Canada’s largest oil and gas producers are ramping up their production plans for 2025 despite U.S. president-elect Donald Trump’s proposed 25% blanket tariff on crude imports. With the U.S. as Canada’s largest trade partner, accounting for over 75% of exports—including over 20% from oil and gas—these developments hold significant economic implications.
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U.S. Tariff Threat and Economic Implications
On Tuesday, Trump reiterated his threat to apply tariffs on Canadian goods immediately after his January 20 inauguration for a second term. He also hinted at using “economic force” to bring Canada closer to U.S. control, further escalating tensions between the two nations.
Despite the uncertainty, a major credit ratings agency has reassured investors that Canadian oil and gas companies’ profitability will remain largely unaffected. Higher costs from potential tariffs are expected to flow directly to American consumers, minimizing impacts on Canadian producers.
Chris Mikrovas, a senior analyst at Morningstar DBRS, highlighted the importance of Canadian crude for U.S. refineries, particularly in the Midwest. He stated, “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.”
Major Producers Unveil Ambitious Plans for 2025
Calgary-based oil giants Suncor Energy, Cenovus Energy, Imperial Oil, and Canadian Natural Resources are undeterred by the looming tariff threat.
Canadian Natural Resources, for instance, announced plans to boost production by 12% in 2025, supported by a 13.5% increase in capital spending. The broader industry is also experiencing a resurgence in investment after the downturn in 2020, fueled by infrastructure projects such as the Trans Mountain pipeline expansion and the upcoming LNG Canada export terminal.
New Markets Drive Optimism for Canadian Oil
Expanded pipeline capacity has opened new opportunities for Canadian crude in Asia. According to ATB Financial economist Robert Roach, Alberta’s energy exports to China surged fivefold in the first 11 months of 2024 compared to the same period in 2023.
“Alberta’s energy product exports to China were $2 billion during the first 11 months of 2024, entirely driven by crude oil,” Roach stated. He attributed this growth to the Trans Mountain pipeline expansion, which has enabled Alberta oil to reach the West Coast and Asian markets.
Resilience in the Face of Volatility
Despite a volatile year for Canadian oil and gas stocks in 2024, companies have maintained shareholder returns through dividends and share buybacks. Canadian Natural Resources president Scott Stauth emphasized the company’s ability to withstand uncertainty, comparing the situation to the unpredictability faced during the COVID-19 pandemic.
“We built ourselves a resilient business here that’s sustainable to take the ups and downs, and we saw those ups and downs happen through COVID,” Stauth said.
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Limited Impact on Canadian Producers
While tariffs may increase costs for certain raw materials like condensate, Mikrovas expects Canadian producers to pass these costs onto consumers. “If tariffs are implemented, we expect that the impact on the credit profiles of Canadian oil and gas producers would be limited,” he noted.
Conclusion
As Canada’s oil and gas sector prepares for growth in 2025, producers remain steadfast despite geopolitical uncertainties. Infrastructure expansions and access to new markets are driving optimism, while the industry’s resilience ensures stability for investors. With the U.S. heavily reliant on Canadian crude, any tariff measures could ultimately place a heavier burden on American consumers rather than Canadian producers.
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