'It would make little sense': Expert says tariffs on Canada oil would hurt U.S.

Executive Fellow at the University of Calgary's School of Public Policy, Richard Masson, discusses the possible impacts of U.S. tariffs on Alberta and Canada with Alberta Primetime host Michael Higgins.

This interview has been edited for clarity and length.

Michael Higgins: Let's start with that 25-per cent tariff threat which is much higher than the 10-per cent Donald Trump warned about on the campaign trail.

He says it will be in place until borders are tightened against illegal drugs and migrants.

What kind of volatility would that bring to the export of Canadian oil and gas?

Richard Masson: It would be a big problem because we don't have any certainty on how it would be applied, and of course, oil and gas energy in general are the biggest export Canada has to the U.S.

I'm not that worried that it's going to be across the board applied to oil, because the Americans are so dependent upon us. We've had an integrated North American market for decades. Right now we export about 4.3 million barrels of oil a day to the U.S. Around 2 million of it stays in the Midwest, in the Minnesota, Chicago area, where they have big refineries that have converted their capacity so that they process our heavy oil, and that allows them to make diesel, jet and gasoline.

Those refineries can't get oil from anywhere else, they're landlocked. All the pipelines that go south from Chicago have been reversed, so they all go south now to the U.S. Gulf Coast. None of the pipelines go north anymore to allow oil to come from other countries, so those refineries, and millions and millions of people in the Midwest are wholly dependent on the oil that comes from western Canada.

It would make little sense for the U.S. government to impose a tariff and end up with higher gasoline, diesel and jet prices for so many consumers.

MH: Alberta recently joined a governor's coalition for energy security. Our province is the only jurisdiction outside the U.S. to be part of that.

Does that play a role in deflecting any kind of tariff threat that may yet still come? What kind of weight could this group of governors carry when it when it comes to influencing the White House and Alberta oil?

RM: I think it will have a lot of weight because, as I said, this is fundamental to the U.S. economy. To keep things rolling you need to have affordable fuel, and that was one of the big campaign pledges that President Trump made as he was going through the election cycle.

So those governors will point out to him that they don't have alternatives, that imposing a tariff is likely to increase the cost of refined products, that they don't have a way around it, and so it would be harmful to jobs. It will be harmful to production and to their citizens.

So I think one of the things that's easy is to make a sweeping statement, like a 25-per cent tariff, but it's much more difficult when everybody suddenly recognizes what it could mean and starts lobbying and saying, this makes little sense, it's going to be counter to what you promised on the election trail.

So we really need to get our facts out and help people understand how interdependent we are with the U.S. Sixty-per cent of their oil imports come from Canada, we're the largest exporter of natural gas, we're the largest importer of U.S. oil, because the oil they produce in Texas isn't the quality that they need to process and so they send oil to us that fits our refineries, we send oil to them that fits their refineries. So it's a mutually beneficial relationship.

MH: On that point of sending oil, what then is to be made of talk that Donald Trump might want to revive Keystone XL? Calgary-based TC Energy walked away from that project, did they did not? When Joe Biden pulled the Presidential permit in 2021?

RM: They did and the last time Keystone XL went down, the losses between the different parties were about $3 billion. Alberta lost $1.3 billion, the people that signed up to be shippers lost $500 million and TransCanada lost around a billion. So there was a lot of money lost on that last go round.

Now TC Energy doesn't even own that pipeline anymore, it spun off its pipeline division into a company called South Bow Energy, which owns parts of it, but much of the right of way has lapsed. The pipeline that was put into the ground has been pulled out of the ground. Some of it's been sold for other uses, and it just seems highly unlikely that any company would want to take on building a pipeline like that, given that that one failed twice, Energy East failed, Trans Mountain was six times over budget and years behind schedule. I mean, who's going to want to build a pipeline these days?

So I think it's a symbolic thing for Trump to say he wants to reapprove the presidential permit, and it's a symbolic thing for the Alberta government to say they want to try and resurrect the pipeline. I just don't see, practically, how it can happen.

MH: Is there a need, though, for that oil? Would there be a demand for that oil were a resurrected pipeline to re emerge?

RM: The challenge has been, Alberta can produce more oil, we have the oil sands, we know how to do it, we can do it in an environmentally responsible way.

But the U.S. refineries, if you think about it, already produce all the refined products that the U.S. needs. They actually export gasoline, diesel and jet to other countries. So they don't need any more of our oil. We can get them more oil down to the Gulf Coast refineries and displace heavy oil they take from other places, but it's better for us if we can get our oil to the coast, to the west coast, so we can ship it either to the U.S. by tanker or to other places in the world, so we're less dependent upon policy shifts like what we just heard from President Trump.

MH: The provincial government is intent on Alberta oil production increasing for many years to come. Much has been made of delay progress in the federal government and Pathways oil sands Alliance getting together on a massive carbon capture network. What's your read on those talks turning a corner and how vital is it that a deal gets done?

RM: I think it is vital that a deal gets done. I think that we need to think through the election cycles. Governments come, governments go, but these are 20, 30, 40-year projects, and we need to have alignment amongst the different players that we're going to try to reduce the carbon intensity of our production and make it as good as we can and better than most places in the world so that as governments come and go, we can continue to produce and benefit from the jobs and the royalties and the taxes that come from being one of the bigger producers in the world.

I think it's moving forward. I've heard good things over the last few weeks that there's the moving towards agreement, and I'm sure hopeful that we'll be able to see by early in the new year, the opportunity for Pathways to actually say yes, we're going to go ahead.