Oilpatch has $34 billion shield against Trump tariffs in TMX pipeline

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The expansion of the Trans Mountain pipeline was a $34 billion bid to help the country’s oil producers reduce their near-total reliance on the U.S. market. That’s a bet that may pay off sooner than expected if U.S. president-elect Donald Trump follows through on his tariff threats.

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The Trans Mountain expansion added almost 600,000 barrels of daily shipping capacity when it started operation in May, allowing drillers to boost output and ushering in a period of stable and relatively higher prices for Canadian oil.

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Importantly, the conduit stretching from Edmonton to Burnaby has also lived up to its promise of opening new markets for oilsands crude in Asia.

The government-owned project could become an even more critical relief valve for Canada’s oilpatch if Trump imposes 25 per cent tariffs on imports from the country, raising the cost of the crude for U.S. refiners.

That would help protect a critical economic lifeline for Canada, whose energy products have accounted for about a third of its exports to the U.S. in recent years.

The marine terminal at the end of Trans Mountain could help ship as many as 630,000 barrels of oil a day — roughly 16 per cent of Canada’s total oil exports — directly to Asia or elsewhere, avoiding tariffs.

“They will be scrambling to find tankers,” Susan Bell, a Rystad Energy analyst, said. “They are going to try their hardest to fill that pipeline up.”

Trump pledged to impose tariffs on Mexico and Canada on his first day in office unless they curb the flow of fentanyl and migrants into the U.S.. While oil and gas were excluded from tariffs in his first administration, his post threatening the tariffs said they’d apply to all products.

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Trans Mountain has spare capacity because cost overruns — which more than quadrupled the line’s price tag to $34 billion — have boosted tolls and made spot shipments uneconomical. The government-owned corporation that runs the system has forecast the line won’t fill up before 2028, but tariffs would change the economics overnight, Bell said.

That also could make Trans Mountain a more valuable asset for the federal government, which bought it in 2018 to save the project from cancellation, and has been looking to sell it to private buyers.

Still, Trans Mountain won’t make tariffs painless. Canadian heavy oil prices could drop below $40 a barrel in 2026, Goldman Sachs said in a recent note, down from about $55.

The pain would also be felt in the U.S. Midwest refineries that rely heavily on Canadian crude and have limited access to oil from other locations. Those refiners could pay at least part of the tariff themselves, Bell said. But the tariff could raise gasoline prices in the region by 50 cents a gallon during summer’s peak driving season, Patrick De Haan, head of petroleum analysis at GasBuddy, said last month.

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Refineries on the U.S. West Coast have been buying more Canadian crude from the pipeline, about 173,000 barrels a day in November. Should all that oil go to tariff-free markets in Asia, California plants operated by Chevron Corp., Marathon Petroleum Corp. and Valero Energy Corp. would need to look elsewhere for potentially costlier oil.

Even U.S. Gulf Coast refiners use Canadian heavy oil, to help balance out the light grades produced domestically, and might need to pay the tariff or seek new supplies.

Western Canadian oil producers have long sent essentially all of their exported crude — nearly four million barrels a day — to the U.S., often at depressed prices because of a shortage of pipelines and lack of alternative export routes.

Trans Mountain has been operating since the 1950s, but most of the oil went to refineries in Washington State. Since the expansion tripled the capacity to almost 900,000 barrels a day, as many as 220,000 barrels a day have been going to China, according to Vortexa tanker tracking data.

Canadian oil producers could also circumvent tariffs by exporting their oil from the U.S. Gulf Coast, if the levies aren’t applied to oil transiting the U.S. for foreign markets, Bell said. Before the Trans Mountain expansion, most western Canadian oil that what was shipped to other countries followed that route. Canadian crude is still sent from the Gulf to countries including India and Spain.

With files from Lucia Kassai and Ari Natter

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