The calls are growing for action on energy. But what’s the next step for Canada?

Portfolio manager Eric Nuttall explains where he thinks Canada could have done more in softening relations with the U.S.

As the threat of tariffs hangs over the economy, industry players say expanding Canada’s energy sector and diversifying its customer base could provide greater economic security.

Given that Canada sends the majority of its fossil fuels to the U.S., there are concerns among experts that revenue streams are highly exposed to one country, where the economy could be negatively affected by trade disruptions with its main partner.

Canadians feel a “sense of betrayal” in response to threats from the U.S., one portfolio manager says, but in his opinion, Canada shouldn’t have put itself in a position where a single trade partner can threaten its economy with “as much as a four per cent GDP hit.”

Other trading partners could better protect the economy in the event of U.S. tariffs on Canadian energy, as exports could potentially be diverted to other nations.

“It’s obvious that if we had built out more pipelines over the past nine to 10 years and not been sending 97 per cent of our oil to the United States, that we’d be in a much, much stronger, position. And so, our policymaking for too long has been guided by eco-evangelism versus pragmatism,” Eric Nuttall of Ninepoint Partners told BNN Bloomberg in an interview Monday.

More pipelines could potentially have allowed Canada to move oil domestically or internationally while avoiding the U.S.

Tariffs on the Canadian economy were delayed by at least 30 days on Feb. 3 following a conversation between U.S. President Donald Trump and Prime Minister Justin Trudeau. The pause in tariffs came after a series of threats from Trump, which spurred calls to develop Canada’s energy sector, revive new pipelines and expand capacity. Trump’s threats included a 25 per cent tariff on imports from Canada, with an exception for energy, which would have faced a 10 per cent tariff.

Alberta Premier Danielle Smith told BNNBloomberg.ca in a statement Thursday she is calling on other policymakers to build more pipelines.

“We must start acting like a healthy and functional country that supports every province to develop, manufacture and export their very best resources and products around the globe,” Smith said.

Canada’s energy economy

In 2023, the energy sector accounted for about 10.3 per cent of nominal gross domestic product (GDP), according to the most recent figures available from the federal government. During that year, energy exports totalled about $199.1 billion across 123 countries, with the U.S. accounting for 89 per cent.

Nuttall said it is “very clear” the U.S. needs Canadian oil, noting some refiners in the upper Midwest import around three million barrels per day.

“They have no alternative. They can’t truck it or barge it. Their reliance on Canadian oil potentially gives us enormous strength going forward. I really hope this is going to be a wake-up call for energy policymakers,” he said.

Canada might ‘thank Trump’: Charest

Jean Charest, a member of the prime minister’s council on Canada-U.S. relations, said one day Canada might “thank Donald Trump.”

“He’s forcing Canada to have a hard look at ourselves, of how we run our economy, how we deal with natural resources, energy, interprovincial trade barriers,” the former Quebec premier and MP told BNN Bloomberg Thursday.

Blake Shaffer, an associate professor of economics at the University of Calgary, said in an interview with BNN Bloomberg Wednesday that the tariffs threat reveals how the situation “makes us vulnerable.”

As a result, he says, Canada is a “fork in the road” with two options. One is to lean further into integration with the U.S.

“The other is those voices to diversify. And there’s no denying that if we had more capacity to sea ports, more ability to ship energy across the country…we would have had a lot more leverage in this dispute and for the next 40 years,” he said.

“The question is, is it reasonable and worthwhile to make that a deliberate strategy going forward? It’s a costly endeavour.”

Industry advocates push for greater market access

Canada’s oil industry has pushed for more pipelines in the past, including projects connecting Alberta to the west and east coasts, some of which were rejected following objections from Indigenous leaders and environmental groups.

Among the industry advocates is the Canadian Association of Petroleum Producers (CAPP), which has advocated for greater market access for Canadian oil and natural gas, and additional pipelines and infrastructure to diversify the economy, according to President and CEO Lisa Baiton.

“Diversifying markets includes enhanced, direct access to Canadian provinces from coast to coast. Today we rely on pipelines that run through the United States to get Canadian oil to Quebec and Ontario refineries,” she said in a statement to BNNBloomberg.ca Thursday.

“New customers, internationally and domestically, would enhance Canada’s energy security and geopolitical influence with additional global trading partners.”

