Could Trump’s tariff clobber Canadian oil & gas earnings in 2025? #CanadaFinance

Canada’s largest oil and gas producers are rolling out bigger production plans for 2025, with no sign U.S. president-elect Donald Trump will spare crude imports from his threat of a 25 per cent blanket tariff.

At the same time, a major credit ratings agency is telling investors that profits at those companies will be largely unscathed, as higher costs flow to American consumers.

The U.S. is Canada’s largest trade partner and destination for over 75 per cent of exports. Oil and gas is the largest category, at over 20 per cent. On Tuesday, Trump threatened to use “economic force” to convert Canada into the 51st U.S. state. He has said import tariffs on Canadian goods will be applied immediately after his Jan. 20 inauguration for a second term.

This hasn’t stopped major Calgary-based oil producers Suncor Energy (SU.TO)(SU), Cenovus Energy (CVE.TO)(CVE) and Imperial Oil (IMO.TO)(IMO) from unveiling plans to raise production in 2025. Canadian Natural Resources (CNQ.TO)(CNQ) joined the fold on Thursday, calling for 12 per cent higher production in 2025, backed by a 13.5 per cent jump in capital spending.

Capital spending in Canada’s oil and gas sector is recovering from recent lows in 2020. The expansion of the Trans Mountain pipeline, and the expected launch of the LNG Canada export terminal, have improved the outlook for commodity prices by opening up new markets.

“Alberta’s energy product exports to China were $2 billion during the first 11 months of 2024, a five-fold increase over the same period in 2023,” ATB Financial economist Robert Roach wrote in research published on Wednesday.

“That’s entirely driven by crude oil, which went from zero last year to $1.8 billion. The increase was made possible by the additional Alberta oil making its way to the west coast for export to Asia via the Trans Mountain pipeline expansion that was completed last spring.”

U.S. crude oil imports from Canada hit their highest level on record last week, according to U.S. Energy Information Administration data released on Wednesday. Chris Mikrovas, a Toronto-based senior analyst at credit ratings agency Morningstar DBRS, notes the importance of Canadian supply to oil refineries in the U.S. Midwest.

“Even if the U.S. were able to increase its domestic production, it is unlikely to meaningfully replace crude oil imports from Canada. The tariffs would likely just drive up the costs of gasoline and other petroleum products for U.S. consumers,” he wrote in a recent report.

“If tariffs are implemented, we expect that the impact on the credit profiles of Canadian oil and gas producers would be limited,” Mikrovas added.

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