Investors and the global community are waiting for U.S. President Donald Trump to deliver some specifics on his campaign pledge to Make America Great Again – specifically, they want insight on the risk of protectionist policies. Executives from every industry are hoping for answers to some critically important questions once the new American administration is in place. Below, BNN rounds up what Canadian energy executives in particular want to know.
WOULD ANY 'BIG BORDER TAX' APPLY FOR CANADIAN OIL IMPORTED INTO THE USA?
Trump has threatened many companies, though largely those involved in the automotive industry, with a “big, big border tax” for production coming from outside the United States. If such a tax were to apply to all goods, including oil and gas, that would give incentive for American refiners to apply an “America First” strategy to where they source their crude. While Canadian barrels would still undoubtedly keep flowing southward in such a scenario, the additional barrier would hit Canadian producers hard as they lack any meaningful ability to sell large quantities of their product to markets other than the United States.
WHAT ABOUT AMERICAN OIL COMPANIES PRODUCING IN CANADA?
Any “big, big border tax” applied to Canadian crude oil would be especially complicated for American companies producing oil in Canada for shipment back to the United States. Exxon Mobil, for example, owns the majority of Imperial Oil, which is one of the largest producers in the oil sands of northern Alberta and just completed a multibillion-dollar expansion in the region. While most experts believe raw materials like crude oil and natural gas will be exempted from any potential border taxes, the potential remains for them to be included, which could force American companies to confront difficult questions about whether the economics of their Canadian assets still make sense.
WHEN WILL KEYSTONE XL APPROVAL ACTUALLY HAPPEN?
Trump has made it clear he will approve the controversial Alberta-to-Texas pipeline, but only with a “big, big chunk of the profits or even ownership rights.” British Columbia Premier Christy Clark gave Trump the ammunition he needs to follow through on that demand by striking a deal with Texas-based Kinder Morgan for her province to receive regular payments in exchange for approval of the Trans Mountain expansion project. Calgary-based TransCanada, meanwhile, is in the process of suing the U.S. government for having twice rejected its Keystone XL proposal under a dispute resolution mechanism allowed under NAFTA. Trump officials have told Canadian officials it wants to redesign that mechanism as part of a broader NAFTA renegotiation.
HOW MUCH DEREGULATION OF AMERICAN OIL AND GAS IN THE WORKS?
From his promise to eliminate two regulations for every new one created to his nomination of an ardent opponent of environmental restrictions to run the Environmental Protection Agency, Trump is intent on allowing American oil and gas companies to produce as much as possible with as little cost as possible. Shale production in the United States in particular has already been very price competitive with similar Canadian production vying for limited light oil refining space across North America. Any regulatory advantages bestowed on American producers would only put their Canadian competitors further behind, though how much further behind depends entirely on how broad, and how fast, deregulation actually occurs.
COULD CANADA FILL ANY POTENTIAL MEXICO GAP?
Mexico has been sending less and less of its own heavy oil production to refining hubs in the United States every year. That is largely due to natural declines in Mexican reserves, yet based on the rhetoric Trump has reserved for anything coming to the U.S. from its southern neighbour, it would be safe to assume Trump has no interest in seeing that decline trend reverse itself. Trouble is, many American refineries are designed specifically to process heavier crude, the likes of which is not produced inside the U.S. and exclusively comes from Mexico, Venezuela and Canada. If the new U.S. President moves to limit the amount of heavy Mexican crude coming into his country, that could present a massive opportunity for Canadian heavy crude to fill the gap. That would be doubly true if Canadian energy products were granted an exemption to any potential border taxes Trump may impose and his administration ends up approving Keystone XL.