Among the projects rejected in the last two decades are the Energy East pipeline, which would have carried about 1.1 million barrels of oil a day from Alberta to supply Atlantic Canada, and the Northern Gateway pipelines proposed to run between Alberta and the West Coast to facilitate oil shipments to Asia. Another was a pipeline from Alberta to Quebec and a new LNG plant in the latter province, something the Quebec government has recently said it would reconsider.

Smith said she will be speaking with other premiers on expanding pipeline access.

“I’m also encouraged to see (B.C.) Premier David Eby has recently taken action to fast-track several energy projects,” she said.

A controversial project the federal government did go ahead with was the expansion of the Trans Mountain (TMX) pipeline, the operators of which Reuters reported Wednesday expect to see increased demand if the U.S. goes ahead with its tariff threats.

Bloomberg News reported in September that about two-thirds of the Alberta-to-B.C. shipments have been sent on to Asia, with the rest heading to U.S. buyers.

How does Canada’s capacity compare to demand?

An estimate from the Canada Energy Regulator suggests that the country’s 17 refineries have a combined capacity of 1.93 million barrels per day as of last year.

Federal government data from 2023, the most recent available, suggests a domestic demand for refined petroleum products of 1.7 million barrels a day. Overall oil consumption in Canada in the same year was estimated at 2.4 million barrels per day.

When it comes to crude oil and gas, Trump said publicly last month that the U.S. doesn’t need Canadian products, but an industry expert said this statement was “not factually correct.”

Richard Masson, an executive at the University of Calgary’s School of Public Policy, said in interview on Jan. 23 with CTV News Calgary, “They do need our oil… four million barrels a day go to the States.”

He said Canada’s crude oil is such a commodity south of the border because of its quality.

BNNBloomberg.ca reached out to Natural Resources Canada to ask what its diversification plans are, if any. Canada does import refined petroleum products such as gasoline and diesel fuel from other countries, but the U.S. is by far the largest provider, supplying 72 per cent of these products in 2023 compared to eight per cent from the next largest source, the Netherlands.

The ministry was also asked whether the expansion of pipelines and building of refineries was a priority, as a way of reducing the country’s dependence on the U.S, and if it plans to look to other sources for oil and other products. A spokesperson for the ministry said a response would take several days.

Speaking at a media availability Thursday, Energy and Natural Resources Minister Jonathan Wilkinson said rather than pulling resources, he believes it’s important to shift the conversation with U.S. counterparts “in a more constructive direction.”

Wilkinson said his focus during a recent trip to Washington, D.C., was on opportunities for the countries to help each other in a trade relationship that has been considered beneficial for both countries for decades. He said he suggested alternatives to tariffs that would still support the president’s “energy dominance agenda,” including sending more crude oil, natural gas or coal south of the border for the U.S. to export globally.

Still, he said it’s an important time to reflect on diversifying the economy, including expanded export options and the breaking down of international trade barriers.

Like ‘buying a Blockbuster franchise’

While investing in Canada’s energy sector is being floated as a way to protect the economy amid tariff threats, others say there are environmental concerns that need to be accounted for.

Keith Stewart, senior energy strategist at Greenpeace Canada, told BNNBloomberg.ca in a statement Wednesday that doubling down on new pipelines at a time when the world is shifting to renewables would be like “buying a Blockbuster franchise as Netflix is taking off.” In an interview he said the global market for oil is shrinking.

“I think the oil lobbyists are using the current crisis to just push for the things they’ve always pushed for, which is more pipelines. And to be honest, the only way they get built is on the public purse,” he said.

Stewart said the “smart move” would be for Canada to reduce its reliance on oil exports “because the global market for oil is going to be shrinking.”

He said Canada has a “huge role to play” in the “new energy economy” and should be investing in that rather than “sinking more money” into oil and has.

Shaffer also questions the long-term benefits of doubling down on Canada’s energy sector amid concerns regarding demand over the decades to come.

“In a world where we might be headed towards peak oil, maybe not in the next years, but certainly the next decades, is building a slew of pipelines from coast to coast really the most strategic thing we can do as a country with a long-term view? That’s an open question for me,” he said.

However, one area where there isn’t any doubt about future demand is electricity.

“We know that the demand for oil is not going away anytime soon, but if it is starting to crest, you’re removing your eggs from the American basket, and you’re really pushing more eggs into the oil basket,” he said.

Edited by Mary Nersessian and Colleen Schmidt.

With files from The Canadian Press.