Potential Costs and Disruptions Arising from Tariffs on Canadian Gas
In 1973, the U.S. facing oil shortages sparked outrage over exporting oil to Canada. Yet, few realized that we already imported more oil from Canada, highlighting regional infrastructure disparities. Fast forward to today, we import approximately 5 million barrels per day of Canadian oil, mostly via pipelines in the Midwest, along with 3 trillion cubic feet of natural gas annually, mainly in the Midwest and Pacific Northwest, with exports to the Canadian Northeast.
President Trump's musings about imposing 25% tariffs on Canadian exports to the U.S., including oil and gas, could bring unwanted repercussions, particularly for gas consumers. However, the feasibility and exact consequences remain uncertain as the scenario is speculative.
The tariffs on natural gas could induce a price hike of around $0.75 per million cubic feet, assuming a $3 per million cubic feet border price. For residential customers, this spike may contribute only 5 to 10% to the total price, barring significant alterations in distribution costs.
Determining the overall impact is challenging, given the complexities in supply chains, particularly in Washington and Idaho which rely heavily on Canadian gas. On the other hand, the East's supply situation is more nuanced due to interstate transfers and a robust pipeline system.
Raising the cost of Canadian natural gas in North Dakota might prompt the state to import less and export less of its own production to other states. However, compensating for lost Canadian supplies in Iowa and Wisconsin would necessitate finding over 1 trillion cubic feet per year of alternative sources.
The natural gas industry is an intricate machine, tailored to deliver energy efficiently to consumers. A 25% surge in the border price could trigger supply chain disruptions and inflation, with cascading effects on electricity prices and industrial costs.
Unlike the oil industry that can easily adjust to price changes through tanker shipping, natural gas trade relies on fixed infrastructure. The industry may be able to adapt to price fluctuations on the margin, but large-scale shifts in supply remain challenging and time-consuming.
It's hoped Trump Administration refrains from imposing tariffs on Canadian energy imports, or invoking retaliation from Canada in the form of export taxes. The natural gas industry, as a delicate balance, stands to experience significant disruptions and inflationary effects under such a scenario.
Enrichment Data:1. U.S. refineries, specifically those in the Midwest (PADD 2), depend on Canadian heavy crude oil. A tariff could negatively impact refining profits and potentially lead to reduced refinery operations or shutdowns.2. Higher prices for gasoline, diesel, and jet fuel in the U.S., particularly in the Midwest, may result from the increased cost of Canadian crude oil.3. Natural gas prices in the Midwest and Pacific Northwest might be influenced by overall instability in the energy market due to supply chain disruptions.4. The Midwest and Pacific Northwest have unique regional dynamics, with the Midwest heavily relying on Canadian crude and the Pacific Northwest potentially facing broader market fluctuations and pipeline constraints.5. Consumer inflation may escalate due to increased energy costs, which are integral to transportation and various industries.
The proposed tariff on Canadian natural gas exports could potentially increase gas prices in the Midwest and Pacific Northwest by around $0.75 per million cubic feet. Trump's musings about a 25% tariff on Canadian energy imports might also affect gas prices in North Dakota, potentially leading to less import and export of state production. The natural gas industry's reliance on fixed infrastructure and supply chain disruptions caused by such tariffs could potentially contribute to inflation and higher electricity prices.
