Canada’s Economic Advantage in the Oil and Gas Sector: Navigating US Tariffs and Exploring Internal Markets for Growth

Canada is a resource-rich nation, and one of its most significant economic assets is its oil and gas sector. With vast reserves, particularly in the oil sands of Alberta, Canada ranks among the world’s top producers of energy. However, in an increasingly complex global economy—marked by shifting geopolitical relations, growing environmental concerns, and new trade dynamics—Canada’s oil and gas industry faces unique challenges and opportunities. One of the most pressing issues is the impending introduction of US tariffs on Canadian oil and gas, a development that could reshape the landscape of Canada’s energy trade. In response, Canada is seeking to reduce its reliance on the US market while exploring the potential of internal markets and new export destinations. This editorial feature explores how Canada can leverage its oil and gas sector for future economic growth amid these new challenges.

The Current State of Canada’s Oil and Gas Sector

Canada is home to some of the largest oil reserves globally, particularly in the Alberta oil sands, which are the third-largest reserves of oil in the world, after Venezuela and Saudi Arabia. In addition to oil, Canada is a significant producer of natural gas, especially from the Western Canada Sedimentary Basin (WCSB). Together, these resources have made the oil and gas sector a cornerstone of Canada’s economy, contributing substantially to GDP, employment, and government revenue.

Historically, the United States has been Canada’s largest trading partner for oil and gas. In 2022, Canada exported approximately 3.8 million barrels of crude oil per day to the US, accounting for more than half of all US crude imports. However, the relationship between the two nations is currently under strain, with discussions of potential US tariffs on Canadian energy exports raising concerns about future trade dynamics.

The Growing Threat of US Tariffs

The looming threat of US tariffs on Canadian oil and gas exports is a serious challenge that could significantly affect Canada’s energy trade with its southern neighbour. Although the US is still heavily reliant on Canadian energy imports, the shift toward energy independence—fuelled by domestic production from shale oil and gas—has reduced the nation’s dependence on foreign energy sources. Additionally, the US government’s interest in imposing tariffs on Canadian energy products is partly driven by political and economic considerations, including concerns over domestic job creation and the protection of its own energy industry.

If US tariffs on Canadian oil and gas are implemented, it would create a significant disruption in Canada’s energy trade. Tariffs could make Canadian energy exports less competitive in the US market, potentially driving up costs for consumers and businesses and reducing Canada’s ability to tap into this lucrative market. This situation underscores the vulnerability of Canada’s dependence on one trading partner for the bulk of its oil and gas exports.

Reducing Reliance on the US: Pursuing Internal Markets and Diversification

In response to the potential for US tariffs and to insulate itself from external trade uncertainties, Canada is increasingly focused on seeking new internal markets for its oil and gas resources. Although the US has been a dominant consumer, the notion of energy security—coupled with a changing geopolitical landscape—has made it clear that Canada needs to pursue a more diversified approach to energy exports.

Internal Markets for Energy

One key area where Canada can shift its focus is on expanding its domestic energy consumption. As Canada’s population grows and cities expand, the demand for energy within the country is expected to rise. This provides a significant opportunity for Canada to meet its own energy needs and reduce reliance on foreign exports. A more self-sufficient energy policy could help buffer the economy from external shocks, such as the imposition of tariffs, while also ensuring a stable supply of affordable energy to Canadian consumers.

Moreover, developing internal infrastructure to facilitate the distribution of oil and gas resources within Canada can enhance energy security and promote regional development. Provinces such as Alberta, Saskatchewan, and Newfoundland and Labrador, where oil and gas extraction is a major industry, would benefit from more local consumption and job creation. Investments in domestic infrastructure—such as pipelines, refineries, and energy transmission networks—can boost economic resilience, creating opportunities for industries and communities that rely on energy to drive their economies.

Exploring New Export Markets

Beyond domestic markets, Canada can also look to new international trade partners. The global energy market is undergoing significant transformation, with countries in Asia, Europe, and other parts of the world seeking reliable and stable sources of energy. Canada’s geographical proximity to the Pacific Ocean presents an opportunity to develop new export routes to Asia, a rapidly growing market for energy consumption.

Infrastructure projects like the Trans Mountain Expansion Project and the Line 3 replacement project are essential for enhancing Canada’s access to international markets. By ensuring that Canada’s energy exports reach key Asian and European markets, the country can reduce its dependency on the US, mitigate the risk of tariffs, and tap into markets where energy demand is high and growing.

Leveraging Innovation for Competitive Advantage

To stay competitive in a changing global energy landscape, Canada must invest in innovation. Technological advancements in energy extraction, carbon capture, and renewable energy integration are critical to maintaining the country’s leadership in the oil and gas sector while addressing the growing environmental concerns surrounding fossil fuel production.

In the oil sands, for example, new extraction techniques, such as steam-assisted gravity drainage (SAGD), and improved efficiency in emissions reduction can help make Canadian oil more attractive to global markets. Additionally, increasing investments in carbon capture and storage (CCS) technologies can help mitigate the environmental impact of oil and gas production, ensuring that Canada continues to meet international climate commitments while remaining a reliable energy supplier.

Innovations in the natural gas sector also hold promise. Canada’s natural gas resources are seen as a potential bridge fuel in the transition to a low-carbon future, offering both domestic energy security and the possibility of exporting liquefied natural gas (LNG) to Asia and Europe. By investing in LNG infrastructure and leveraging the country’s abundant natural gas resources, Canada can capitalize on this growing global demand.