• 2 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 5 minutes Iran downs US drone. No military response . . Just Destroy their economy. Can Senator Kerry be tried for aiding enemy ?
  • 8 minutes The Inconvenient Truth Of Electric Cars
  • 12 minutes The Plastics Problem
  • 47 mins SHALE MAGIC: Let the oil flow: US to lead oil output growth through 2030: ConocoPhillips chief economist
  • 4 hours To be(lieve) or Not To be(lieve): U.S. Treasury Secretary Says U.S.-China Trade Deal Is 90% Done
  • 48 mins Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 2 mins Philadelphia Energy Solutions seeks to permanently shut oil refinery - sources
  • 2 hours EIA reports 12 mm bbls Inventory draw . . . . NO BIG DEAL . . . because U.S. EXPORTED RECORD 12 MILLION BARRELS DAY OF CRUDE + PETROLEUM PRODUCTS ! ! ! THAT'S HUGE !
  • 11 mins IMO 2020
  • 11 hours Here we go folks, the wish of so many: Pres. Trump threatens to lessen US security role in Strait of Hormuz, unveils sanctions
  • 1 hour Its called reality: Economic, policy challenges to make Asia's energy transition painfully slow
  • 10 mins Ireland To Ban New Petrol And Diesel Vehicles From 2030
  • 11 hours Looks like Trump is putting together a "Real" Coalition to protect Persian shipping lanes. Makes perfect sense. NO Fake "Coalition's of the Willing" UPDATE REUTERS Pompeo "Sentinel Program"
  • 6 hours On the hobby side of things
  • 13 hours Cap and trade: What could Oregon’s carbon policy cost you?
Alt Text

Cheap Gas To Fuel New Global Demand Boom

The IEA has urged nations…

Alt Text

The LNG Shipping Market Is Set For A Bull Run

In contrast to the volatile…

Peter Tertzakian

Peter Tertzakian

Peter is an economist, investment strategist, author and public speaker on issues vital to the future of energy. He has clocked over 30 years of…

More Info

Premium Content

Expert Commentary: How Trump’s Trade War Affects Canadian Oil

Last week, the first salvo of a global trade war was fired: US tariffs on steel and aluminum.

Like the “shot heard round the world,” the American protectionist move has politicians and economists in industrialized nations strategizing with their spreadsheets. From Porsches to prosciutto, every country is scouring trade numbers to see what can be tit for tat in the event of all-out global trench digging.

Canadian industries, on the other side of the bridge from where the shot was fired, have their helmets on. The volley is a prod to put all things we peddle—and to whom we peddle to—into perspective.

Steel, for instance, has much in common with oil, natural gas and petroleum products businesses. Both are products sourced from a plentiful domestic endowment of resources — iron ore and hydrocarbons. Both fight for market share in a fiercely competitive global market. Both have long been vulnerable to the vagaries of government policy. Both are hugely important to their provincial economies, Ontario and Alberta respectively. And both are dominantly exported to the United States.

But that’s where the comparisons end. We sell a lot more barrels of oil than rolls of steel.

Sifting through the eye-rubbing data tables on the Statistics Canada website, exports of “iron, steel and articles thereof” in 2017 were $14.0 billion. About 86 percent of those exports were sold to the United States. Aluminum and articles thereof was $12.6 billion. It’s not clear which product sub-classifications, if any, may be subject to US tariffs. Nor do we know if nuts, bolts, fence posts, and other value-added articles thereof will be included. But let’s assume everything is thrown into the Trumpian blast furnace.

By comparison, exports of Canada’s oil, gas and petroleum products last year—during a period of depressed prices—were almost $107 billion, 91 percent of which went south of the border.

Related: Why The Next Oil Boom Will Be Fueled By Blockchain

That’s four times the value of iron, steel and aluminum exports combined, including all the value-added kitchen sinks.

Autos and auto parts, come next in size at $77.6 billion. After that, the export categories decline in value. Agricultural products, a business that goes back to the roots of our country, and are delivered to breadbaskets around the world, was $27.0 billion in 2017. Base metals (excluding iron and steel) were way down the value spectrum at $13.7 billion. And electricity, another energy export to the US from our hydro-rich provinces, is collectively only about $3.0 billion.

(Click to enlarge)

If the Trump administration proceeds with its plans, Canada’s steel business may have to operate at a 25 percent price disadvantage. Ironically, that’s a handicap similar in magnitude to what the oil industry is enduring on its heavy oils right now. Natural gas producers are more encumbered. They have one of their two arms tied behind their backs, fighting a 50 percent discount to US prices.

In dollar terms, the value loss being forfeited by the Canadian oil and gas industry today—some $10-15 billion annualized—is roughly the size of all iron and steel exports. As illustrated vividly in my column last week Canada’s hydrocarbon discounts are actually subsidies being skimmed by foreign transfer agents, mostly of US origin.

But wait; there is a steel lining to living with these temporary, selective discounts. Thinning profits have a way of sharpening pencils.

As a result of commodity price discounts, many Canadian oil and gas companies have become creative and innovative awfully fast. Many a management team has learned the virtues of cost discipline, efficiency and operational excellence in the field. These lean-and-mean virtues are fundamental to long-term, global competitiveness. And they have battle-hardend the business against future known unknowns.

Size comparisons are interesting, but there are bigger lessons in the emerging world disorder.

Related: What’s Really Happening With Venezuela’s “El Petro?”

Of the $500 billion of annual Canadian merchandise exports, 75 percent goes to the United States. It’s been a mutually rewarding dinner party that has been convenient and easy for many decades. But the guests now want to go home and bake their own dessert. It’s time to feed others.

In my last column, I put forth the mantra that Canadians need to “think globally and act locally.” That sage advice was suggested before this simmering trade war broke out.

For any industry, the rules of commerce can change anytime by virtue of technology, policy, politics and many other external influences.

The trade-war shot has been fired and heard. Canadian businesses are facing a prickly reminder that being obsessive about low-cost production, competing with innovation, finding new trading partners, and building infrastructure to facilitate trade beyond our continent, should all be national priorities—for all the products we sell.

By Peter Tertzakian

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment
  • Mark Urbanski on March 11 2018 said:
    Canada should be putting a tariff Oil sent to the states. The discount is there and the Americans will still pay as long as it is still less than the WTI price... very simple to be a Canadian... Water as well is another American security issue and that in large volume comes from Canada too...

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News