US refiners that process Canadian crude would not easily find alternative supplies if president-elect Donald Trump follows through on his tariff plans, potentially threatening the viability of some fuel producers, a US refining industry group warned today.
Trump on Monday said he would impose a 25pc tariff on imports of all goods from Canada and Mexico, claiming those two countries need to tighten borders they share with the US.
Such tariffs would be problematic for US refiners that have come to rely on a steady diet of Canadian crude, much of which comes from the western, oil-rich province of Alberta.
"There is no easy, fit-for-purpose replacement for this crude oil," the American Fuel and Petrochemical Manufacturers (AFPM), which advocates for many US refiners, said on Wednesday.
Canadian oil is the number one refinery feedstock in the US midcontinent, accounting for 65pc of all crude runs in the region, according to AFPM. Refiners in the region have limited connectivity to US crude and refined products pipelines, so tariffs could sharply increase operating costs and even threaten their viability, the association said. Many refineries were built prior to the US shale boom and are suited for heavier, high-sulfur crudes that typically come from foreign sources.
Canada exported about $428bn in goods and services to the US in 2022, while the US exported $481bn to Canada, according to US data. Petroleum makes up a substantial part of Canada's exports, with roughly 4mn b/d of Canada's 5mn b/d of production shipped to the US. Of this, about 3mn b/d is destined for the US midcontinent region.
"The crude oil pipeline logistics have changed over the decades such that the loss of Canadian oil into these regions can only be replaced with domestic production," Lipow Oil Associates president and industry analyst Andrew Lipow told Argus Wednesday. "Unfortunately, there is very little pipeline capacity to deliver crude oil produced in Texas and New Mexico to refineries in Montana, Minnesota, and Chicagoland."
Lipow suggested three scenarios, or some combination thereof, may unfold: Canadian crude would need to be further discounted to overcome the tariff; US refiners would pay more for crude, including for domestic WTI that would rise to import parity; or Canadian crude would be exempted from tariffs and there would be no change.
"The extent of the price impact depends on one's locations, but certainly seems to me that the consumer will be paying more for energy," Lipow said.
Tariffs on crude and refined products "will not help our industry compete, nor will they support US energy dominance and affordability for consumers", AFPM said.
The American Petroleum Institute (API), another industry group, agreed.
"Maintaining the free flow of energy products across our borders is critical for North American energy security and US consumers," an API spokesperson said.
