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Canadian energy producers and pipeline companies are hedging their bets and bracing for United States President Donald Trump‘s 10 per cent tariff on energy, though key questions remain on how the levy will be calculated and applied to cross-border flows of oil and gas.

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The tariffs, originally anticipated on Feb. 4, were delayed to March 4, which provided some breathing room, but the lack of detail and guidance on how they could be implemented is making it difficult for companies on both sides of the border to develop strategies or plan spending.

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“People are looking for mitigation strategies to address whatever the impacts might be,” Jason Fleischer, a partner at international energy law firm Vinson & Elkins LLP, said.

“The problem is, until there is more clear guidance as to how the government intends to implement (the proposed tariffs), it’s kind of hard to develop a strategy to mitigate something that you don’t know exactly how it’s going to be implemented.”

Part of the difficulty, Fleischer said, is that the sector hasn’t had to contemplate sweeping U.S. tariffs on oil imports since the oil crisis of the 1970s.

Trump’s proposed tariffs also differ from existing customs duties on oil exports to the U.S., which are typically charged at a flat rate of about five cents to 10 cents per barrel, depending on the product, though Canadian energy has been exempt from those duties under free trade agreements that have freely moved products across the border for decades.

A 10 per cent tariff on Canadian energy means the price of the tariff will potentially float based on the value of the commodity at the time it crosses the border, trade experts say, though no detailed description of how the levy will be calculated has been provided by U.S. officials.

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The owner of the oil or gas, usually the shipper, is on the hook to pay the tariff when it comes to export pipelines, trade experts say, but companies are looking closely at contracts to see if there are provisions that address who actually pays. Shippers on cross-border pipelines can include producers, refiners and merchants or intermediaries.

But just days from Trump’s March 4 deadline, there is still not a definitive answer on whether Canadian energy that merely crosses into the U.S. temporarily would be subject to tariffs.

For example, crude moves from Alberta through the U.S. via Enbridge Inc.‘s Line 5 or 78B before crossing back at Sarnia, Ont., bound for refineries in Ontario and Quebec. There’s also Canadian oil and gas that travels to the Gulf Coast for re-export to global markets.

Until U.S. Customs and Border Protection and the U.S. Treasury issue some form of implementation guidance on these tariffs, a number of questions are up in the air, Fleischer said.

“There is a lot of speculation about whether or not these will ever go into effect,” he said. “A lot of people are holding their breath, kind of crossing their fingers and hoping they don’t go into effect.”

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In the absence of more detail, trade authorities and lawyers are warning producers and midstream companies to keep detailed records of shipments.

Canadian officials say Trump’s original executive order refers to applying the rate to “goods entered for consumption, or withdrawn from warehouse for consumption,” which the federal government takes to mean transshipment of Canadian goods would not be subject to U.S. import tariffs should they be imposed, an official at Natural Resources Canada said.

Being able to avoid tariffs via exports on the Gulf Coast could make a big difference to Canadian producers should the levies be imposed for a protracted period, though many in the sector are doubtful that tariffs on Canadian energy would last long given the intensely integrated nature of the North American energy network and Trump’s desire to lower energy costs for American consumers.

His signals since the election have been contradictory; he declares the U.S. doesn’t need Canadian oil and gas one day, and then calls for the revival of the cross-border pipeline project Keystone XL the next.

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Markets have reacted in incongruent ways to the resulting confusion.

Canada’s energy stocks have struggled since November. The collective average 2025 free cash flow yields for Canadian oil majors — including Suncor Energy Inc., Canadian Natural Resources Ltd., Cenovus Energy Inc. and Imperial Oil Ltd. — have widened to about 10 per cent from eight per cent in November, according to an analysis released on Thursday by Greg Pardy and Michael Harvey at RBC Capital Markets.

Their European peers’ free cash flow yields are around nine per cent compared to eight per cent in November, and U.S. majors are unchanged at around seven per cent.

At the same time, the difference between the price of Canadian heavy crude (Western Canadian Select) and the price of West Texas Intermediate (WTI) has remained fairly narrow. The differential is currently US$13.75, “well below” the US$15-US$16 range that RBC Capital Markets had previously estimated based on a 10 per cent tariff where Canadian oil producers shoulder most, if not all, of the cost.

Tariff uncertainty may also be weighing on the relative valuation of Canada’s oil majors, while the relatively narrow price differential on Canadian crude indicates doubt in the market that the tariffs will materialize.

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“It might be intuitive to suggest that one market is wrong and the other right,” Pardy’s team said. “But in reality, both markets are reflecting different things to a degree.”

Rory Johnston, founder of Commodity Context Corp., said there has been some opportunistic hedging by Canadian producers and oil traders looking to lock in a differential of US$13 or US$14 per barrel in order to limit their exposure to the tariff risk.

He also said the confusion sown over tariffs might be a feature, not a bug, of Trump’s approach.

“The vagueness of it is kind of the point,” Johnston said. “With all these tariffs, with all these trade restriction threats we’ve seen so far, they’ve been very vague. It’s been much more about strongman leverage than it has been about some kind of detailed complaint.”

• Email: mpotkins@postmedia.com

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