The Northern Lights, aurora borealis, make an appearance over pumpjacks near Cremona, Alta., on Oct. 10.Jeff McIntosh/The Canadian Press
Alberta’s Premier has signed on to a key energy pact with a dozen American states, the province’s first step in positioning itself in preparation for a Donald Trump administration in the new year.
Danielle Smith on Thursday joined the Governors’ Coalition for Energy Security. Established in September, the group aims to shore up energy security, lower energy costs, increase reliability and bolster sustainable economic development. Alberta is the first non-U.S. jurisdiction to enter into the agreement.
The coalition’s goals echo the recent talking points of Alberta’s United Conservative government, particularly in response to policies floated by Ottawa, including the proposed oil and gas emissions cap and clean electricity regulations.
Alberta has signed on to expand its energy ties with the states and promote cross-border trade. But by joining the coalition, the province can also leverage a network of influential governors should Mr. Trump follow through with the 10-per-cent to 20-per-cent universal tariff on all imports to the U.S. he promised during the election – which could include oil and gas.
The threat of trade wars, tariffs and what is predicted to be a bruising renegotiation of the Canada-United States-Mexico Agreement on free trade are all expected to stifle Canadian exports and dampen business investment on this side of the border.
Alberta accounts for 56 per cent of all oil imports to the U.S. – twice as much as Mexico, Saudi Arabia and Iraq combined.
University of Calgary economist Trevor Tombe says Alberta’s move to quickly join the multistate coalition signals that the province is laying the groundwork early on to try and ensure energy is excluded from potential tariffs.
In 2017, similar relationship-building between governments helped facilitate the renegotiation of the North American free-trade agreement, Prof. Tombe said. The coalition could have similar benefits, he said in an interview, given it includes Democratic and Republican governors, and it spans the country.
“It might help prevent what would be a really devastating policy move in the States from being enacted in the first place,” he said.
The costs of tariffs are usually passed down to consumers. But the impact of an energy tariff could well be split with producers, Prof. Tombe said, which could lower the price producers receive for their oil.
“It’s a problem for them, and it’s also a potential multibillion-dollar problem for the government,” he said.
But a tariff on Canadian oil and gas entering the United States is far from inevitable, says Eric Nuttall, a partner and senior portfolio manager with Ninepoint Partners LP, because refineries in the U.S. are geared to blend heavier Canadian oil over their own.
And although Mr. Trump promised that America would “Drill, baby, drill” for oil under his presidency, Mr. Nuttall says the reality is that declining quality reserves in U.S. shale fields make a sudden uptick in production south of the border unlikely.
He pointed to Chevron, for example, which said in a recent conference call that once it reaches one million barrels a day next year, it will keep production stable to instead harvest free cash flow.
“I don’t see Canadian barrels being tariffed. It makes absolutely no sense,” he said in an interview.
Still, he thinks there is a political necessity to ensure that administrations in the United States are keenly aware of just how much U.S. energy independence relies on Canada.
“There are no negatives from being at the table and … making sure people understand the importance of Canadian crude to the U.S. refining complex,” he said.
“U.S. energy independence is a fantasy without Canadian energy.”
Alongside oil, Ms. Smith said Alberta can support its southern neighbour in filling its domestic supply gaps for natural gas.
“Alberta’s contribution is set to grow even further as we look to work with the Trump administration and other U.S. partners to increase our pipeline capacity to our greatest friend and ally, the United States,” she said in a statement.
Louisiana Governor Jeff Landry, one of the co-founders of the Governors’ Coalition for Energy Security, said in a statement Thursday the organization’s mission remains ensuring energy security in all its forms, and he welcomed insights from Alberta to meet that goal.