President-elect Donald Trump has threatened to impose 25% tariffs on all imports from Canada and Mexico.
Canada has hit back by touting potential export taxes on uranium, oil, and potash.
The incoming trade wars under a second Trump administration have not dissuaded Canadian oil and gas majors from drawing up plans to drill even more.
Previously, U.S. President-elect Donald Trump threatened to impose 25% tariffs on all imports from Canada and Mexico for failure to clamp down on drugs and migrants crossing the border, with Canadian oil imports not exempt. Analysts have pointed out that imposing tariffs on Canada would drive up fuel prices for Americans, throwing into turmoil the biggest supplier of crude to the U.S. According to GasBuddy analyst Patrick De Haan, more than 20% of the oil processed by U.S. refiners is imported from Canada. According to De Haan, consumers in the Midwest, where refineries process 70% of the 4M-plus bbl/day of Canadian crude imports, could end up paying ~10% for their gas if Trump goes ahead with his tariffs.
Canada has hit back by touting potential export taxes on uranium, oil, and potash–all critical for American industry.
But the incoming trade wars under a second Trump administration have not dissuaded Canadian oil and gas majors from drawing up plans to drill even more. Canada’s oil sands producer, Suncor Energy (NYSE:SU), has unveiled plans to increase its oil and gas output next year as it continues to work to improve its performance and lower costs from its assets. Suncor has set a target to grow oil and gas production to between 810,000 and 840,000 barrels per day in 2025, up from its 2024 estimated range of 770,000 to 810,000 barrels per day, and sees annual refining utilization of 93% to 97%. In terms of capex, the oil sands giant plans to spend in the range of C$6.1 to C$6.3 billion, with 45% allocated to economic investments. That marks a reduction from C$6.3 billion to C$6.5 billion for 2024 capex. Suncor's lower cash operating costs per barrel reflects its initiative to reduce its corporate WTI breakeven by $10 per bbl versus 2023, the company said.
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Canada’s Imperial Oil (NYSE:IMO) and Cenovus Energy (NYSE:CVE) have unveiled similar plans, even as Canadian oil and gas stocks continue to outperform their American brethren. Canada’s oil and gas benchmark, the S&P/TSX Equal Weight Oil & Gas Index, has returned 17.6% in the year-to-date, more than 4x the 4.3% gain by the S&P 500 Energy Sector.
Transitioning Away From Emissions, Not Oil
Over the past decade, major oil companies, under pressure from investors and environmentalists, have been fleeing Canada's oil sands, the fourth-largest oil reserve in the world, while investment in existing projects has stalled. A lack of pipelines and heavy emissions have weighed on the Canadian heavy crude sector for years, with some companies exiting after coming under pressure to invest in projects with lower emissions. According to research firm Rystad Energy, oil sands production in Alberta generates ~160 pounds of carbon per barrel, the highest of any oilfield in the world.
But Alberta’s politicians have no plans to ditch the province’s main cash cow any time soon. Alberta Premier Danielle Smith has declared that the energy-rich region will transition away from emissions, not oil.
"We're transitioning away from emissions, we're not transitioning away from oil and gas. We're not going to phase out production of oil and natural gas, we're just going to change the way in which we use it," Smith has said at the World Petroleum Congress in Calgary, Alberta. According to her, hydrogen from natural gas will likely become an increasingly important fuel in the province while carbon capture, utilization and storage (CCUS) will play a role in cleaning up emissions. Smith has differed radically with Canada's minister of energy and natural resources Jonathan Wilkinson who the previous day had supported IEA’s prediction that world oil demand will fall to just 25 million barrels per day by 2050, or a quarter of current global demand, an assertion Smith has dismissed as ‘ludicrous’. Wilkinson had argued that oil and gas after 2050 would primarily be used in applications not requiring combustion, such as petrochemicals, lubricants, solvents, carbon graphite, asphalt and waxes.
Alberta’s energy minister Brian Jean announced that his office is finalizing an investment incentive program for emissions-cutting technologies like carbon capture and storage to be unveiled in the "coming months". Canada considers CCUS a key tool in helping the country’s high-polluting oil and gas industry slash emissions without cutting back on production. However, Canadian companies have been holding back on final investment decisions mainly because of the high costs associated with carbon capture and have been lobbying for more government support.
An Alberta incentive program, working alongside a federal government investment tax credit first announced last year, would be pivotal in jumpstarting Canada’ss nascent CCUS sector.
"We're going to make sure we do a robust consultation to get it right. If we get it right, that means that we're going to see another economic boom here in Alberta," Jean told Reuters in an interview.
Canada has set a net-zero emissions by 2050. A number of companies including Enbridge Inc.(NYSE:ENB), TC Energy Corp. (NYSE:TRP) as well as a coalition of Canada's six largest oil sands producers called Pathways Alliance have proposed building major CCS storage hubs.
By Alex Kimani for Oilprice.com