Energy companies are hoping that deep trade ties with the United States will help head off protectionist measures under President Donald Trump and a Republican-controlled Congress.Getty Images/iStockphoto
Energy companies are counting on deep trade ties with the United States to head off protectionist measures under President Donald Trump and a Republican-controlled Congress.
U.S. Republicans are considering, as the centrepiece of a package of tax reforms, a possible 20-per-cent border tariff on imported goods, with the hope of spurring investment in domestic manufacturing and the energy industry. It would be offset by cuts to income taxes on exports.
While the proposal has drawn mixed support in Congress and a cool response from Mr. Trump, it has nevertheless weighed heavily on shares of Canadian energy companies.
TD Securities Ltd. analyst Menno Hulshof estimates Canadian exploration and production companies have shed about $10-billion in market capitalization since late December as investors fret over possible impacts.
This week, Foreign Affairs Minister Chrystia Freeland said after meeting with U.S. counterpart Rex Tillerson that she viewed export tariffs as "mutually harmful" to both countries. She warned that Canada would retaliate if necessary.
In earnings calls, energy executives have played down the prospect of a tax, pointing to the long-standing two-way trade in energy as well as Mr. Tillerson's first-hand knowledge of the expanding role played by the oil sands in the continental energy mix.
Indeed, before he was appointed Secretary of State, Mr. Tillerson presided over major investments in the oil sands at the helm of Exxon Mobil Corp., including the $21.8-billion Kearl megamine in northeastern Alberta. Many U.S. refineries are geared to process oil sands-derived crude, including several plants owned by Exxon, and the country remains the industry's single-largest export market.
That demand hasn't diminished, even with the rapid increase in production of shale oil in North Dakota and Texas, Suncor Energy Inc. chief executive officer Steve Williams said.
Suncor, Canada's largest oil sands producer, also owns a refinery in Commerce City, Colo., that processes nearly 100,000 barrels a day. "We're still a critical part of that mix," Mr. Williams said Thursday.
"My view is that, over all, Canada is not at the top of the list for the U.S. in terms of the trade concerns. I think it's a very healthy balance and a very healthy symbiotic relationship between Canada and the U.S., so I think the probability of a border tax as we're currently thinking about it is very low," he said.
Bill McCaffrey, chief executive officer of independent oil sands producer MEG Energy Corp., said there is still much uncertainty around the tax. However, he noted Mr. Trump has been focused on reducing dependence on oil from the Middle East. Meanwhile, Mexico has drawn much of the President's attention within North America.
"When you look at it that way, you're going to want to count on Canada to be a part of that energy equation," Mr. McCaffrey said Thursday.
"If it creates an advantage for Canada versus, say, other countries like Mexico, well that could be a positive. But really we're all in the speculative mode at this stage until we could get more information," he said.