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Most of Canada's 4 million bpd of oil exports to go U.S.

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U.S. cannot easily replace Canadian barrels

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Stronger U.S. dollar could benefit Canadian producers,

says

analyst

By Nia Williams

Nov 12 (Reuters) - Canada's energy industry does not

expect U.S. President-elect Donald Trump's broad plans for

protectionist trade measures will include tariffs on Canadian

oil imports, because many U.S. refineries rely on barrels from

north of the border.

Some Canadian oil industry participants saw Trump's election

as a positive that would stimulate energy investment across

North America and could boost the value of U.S. dollars that

Canadian producers receive for their crude. However, some said

any increase in U.S. oil and gas production could raise

competition for Canadian exports to other parts of the world.

Canada is the world's fourth-largest oil producer and

sixth-largest natural gas producer. The vast majority of its 4

million barrels per day (bpd) of crude exports go to the U.S.,

meaning any slowdown in energy trade would have a major impact

on the Canadian economy.

Trump has floated the idea of a 10% or more tariff on all

goods imported into the U.S. Most industry analysts say that is

unlikely to include Canadian oil, which cannot be easily

replaced since it differs from grades that the U.S. produces.

"If you were to slap on a bunch of tariffs for Canadian oil,

it's not like there's an alternative readily available," said

BMO Capital Markets analyst Jeremy McCrea.

Many U.S. refineries, particularly in the Midwest and Gulf

Coast, have invested in costly upgrading units to process heavy

sour Canadian crude, which is harder to refine and therefore

usually cheaper than the light shale oil abundant in the U.S.

In the Midwest, a refining region supplying major cities

including Chicago and Detroit, nearly all refinery feedstock

comes from Canada. Adding tariffs to crude imports would likely

increase refiners' costs and drive up fuel prices for consumers.

The chances of Trump imposing tariffs on Canadian barrels

are extremely slim, said Commodity Context analyst Rory

Johnston, but any trade measures would also hurt Canadian

producers because they have few options to export elsewhere.

A slowdown in U.S. buying would likely leave crude

bottlenecked in Alberta and drive Canadian crude prices lower,

he said, estimating a 20% tariff could roughly double the

current discount on benchmark heavy crude.

"The fact it is a risk at all highlights the unique

vulnerability of the Canadian oil sector to U.S. policy,"

Johnston said.

Trump's media team did not immediately respond to a request

for comment.

PRO-BUILD PRESIDENT

Canadian oil industry players said while the idea of tariffs

is concerning, they also saw the potential for fewer regulations

around oil and gas to rub off on Canadian policymakers.

"This is a pro-development and pro-build president, and that

will extend into Canada as well, some of that investment," said

Tristan Goodman, CEO of the Explorers and Producers Association

of Canada.

Trump's re-election may force Canada's companies and the

government to invest more to improve the country's productivity

or risk falling further behind the U.S., Goodman said.

"It's definitely much more positive than negative but there

are a few unknowns," he said.

Trump's election victory sent the U.S. dollar higher

against the Canadian dollar, although the loonie clawed back

those losses later in the week. The Canadian currency is trading

close to a two-year low, and is expected to remain under

pressure. That could benefit Canadian oil producers, who pay

operating costs in Canadian dollars but sell barrels for U.S.

dollars, BMO's McCrea said.

Last week, Ottawa unveiled draft regulations for an oil and

gas emissions cap that many industry executives said would force

production cuts. Opposition Conservatives, leading in the polls

head of an election to be held within the next year, have said

they would scrap those measures.

Some company executives also see a risk that an increase in

U.S. oil and gas production and exports may shunt out Canadian

exports to other parts of the world.

In 2023, 97% of Canada's C$124 billion ($89.48 billion) of

oil exports went to the U.S., according to the Canada Energy

Regulator, but the start-up of the Trans Mountain expansion this

year is lifting exports to Asia.

Canada's first liquefied natural gas export project, the

Shell-led LNG Canada terminal, is due to start operating next

year and more LNG export terminals are underway.

"Anything they export to other parts of the world is

directly in competition with the oil and gas we produce in

Canada," said Michael Belenkie, CEO of mid-sized producer

Advantage Energy ( AAVVF ).

($1 = 1.3858 Canadian dollars)