A risky solution to a complex issue
By: Deveryn RossPosted: 2:00 AM CST Tuesday, Jan. 21, 2025
Alberta Premier Danielle Smith has been widely criticized outside of her province, and widely praised within it, for her stance on how Canada should respond to U.S. President Donald Trump’s tariff threats against Canada.
The prime minister and 12 of the 13 provincial and territorial premiers agree that blocking energy exports to the U.S., or imposing a tariff on energy exports, are powerful options that should be available to form part of Canada’s response if Trump goes ahead with tariffs — a move that appeared to go temporarily on hiatus on Monday. But Smith opposes the idea.
She says her government will not agree to any export ban or tariffs being placed on oil and gas shipments to the U.S. She warns that doing so would precipitate a “national unity crisis.” Smith told reporters last week that “First of all, it’s oil and gas… It’s owned by the provinces, principally Alberta, and we won’t stand for that.” She insists that an oil export ban would cripple central Canada because the pipelines travel through the U.S. on their way. “If you cut off that line,” she cautions, “you are cutting off Ontario and Quebec.”
She’s wrong on both counts. First, Alberta does not own all the oil and gas within its boundaries. To the contrary, most large oil and gas producers currently operating in Canada are either fully or majority foreign-owned. Less than 30 per cent of Canada’s oil and gas industry is Canadian-owned, and many companies regarded as “Canadian” have significant foreign ownership among their major shareholders.
Second, shutting off the oil pipelines to eastern Canada might create a temporary inconvenience, but it would only result in a significant increase in eastbound oil shipments via rail.
It is surprising that Smith is fighting so hard to protect her province’s oil and gas exports to America, yet ignoring the harmful impact that Trump’s tariffs would have on other sectors of the Alberta economy, including mining, forestry and agriculture.
What is more surprising, however, that she is relying on weak arguments when she has far more persuasive arguments available to her.
She is ignoring the fact that Alberta’s oil and gas revenues make up a critical portion of equalization monies that are paid each year to a number of Canadian provinces. Those dollars are literally keeping the lights on in hospitals and schools across the country. Any measure that cuts off or reduces Alberta’s oil export revenues would have a severe impact on the nation’s health-care and education systems.
She could also credibly argue that any tariff imposed by Canada on oil exports will likely result in lower oil revenues, which would once again impact equalization funding. That’s because the type of oil extracted in Alberta — Western Canada Select — is currently being sold at a discount of approximately US$14 per barrel compared to the benchmark price for West Texas Intermediate oil, and any export tariff would likely increase that gap.
There is every likelihood that an export tariff on Canadian oil would result in the oil market reducing the Western Canada Select per-barrel price in order to offset the higher net cost. If so, American refiners and consumers wouldn’t feel any pain as a result of the export tariff, but Canadians sure would.
It is estimated that every one-dollar increase in the WCS discount gap will cost the Alberta government $600 million in annual revenue, meaning that even a slight increase in the discount due to an export tariff could transform a projected budget surplus in Alberta into a deficit. That could also impact equalization calculations.
Beyond the equalization argument, Smith could also point to the likelihood that cutting off oil exports to the U.S., would likely result in the Americans suspending their oil exports to Eastern Canada, where they are a critical supplier. Doing so would cause mayhem in Atlantic Canada until another reliable source is found, likely at a higher price.
The prospect of turning off the oil export tap and/or slapping a tariff on oil exports to the U.S. may appear to be potential game-changers in the budding Canada-U.S. tariff war, but the issue is far more complex — and far riskier — than many Canadians currently comprehend.
In this high-stakes game, that’s something for our nation’s leaders to bear in mind before making such a consequential decision.
Deveryn Ross is a political commentator living in Brandon.
******************************
Is Danielle Smith wrong? Are most oil and gas producers foreign owned? Cutting off pipelines to Eastern Canada is a minor inconvenience? Why is she not making arguments that tariffs on oil will reduce equalization payments to other provinces?
