US president-elect Donald Trump's threat to impose 25pc tariffs on all imports from Canada would likely raise US natural gas prices if enacted, but not by enough to significantly alter flows across the border.
As anxiety over US-imposed tariffs mounted over the past week, gas prices for February delivery on the Pacific coast of southern Canada began trading at a steeper discount to their US counterparts. The February price at Westcoast station 2, a key indicator of western Canadian gas prices, on Wednesday was at a $4.38/mmBtu discount to northwest US gas hub Northwest Sumas, compared with a $3.43/mmBtu discount a week earlier. The February price at Canadian benchmark NIT/AECO on Wednesday also moved to a $2.56/mmBtu discount to the US benchmark Henry Hub in Louisiana from a $2.22/mmBtu discount a week earlier.
While other factors could be at play, the wider Canadian discounts line up with a shift in sentiment by Canadian oil and gas groups and politicians over the past week, as those groups coordinate to try and halt the threatened tariffs. "They're likely to come in on January 20th," Danielle Smith, premier of Alberta, a major oil and gas-producing Canadian province, said of the tariffs this week. The attitude is starkly different from a month earlier, when Michael Rose, chief executive of Tourmaline Oil, the largest Canadian gas producer, said at a Goldman Sachs energy conference that he thought there was a "low likelihood" that the tariffs would be imposed. "We'd agree with you," replied Goldman Sachs head of gas research Samantha Dart.
But while US-Canadian gas price spreads would widen if gas were not exempted from Trump's tariffs, the western US would probably not reduce purchases of Canadian gas, because "there's nowhere else for them to get the supply," FactSet senior energy analyst Connor McLean said. Moreover, even with a 25pc price increase, Canadian gas is still highly competitive against US-sourced gas and alternative power generation sources like coal. This is also the case for the US' upper midcontinent and east coast, though gas buyers in those regions could also source gas from Appalachia, Oklahoma or the Rockies if there were spare pipeline capacity.
The effect of tariffs on gas prices would also probably be dwarfed by more humdrum market dynamics, like the weather. Demand-boosting cold weather this month has quickly drawn down US gas inventories, which appear slated in the coming weeks to flip to a deficit to the five-year average for the first time in more than two years. Even colder weather early next week is also likely to trigger freeze-offs, which are production curtailments caused by extreme cold.
Given those more pressing concerns, "tariffs do not come up" in meetings with other market participants, Appalachian gas producer Seneca Resources marketing manager Rob Lindroos told Argus.
Approximately 99pc of US gas imports are from Canada via pipeline, with flows into the US averaging 8 Bcf/d (227mn m³/d) in 2023, according to the US Energy Information Administration. Those Canadian sales, accounting for nearly half of western Canada's production, provide crucial energy supplies to the US Pacific northwest and midcontinent, parts of which are far from US reservoirs.
