Canadian prime minister Justin Trudeau's place in federal politics is winding down after nine years of driving change in climate policy, but those environmental advances came at a cost for the world's fourth-largest oil producer, helping to stifle foreign investment in the country's oil and gas sector.
Support for Trudeau fell nationwide over the past year, as inflation and rising housing costs fueled by a relaxed immigration policy and carbon taxes became too much for many to bear. Trudeau, seemingly immune to scandal and high-profile exits on his team, was dealt his biggest blow when his deputy prime minister and finance minister Chrystia Freeland resigned in December, citing his approach to the "aggressive economic nationalism" of US president-elect Donald Trump's threatened trade tariffs, prompting his 6 January decision to step down.
Canadian crude producers still managed to lift output by 30pc during Trudeau's tenure since 2015, even as major foreign players abandoned the oil sands for friendlier jurisdictions and upstream projects and pipelines were either mothballed or cancelled outright. Provincial jurisdiction over resources prompted frequent fights between Trudeau and Albertan premiers who guarded their claim to energy and the right to explore and extract within their borders.
"We could've done so much more," Alberta premier Danielle Smith said hours after Trudeau's announcement, lamenting missed opportunities for Canada's oil patch over the past decade, including the failed Energy East, Northern Gateway and Keystone XL export pipelines. A tanker ban, tighter regulation and an onerous project approval process were among the tools Trudeau used to try to rein in the oil and gas sector, saying in 2017 that Canada's oil sands needed to be "phased out" before naming a former Greenpeace director as his environment minister.
Smith did give Trudeau a nod for his commitment to keeping midstream giant Enbridge's Line 5 pipeline from shutting down, and for helping to get the massive Trans Mountain Expansion (TMX) pipeline and Coastal GasLink export projects from Alberta to Canada's Pacific coast across the finish line. But while Smith welcomes Trudeau's resignation, Canada now faces a period of lame duck leadership before it holds federal elections, while cross-border tensions are rising.
Your new best frenemy
Its largest trading partner is quickly becoming its newest antagonist, with Trump threatening a 25pc tariff on all imports from Canada and Mexico. Unencumbered movement of oil is critical on both sides of the border, with 80pc of Canada's 5mn b/d of crude production aimed at refineries in the US. Many landlocked Canadian producers have no practical alternative, like refiners in the US midcontinent connected by pipeline.
As political chaos unfolds in Ottawa, Trump has lobbed insults at Trudeau and made calls for the northern neighbour to become the US' "51st state", a taunt that has struck a nerve in Canada. "There isn't a snowball's chance in hell that Canada would become part of the US," Trudeau said on X on 7 January. "Trump's comments show a complete lack of understanding of what makes Canada a strong country," wrote minister of foreign affairs Melanie Joly.
Trump will have spotted Canada's weakness months ago, with support for Trudeau tumbling to the benefit of the Conservative Party and its leader Pierre Poilievre. Recent polls indicate the centre-right party would win a majority of seats in the House of Commons if an election were held today. That is likely to happen in May, assuming opposition parties bring down the government when Parliament resumes in late March. Should Poilievre win, Trump will have a partner better aligned on more policies than Trudeau was, but the suggestion that Canada could become part of the US will get the same response. "We will never be the 51st state. Period," Poilievre said.
His primary ambitions are to undo Trudeau's work, with the federal carbon tax being the first to go. Rescinding the tanker ban, killing proposed emissions caps and promoting pipeline construction are also on the agenda. Poilievre plans to "take back control" of Canada's resources through permitting and cutting taxes on pipeline and LNG projects to become less reliant on the US.
"Canadians will give me a mandate to take the country in a completely opposite direction," Poilievre said on the Jordan B Peterson Podcast earlier this month, describing how vanquishing Trudeau's energy policy will "cause a massive resource boom in our country." The lengthy exchange touched on minimising government, artificial intelligence and immigration, and was shared by Trump's ally, Tesla chief executive Elon Musk, who called it a "great interview".
Priming for another Pacific pipeline
Canada's energy industry has returned to profit and received a much-needed boost from the federally owned 590,000 b/d TMX pipeline, but rising oil sands production means the newly commissioned system is destined to fill up soon. The prospect of an industry-friendly federal government reinvigorating a relatively dormant midstream sector is positive for investment in Canada, and the US could play an unintended role in deciding where any pipelines are proposed.
Enbridge and the Alberta government are teaming up to find ways to expand pipeline capacity. Smith singled out the US as a customer she wants to enhance ties with amid looming tariff threats, but those threats may prompt a revival of pipeline projects to Canada's west coast to reduce dependence on the US market.
Enbridge's Northern Gateway pipeline was approved in 2014, but a Liberal Party led by Trudeau came to power in 2015 with sweeping changes for the oil and gas sector, including a tanker ban on the country's Pacific coast, effectively killing the project. The C$7.9bn ($7.3bn) Northern Gateway was not in the interest of local communities, Trudeau said in late 2016, when he officially reversed the previous government's approval. The pipeline would have shipped 525,000 b/d of diluted bitumen westward and 193,000 b/d of imported condensate eastbound to the oil sands region for blending. Construction would have avoided large populations and was seen as the most practical option for getting more Canadian crude to Asia-Pacific. Its northern terminal may not have had the same tanker limitations as TMX faces at Vancouver, and could have seen reduced voyage times.
Enbridge now has added support from the Alberta government by way of crude volumes the province collects as tax from some oil companies in lieu of cash payments. These in-kind barrels would be the first to backstop a major pipeline expansion by Enbridge, giving both the midstream company and other producers something to latch onto to advance a future project. This is a new approach for Alberta, after sacrificing C$1.5bn it paid in a last-ditch effort to keep the doomed 830,000 b/d Keystone XL project to the US alive. Outgoing US president Joe Biden revoked that troubled line's permit in 2021.
Like Keystone XL, Northern Gateway is no more. Reviving such a project would still require significant stakeholder engagement along any route, and face substantially higher construction costs than a decade ago. The C$34bn TMX put into service in May 2024 was originally pegged at C$5.4bn in 2013, even less than Northern Gateway as TMX was the twinning of an existing system. This would be a big hurdle to clear, even if governments were to allay regulatory concerns. But with an unpredictable Trump returning to the White House, the prospect of shipping more Canadian crude west might soon hold a heightened appeal.
