Trump’s trade threats reinvigorate talk of new Canadian pipelines

Welcome to Energy Source coming to you from London.

This week’s newsletter focuses on US President Donald Trump’s emerging trade war and its potential impact on energy flows, between the US and Canada, and also between the US and India.

Last week, following a meeting between Trump and India’s Prime Minister Narendra Modi the two leaders agreed to boost Indian imports of US oil and gas. They were no further details but analysts expect liquefied natural gas, rather than oil, to be Washington’s main focus.

“I think LNG is the new bargaining chip everywhere in the effort to avert tariffs,” Helima Croft, global head of commodity strategy at RBC Capital Markets, told me last week. “It appears to be a key component in Trump’s art of the deal.”

In an interview shortly before Trump and Modi’s meeting, India’s oil and gas minister Hardeep Singh Puri, appeared to be well briefed on Washington’s expectations, telling the FT that he was ready to buy more gas “from all sources”. For more details on the energy implications of the US-India deal check out this story from Andres Schipani and Jamie Smyth in today’s FT.

For now though, stay here for FT Canada correspondent Ilya Gridneff’s must-read take on what a trade war will mean for the energy sector across America’s northern border.

Thanks for reading. — Tom

Canada bets on energy as its trade war trump card

President Donald Trump’s attacks on Canada have sparked a wave of newfound patriotism across the border, including calls to become an “energy superpower” via previously cancelled pipeline projects that would diversify the country’s oil economy away from the US.

Canada, which has the world’s third-largest oil reserves, is the biggest foreign supplier to the US, accounting for about 60 per cent of its total oil imports. Apart from record levels of oil and gas, Canada also supplies the US with electricity and uranium.

Many argue Canada is already an energy superpower, especially as the country’s new liquefied natural gas terminal on the west coast of British Columbia is expected to start exporting to Asia later this year.

On average Canada sends about 4mn barrels of crude to the US daily, according to the US Energy Information Administration. These imports have become increasingly important to ageing US oil refineries, which were built to handle heavier grades of crude, such as the type produced in Canada.

But as Trump’s tariff threats against Canada — including a 10 per cent levy on oil — undermines a trading relationship worth C$1.3tn ($910bn), energy has become crucial to reinforcing the country’s economy.

Previously scrapped pipelines such as Energy East, which would send oil 4,600km from resource-rich Alberta province to Canada’s Atlantic coast, and Northern Gateway, another project to export heavy oil to the Pacific coast, are being discussed as ways to find new trading partners farther afield.

Alberta’s premier Danielle Smith has described the Trump presidency as a “wake-up call” and argues new pipeline projects could help double Canada’s oil output.

Quebec’s premier François Legault told reporters there is no plan to revive the Energy East oil pipeline — a project first proposed in 2013 — that would pass through the province. But he added, “what Mr Trump is doing may change the situation”.

Earlier this month, Canada’s natural resources minister Jonathan Wilkinson conceded a new west-east oil pipeline may be needed as “being so dependent on the US for the export of oil is a vulnerability”.

However, building pipelines is a complicated process. It is expensive, requires a huge logistical undertaking and needs a great deal of time, effort and political capital in consensus building with First Nations, local communities and environmental groups.

Then there’s the regulatory processes, legal issues and each province to deal with.

Canada’s most recent addition to its network, the Trans Mountain Expansion pipeline that opened last May, sends oil to the west coast for exports to Asia. It took more than a decade to build due to legal challenges and technical issues. It was eventually rescued by the government at a cost of C$34bn — four times over budget.

What is clear, however, is that the conversation is evolving. Compared with 18 months ago, Canadians are nearly twice as likely to emphasise economic growth as a crucial factor in deciding energy policy, according to an Angus Reid Institute poll released last week. The survey also showed climate change has dropped down their list of concerns.

Oil watchers remain sceptical of a Canadian production boom, mostly due to wary Wall Street investors who see a trend towards an “energy mix” rather than a fossil fuels resurgence.

At the same time, pipeline companies such as Enbridge or TC Energy are not leading the charge. Similarly, despite Trump’s desire to relaunch the Keystone XL pipeline that could pump nearly 800,000 b/d from Alberta’s oil sands region, there is no commercial plan to revive it.

Another challenge is Canada’s particularly turbulent political climate.

Justin Trudeau, who resigned last month as prime minister, will be replaced on March 9 by either former finance minister Chrystia Freeland or former Bank of Canada governor Mark Carney. Following that, a national election is expected to be called.

One of Freeland’s proposed platforms is “to make Canada an energy superpower, from powering our grids with hydro to exporting LNG to our allies”. Carney has promoted renewable energy and a “price on carbon” policy, drawing the suspicion of the oil and gas sector.

Opposition leader Pierre Poilievre, a 45-year-old career conservative politician who has had a double-digit lead on Trudeau for more than a year, will almost certainly be the winner at the next election. But his “Canada is broken” slogan appears out of step with the new mood of patriotism, as recent polls show his lead shrinking.

Poilievre has said Canada’s oil is “underpriced” and underutilised because there is only one pipeline that does not head straight to the US. He has also said Trump should approve the Keystone XL project.

Regardless of their differences, there is furious agreement from all quarters that Canada’s energy is its trump card in a trade war. (Ilya Gridneff)

Power Points

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.