A tariff on exports would see a significant cut to deliveries or a price drop in order to facilitate trade, writes Yulia Golub
Newly inaugurated US president Donald Trump has said he will impose 25pc import tariffs on goods from Canada from 1 February, which could potentially reduce shipments of the latter country's natural gas liquids (NGL) into the US or depress Canadian prices to a level that ensures flows continue.
Trump in November announced plans to impose tariffs on the US' northerly neighbour for an indefinite duration, citing inadequate border controls and the US' trade deficit with Canada. Ottawa in response pledged to spend more on border security. Alberta, home to most of Canada's upstream oil and gas production, had expected the tariff to be introduced on the day of Trump's inauguration on 20 January. "Alberta is pleased to see that President Donald Trump has decided to refrain from imposing tariffs on Canadian goods at this time as they study the issue further," Alberta premier Danielle Smith said on 20 January.
A 25pc tariff on Canadian propane and butane exports to the US would cut deliveries as suppliers look to the domestic market to sell, market participants say. Relief for Canadian producers is unlikely to come from increasing exports to northeast Asia from the Pacific coast given the country's terminals are operating at capacity. The other likelihood is that Canadian prices will drop to accommodate the tariff and facilitate trade, something producers and Ottawa will want to avoid.
The tariff would have closed the Canada-US propane arbitrage in the fourth quarter of last year, lifting the Edmonton, Alberta, hub price to parity to the Conway value in the US midcontinent compared with the actual 15¢/USG discount. This does not take into account rail costs that add 7-10¢/USG for US deliveries.
The situation is uncertain and any impact on LPG exports will not happen instantly, market participants say. US importers of Canadian LPG would need to find domestic alternative sources of supply, but overcoming the logistical challenges to do so would take time. Western Canada's propane production stood at 270,000 b/d (675,000t) in October, while exports from the region to the US were 123,000 b/d, or 47pc of the total, the latest provincial and federal government data show. The US as of November was on course to import just under 5.4mn t of LPG in total from Canada last year, which would be up from 5mn t in 2023, customs data show.
Canada's Council of the Federation, a group of regional government leaders, met with outgoing prime minister Justin Trudeau in Ottawa on 15 January to discuss the country's response to potential US tariffs. "Everything is on the table," Trudeau said after the meeting. "The clear consensus around the table is that we need to respond in measured but robust ways to the American actions, whatever they are." But Smith refused to sign a joint communique because the federal government is contemplating export tariffs on her province's oil and gas — a vital revenue source for Alberta. Smith is urging the country to use Trump's tariff imposition as the basis to look to alternative countries for energy exports instead of "keeping us fully reliant on one primary customer".