It is another example of Canada relying on others to secure our necessary energy and chemical industry supply chains.

Products like benzene are very bad if allowed to leak into the environment, just like many chemicals that we use in industrial production. However, these chemicals are also byproducts of producing the things we need, so if INEOS shuts down there is concern about where the benzene will go? And, that impacts upstream and downstream production. This is just one example of the integration of Sarnia in the rest of the production process in Canada.

Rail can move oil products, but capacity along rail routes that do not enter the USA cannot fill the full capacity in Sarnia in the medium-term. Tank cars that meet new safety specifications would need procuring along with commercially viable transport options to avoid the USA.

Unifor in the Sarnia area#

Company	Local	Unit	Sector	Sub-Sector	Location	# Members
TODA ADVANCED MATERIALS	914	13	CHEMICALS	CHEMICAL PRODUCTS	SARNIA	27
H.C. STARCK CANADA : BAYER INC.	914	1	CHEMICALS	CHEMICAL PRODUCTS	SARNIA	35
ENBRIDGE GAS INC.	914	9	ENERGY	GAS DISTRIBUTION	SARNIA	17
CABOT CANADA LTD	914	4	CHEMICALS	CHEMICAL PRODUCTS	SARNIA	77
TRANSALTA GENERATION PARTNERSHIP	672	4	ENERGY	GAS DISTRIBUTION	SARNIA	49
PLAINS MIDSTREAM CANADA - SARNIA FACILITY	200	9	ENERGY	PETROLEUM PRODUCTS	SARNIA	56
LINDE CANADA INC.	866-O	6	CHEMICALS	CHEMICAL PRODUCTS	SARNIA
SHELL CANADA LIMITED (REFINERY)	848	0	ENERGY	PETROLEUM PRODUCTS	SARNIA	226
INEOS STYROLUTION CANADA LTD.	914	5	CHEMICALS	CHEMICAL PRODUCTS	SARNIA	41
ARLANXEO PERFORMANCE ELASTOMERS - MFG	914	2	CHEMICALS	CHEMICAL PRODUCTS	SARNIA	163
ARLANXEO PERFORMANCE ELASTOMERS - PLANT PROTECTION UNIT	914	3	CHEMICALS	CHEMICAL PRODUCTS	SARNIA	13
KATOEN NATIE CANADA	866-O	7	PLASTICS	PLASTIC	CORUNNA	14
NOVA CHEMICALS (CANADA) LTD	914	10	CHEMICALS	CHEMICAL PRODUCTS	CORUNNA	214
PEMBINA PIPELINE CORPORATION	672	1	ENERGY	ENERGY OTHER	CORUNNA	19
					Total Members	960

Canada exported 77 per cent of its chemicals and 94 per cent of its plastics and resins to the U.S. in 2023, according to data from the association.

Ontario alone exported around $3 billion in chemistry products and $9 billion in plastics and resins to the U.S. that year.

Those products include polyethylene, butyl rubber, isopropyl alcohol, sulphuric acid, and plastic products used in automobile manufacturing, food processing, packaging and building materials. ( CBC )

Basically, all the parts of every day living from conditioner, food packaging, to transport, to lubricant for wind turbines and hydro dams.

industrial strategy is needed to sustain the essential chemical and plastics production in Sarnia
regulations need to be kept so that investment is sustained and the community is kept safe and jobs are retained
rail transport of oil and ensuring natural gas access to Sarnia is essential for continued operations in Sarnia.
Montreal production is very similar
Pipelines have a very long time to build and the extreme distance that it would add to that. We need short-term solutions during this crisis. That's rail transport.
Unifor makes brand new, Transport Canada and National Research Council tested and designed tank cars. The TC-117 tank car.