Alberta oil is about to get Trumped

This was not the election result that most Canadians hoped for. According to a Leger poll taken in late October, 64 per cent of Canadians wanted to see Kamala Harris win, and only 21 per cent rooted for Donald Trump. Alberta, perhaps unsurprisingly, had the highest level of support for Trump with 29 per cent backing the Republican nominee. Ironically, that province is about to bear the brunt of his administration’s decisions — some of which could meaningfully alter Alberta’s economic and political trajectory. 

Much of this pro-Trump sentiment in Alberta is tied to the idea that he’ll re-approve the Keystone XL pipeline, which was torpedoed by Joe Biden when he came to power in 2021. But there’s no guarantee that TC Energy would want to proceed, given how many times that football has been yanked away in the past. They don’t even have the materials anymore: the steel that had been procured for Keystone XL was just sold to Cadiz Inc., which will use it to build a new groundwater banking project in the Mojave Desert. And Trump seems far more interested in increasing U.S. oil production than importing more oil from Canada. 

“They’re going to dust off the ’drill, baby, drill’ playbook and do everything they can to push oil, natural gas and coal production,” said Ryan Bernstein, an industry consultant with McGuireWoods who served as chief of staff for North Dakota Republican Sen. John Hoeven, in an interview with Politico. All things being equal, more oil production in the US means lower prices for everyone — including, of course, Canadian companies. “My goal will be to cut your energy costs in half within 12 months after taking office,” Trump said in September. “We can do that.” To get there, according to Kpler lead oil analyst Matt Smith, oil prices would need to drop below $40 a barrel, a price that would destroy the profitability of almost every oilsands project going. 

Then there’s Trump’s repeated pledge to hit all imports into America with a 10 per cent tariff that if applied to energy exports, would cost Canada an estimated $16 billion. And while business leaders in both countries insist Trump won’t actually hit Canadian oil exports with these tariffs because they’d increase fuel prices paid by Americans, they seem to be overlooking his negotiating position. As energy analyst Rory Johnston said during a panel for the Canadian Global Affairs Institute on Wednesday, “Canada is uniquely vulnerable to market pressure posed by U.S. refineries given our lack of alternative egress.” 

Translation: Trump has us over a barrel of oil and he knows it. He might not be a deep thinker when it comes to, say, foreign policy, but Trump is a genius at sniffing out weakness on the part of others and then exploiting it without fear or favour. If anyone in Alberta thinks he won’t use that to his advantage, well, they’re about to learn a hard lesson. 

Even if Trump doesn’t hit Canadian oil exports with tariffs, his broader tariff war against China and Europe will almost certainly reduce global economic activity and the overall demand for oil. As Tom Kloza, the global head of energy analysis at OPIS, told CNBC, “If we do get a trade war — and a lot of economists think that a trade war is possible, and particularly against China — we could see much, much lower prices.” 

That’s without accounting for the behaviour of the OPEC cartel, which has been holding millions of barrels per day off the market in an attempt to prop up prices. With Trump pledging to massively increase America’s production, and OPEC nations losing market share by the day, the cartel — and Saudi Arabia in particular — may tire of helping other oil companies make money. As the Financial Times’s Tom Wilson wrote back in September, “the kingdom has decided it is not willing to continue ceding market share to other producers.” 

These are all considerable near-term headwinds for Alberta and its oil and gas industry. And yet, the biggest one coming from the return of Trump is the open lane it will create for China in the energy transition. With its growing dominance in clean technologies and America’s apparent intention to abandon its own efforts there, China could double down on the investments and technologies that will erode global demand for fossil fuels. “If China wants to build the alliances that it will need to acquire the status of a global hegemon,” Bloomberg’s David Fickling writes, “it has the perfect opportunity now to present itself as the clean alternative to an oil-stained and declining American empire.”

That might be good news for the climate, all things considered. But it would be very bad for Alberta, which has yet to take the work of reducing the emissions coming from its oil and gas industry seriously. Yes, its UCP government and the Conservative voters in the province will delight in the prospect of Trump returning to torment Justin Trudeau. What they don’t seem to realize yet is that they’re the ones who will feel the most pain.