By: Deveryn RossPosted: 2:00 AM CST Tuesday, Jan. 21, 2025
Alberta Premier Danielle Smith has been widely criticized outside of her province, and widely praised within it, for her stance on how Canada should respond to U.S. President Donald Trump’s tariff threats against Canada.
The prime minister and 12 of the 13 provincial and territorial premiers agree that blocking energy exports to the U.S., or imposing a tariff on energy exports, are powerful options that should be available to form part of Canada’s response if Trump goes ahead with tariffs — a move that appeared to go temporarily on hiatus on Monday. But Smith opposes the idea.
She says her government will not agree to any export ban or tariffs being placed on oil and gas shipments to the U.S. She warns that doing so would precipitate a “national unity crisis.” Smith told reporters last week that “First of all, it’s oil and gas… It’s owned by the provinces, principally Alberta, and we won’t stand for that.” She insists that an oil export ban would cripple central Canada because the pipelines travel through the U.S. on their way. “If you cut off that line,” she cautions, “you are cutting off Ontario and Quebec.”
She’s wrong on both counts. First, Alberta does not own all the oil and gas within its boundaries. To the contrary, most large oil and gas producers currently operating in Canada are either fully or majority foreign-owned. Less than 30 per cent of Canada’s oil and gas industry is Canadian-owned, and many companies regarded as “Canadian” have significant foreign ownership among their major shareholders.
Second, shutting off the oil pipelines to eastern Canada might create a temporary inconvenience, but it would only result in a significant increase in eastbound oil shipments via rail.
It is surprising that Smith is fighting so hard to protect her province’s oil and gas exports to America, yet ignoring the harmful impact that Trump’s tariffs would have on other sectors of the Alberta economy, including mining, forestry and agriculture.
What is more surprising, however, that she is relying on weak arguments when she has far more persuasive arguments available to her.
She is ignoring the fact that Alberta’s oil and gas revenues make up a critical portion of equalization monies that are paid each year to a number of Canadian provinces. Those dollars are literally keeping the lights on in hospitals and schools across the country. Any measure that cuts off or reduces Alberta’s oil export revenues would have a severe impact on the nation’s health-care and education systems.
She could also credibly argue that any tariff imposed by Canada on oil exports will likely result in lower oil revenues, which would once again impact equalization funding. That’s because the type of oil extracted in Alberta — Western Canada Select — is currently being sold at a discount of approximately US$14 per barrel compared to the benchmark price for West Texas Intermediate oil, and any export tariff would likely increase that gap.
There is every likelihood that an export tariff on Canadian oil would result in the oil market reducing the Western Canada Select per-barrel price in order to offset the higher net cost. If so, American refiners and consumers wouldn’t feel any pain as a result of the export tariff, but Canadians sure would.
It is estimated that every one-dollar increase in the WCS discount gap will cost the Alberta government $600 million in annual revenue, meaning that even a slight increase in the discount due to an export tariff could transform a projected budget surplus in Alberta into a deficit. That could also impact equalization calculations.
Beyond the equalization argument, Smith could also point to the likelihood that cutting off oil exports to the U.S., would likely result in the Americans suspending their oil exports to Eastern Canada, where they are a critical supplier. Doing so would cause mayhem in Atlantic Canada until another reliable source is found, likely at a higher price.
The prospect of turning off the oil export tap and/or slapping a tariff on oil exports to the U.S. may appear to be potential game-changers in the budding Canada-U.S. tariff war, but the issue is far more complex — and far riskier — than many Canadians currently comprehend.
In this high-stakes game, that’s something for our nation’s leaders to bear in mind before making such a consequential decision.
Deveryn Ross is a political commentator living in Brandon.
******************************
Is Danielle Smith wrong? Are most oil and gas producers foreign owned? Cutting off pipelines to Eastern Canada is a minor inconvenience? Why is she not making arguments that tariffs on oil will reduce equalization payments to other provinces?
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