Tuesday, January 14, 2025

Oil Embargo on the U.S. Could Blow Up in Canada's Face

By Andrew Topf - Jan 14, 2025

Alberta Premier Danielle Smith opposes federal threats to impose an oil embargo on the U.S.

Amid federal subsidies for clean energy, Smith has doubled Alberta's oil and gas production capacity in partnership with Enbridge.

Alberta Premier Danielle Smith has continued to lobby for Alberta’s interests while disparaging federal policies seen as detrimental to the province.


Alberta Premier Danielle Smith is no shrinking violet when it comes to disagreements with the Canadian government over energy policy.

Smith has previously clashed with Ottawa over its carbon tax, and following a weekend visit to President-elect Trump, she did not mince words over Foreign Affairs Minister Melanie Joly’s threat to impose an oil embargo on the US if Trump carries through with 25 percent tariffs on Canadian imports.

“Oil and gas is owned by the provinces, principally Alberta, and we won’t stand for that,” Smith told reporters at an online news conference Monday.

Alberta is Canada’s largest oil-producing province, in 2023 producing 84 percent of the country’s crude.

No country is more important than Canada when it comes to US oil imports. In 2023 the nation imported 4.4 million barrels a day, which was around 97 percent of Canada’s total crude oil exports, making it America’s top supplier.


Trump, who takes office on Jan. 20, has said he will slap 25% tariffs on imports coming from Canada and Mexico unless they take measures to control illegal drugs and migrants from crossing their borders.

Joly won’t rule out cutting off the supply of energy to the United States in a tariff war, telling CTV’s Question Period on Sunday that “everything is on the table”. The country is reportedly preparing a list of products against which surtaxes could be levied, should Trump make good on his tariff threat.

Ottawa made similar moves in 2019 during Trump’s first term, the National Post reported, adding more than $16 billion in surtaxes to American imports including steel, aluminum, yogurt, toilet paper and dishwashers.

But Smith said Canada shouldn’t be making empty threats and “it’s not Joly’s call to make,” she said via Global News. According to the Canadian Constitution’s section 92, provinces have exclusive jurisdiction over the exploration, development, conservation, and management of non-renewable natural resources within their borders.

Smith suggested that an oil embargo could blow up in Canada’s face, given that cutting off pipeline supplies through Michigan could choke off key supply to Ontario and Quebec.

Moreover, she said that, if Ottawa moves to cut exports, “they will have a national unity crisis on their on their hands at the same time as having a crisis with our U.S. trade partners.”

More positively, Smith told CTV News “I think oil and gas is going to be key to being able to get a breakthrough once tariffs do come in, getting them off. We maintain a strong partnership on energy. We make the case about how much the Americans benefit from that energy relationship, we demonstrate that we are a good trade partner, that we buy more goods and services from America than any other nation.”

“The bedrock of that tariff-free relationship is energy,” she added, noting that Canada exports heavily discounted Canadian oil to the US, which is then upgraded and sold as a value-added product for a price up to three times higher than the raw crude.

“I just feel like the more we make those arguments, slowly but surely we'll be able to make the case that we should continue to enjoy a tariff-free relationship,” Smith told reporters on the conference call.

Smith said she’s “very concerned” about a leadership vacuum affecting talks with the United States over tariffs. Prime Minister Justin Trudeau has resigned and prorogued parliament until March. The Liberal Party of Canada has said that a new leader will be announced on March 9.

Alberta and Ottawa frequently clash over energy policy and this is just the latest spat. Older readers will remember when then-Prime Minister Pierre Trudeau asked the Western provinces to agree to a voluntary freeze on oil prices amid the 1973 Arab oil embargo. With the embargo driving international oil prices to record highs, and nine days after asking for the price freeze, Trudeau’s government imposed a 40-cent tax on every barrel of oil exported to the United States. Revenues were used to subsidize oil imports for Eastern Canadian refiners. Then-Alberta Premier Lougheed called the decision “the most discriminatory action taken by a federal government against a particular province in the entire history of Confederation.”

The same Liberal government in 1980 introduced the National Energy Program, or NEP. The NEP aimed to reduce the role of foreign companies in the Canadian oil patch, including increasing Canadian ownership of the industry, sharing revenue between the federal and provincial governments, and developing non-conventional sources.

However, it was deeply unpopular in the Western provinces especially Alberta, where it was felt that it interfered with provincial jurisdiction and unfairly deprived Alberta of oil revenue. The program was dismantled in 1985 by the federal Conservative government.


LA REVUE GAUCHE - Left Comment: Search results for NEP ALBERTA



Fast-forwarding to present day, Alberta Premier Danielle Smith has continued to lobby for Alberta’s interests while disparaging federal policies seen as detrimental to the province.

To wit, Alberta has been battling Ottawa over the carbon tax since it was introduced in 2019. Meant to tax carbon emissions, the levy is applied to homeowners’ natural gas bills, to fossil fuel producers and distributers, and to large industrial emitters through an output-based pricing system. The tax has more than tripled from $20 per tonne of carbon dioxide in 2019 to $65/t in 2023.

Although the Supreme Court of Canada ruled in favor of the carbon tax in 2021, the Alberta government continues to challenge it on the grounds that it adds to already high home heating costs, and that it is unconstitutional.

In October 2024, Premier Smith announced the province has applied for a judicial review to be exempted from the carbon tax, with the greater goal of forcing Ottawa to cancel it.

Smith argues the tax places an unfair burden on Albertans, most of whom heat their homes with natural gas. Making matters worse, in 2023 Prime Minister Trudeau announced a three-year carbon tax reprieve on deliveries of heating oil. Smith says this only benefits people living in Atlantic Canada and Quebec, whose populations use heating oil, not natural gas.

Amid the controversy, Smith has doubled down on oil and gas production despite a federal government that has phased out fossil fuel subsidies — with the notable exception of the Kinder Morgan Trans Mountain pipeline, bought by Ottawa in 2018 for $4.5 billion but whose costs ballooned to $34 billion — and pivoted towards clean energy including billions in subsidies to EV battery production facilities.

Earlier this month Smith appeared on a video with Enbridge CEO Greg Abel to announce a doubling of oil and gas production.

“Today we've signed a letter of intent with Enbridge to accelerate these growth opportunities and ensure more capacity for oil and gas is available across more than 29,000 kilometers of pipelines in the Enbridge network,” Smith said on the Cable Public Affairs Channel (CPAC).

“This added capacity objective is critical to Alberta and our most important trading partner, the United States. Alberta's oil directly supports more than 50 US-based refineries with direct investment in more than 20 US states and is essential to affordability, growth, economic prosperity and energy security in the United States and globally. Alberta oil and natural gas is also a reliable and important feedstock for essential products produced in the United States especially in the Midwest states of Ohio, Illinois, Indiana, Michigan and Wisconsin.”

By Andrew Topf for Oilprice.com

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