By Zukhruf Amjad on 1/04/2025
Topics: Energy policy, purchasing strategy, Risk management
If you’ve been following the North American news over the past couple of months, you’re probably well acquainted with the word “tariff” by now. It is quickly becoming a major point of discussion in political circles, economic debates and the media, with some claiming an all-out “trade war” has broken out in this part of the world.
Back in February, President Trump announced plans to impose a 25% tariff on all products coming into the US from Canada and Mexico, with a 10% tariff on Canadian energy products. These tariffs were then postponed till March 4th and then further rescheduled for April 2nd for items falling under the United States-Mexico-Canada Agreement (USMCA).
Although the tariffs haven’t gone into effect yet, the ongoing back-and-forth and the looming possibility of them have already created a lot of volatility in financial and commodity markets. To really understand how these tariffs could affect your businesses across North America, though, it’s helpful to look at the complexity of the US energy system. While the US is one of the world’s largest producers of crude oil and natural gas, it’s still deeply tied to the global energy market, which adds an extra layer of uncertainty and impact.
So, how dependent is the US on Canada and Mexico for its energy needs, and what do these tariffs mean for energy prices and your business?
The United States, the world’s largest consumer of oil, depends heavily on Canada for about 70% of its crude oil supplies, with imports reaching 4 million barrels per day in 20241. Mexico is the second biggest importer of crude oil the US, with almost 10% of imports coming from the country. Canadian heavy crude is transported via pipelines from the western provinces to US refineries in the mid-west, many of which were specifically built to process heavier grades of crude oil. This is because, at the time the refineries were built, it was assumed that US domestic production would continue to decline over the long term2. The heavier grade Canadian and Mexican crude oil play a key role in fuelling these refineries, which supply both domestic needs and exports.
US Crude Oil Imports by Source
A proposed 10% and 25% tariff on Canadian and Mexican oil could significantly disrupt the supply chain these US refineries rely on, increasing costs and getting passed on to consumers in the form of higher gasoline and diesel prices. It might take years for refineries to adjust to changes in oil trade flows if needed, which will impact supply chains, particularly in the Midwest. States like Michigan, Wisconsin, Indiana, and Ohio could experience the most severe effects.
While many anticipate these tariffs could push oil prices higher, the markets for both WTI and Brent have been on a bearish
trend since the start of 2025. There are several factors behind this, including OPEC+’s decision to increase production quotas starting in April, President Trump’s declaration of a US energy emergency to encourage more domestic oil production, and the expectations that the various trade wars will negatively impact global economic growth and in turn global oil demand. More recently, prices for both WTI Crude and Brent have gone up due to several geopolitical factors, one of which is the announcement by President Trump to place an additional 25% tariff on any country buying oil from Venezuela, which has led to supply concerns for countries such as China and India.
On the flip side, Canada exports nearly 97% of its crude oil to the US, creating a deeply interconnected relationship between the two countries, and with limited options to export oil to other countries, Canadian producers are left with limited options to avoid the tariffs. Given this complex dynamic, it's difficult to predict exactly how the 10% tariffs will impact the market, but it is expected that Canadian producers will bear the brunt of the cost of the tariffs, with Goldman Sachs estimating that Canadian producers will cover roughly 60% of the cost of the tariff, with US refiners covering the remaining 40% initially before passing it onto consumers. However, as of now, the market in both the short and long term seems to be reacting more to broader global factors than to the tariffs themselves.
Natural Gas
When it comes to natural gas, the US currently imports about 5–7% of its total supply from Canada, which accounts for 99% of all natural gas imports into the country. Canadian gas is a cost-effective option for the US, especially in areas in the Northwest and Midwest that lack local gas production and especially during periods of high demand (as we’ve recently seen with colder-than-usual temperatures) or when domestic producers in the US scale back production due to lower prices in the market.
Overall, in 2025, natural gas prices in the US have been on the rise, driven by colder weather and increased demand across much of the country. The imposition of tariffs on Canadian gas imports to the US has not yet had a significant impact on natural gas prices in the US largely due to the relatively small share of total supply and the currently low rate of the tariff at just 10%.
 |
 |
| Source: https://www.eia.gov/energyexplained/oil-and-petroleum-products/imports-and-exports.php and https://www.eia.gov/dnav/ng/ng_move_expc_s1_a.htm | Source: https://www.eia.gov/naturalgas/weekly/ |
However, the pricing at the Canadian AECO hub did see a brief spike when the tariffs were initially announced, particularly affecting states in the Pacific Northwest like Washington, Oregon, and Montana, which rely on Canadian gas and follow the pricing set there. Fortunately, these price spikes quickly subsided once the tariff decision was rescinded.
One major concern for gas consumers in these states is how the impact of the tariffs might eventually affect their electricity bills. This will largely depend on the point of origin of the physical gas being consumed and on the structure of their contracts. In the Northwest, where the majority of the gas consumed in the region originates from Canada, consumers can expect for natural gas suppliers to pass on the cost of the tariff to them.
When planning your energy procurement for situations such as these, it is important to spend some time understanding first how your energy bill impacts your overall business, and then integrate that into your procurement strategy. If you are looking for budget stability, it makes sense to opt for long term contracts that allow you to hedge at opportune times and benefit from not being fully exposed to the market when prices go up.
Electricity
Historically, Canada has been a net exporter of electricity to the US, but this trend has been declining since 20233. This decline is largely due to lower natural gas prices in the US, which have made domestic electricity production cheaper, combined with droughts affecting Canada’s hydro-heavy generation, which has reduced supply. By the end of 2023, the US briefly became a net exporter of electricity for several months before returning to its usual status as a net importer.
Additionally, the US imports a small amount of electricity from Mexico, primarily into California, New Mexico and Texas where transmission lines cross the US-Mexico border. In 2023, electricity imports from Mexico made up 0.14% of US consumption.
The cross-border transmission lines between the US and Canada are part of an extensive network that ensures reliable delivery and access to cost-effective sources of supply. In the Eastern Interconnection, Manitoba Hydro and Ontario ISO have traditionally exported power to MISO in the US, while New York ISO has received imports from Ontario’s IESO and Hydro-Québec TransÉnergie. Similarly, ISO New England is connected to the New Brunswick System Operator and Hydro-Québec TransÉnergie.
 |
Source: https://issuu.com/canadianelectricityassociation/docs/efic_studentmanual_web_2022/s/15907430
The US has proposed a 10% tariff on electricity imports from Canada, which is especially concerning for states like New York and Michigan, which have historically depended on electricity imports from Ontario and Quebec to meet demand and maintain grid reliability.
Additionally, any rescinded retaliatory actions from Canada – such as the now rescinded 25% electricity tax proposed by Ontario Premier Doug Ford – could drive up electricity prices, impacting both spot and forward markets. This is once again worrying for states like New York and Michigan, with the norm being electricity imports from Ontario to meet demand and maintain grid reliability.
The impact of tariffs on electricity could be twofold: for states heavily reliant on gas production, gas price volatility due to tariffs could directly affect power prices. Additionally, while the percentage of electricity imports from Canada might be small, they do play a big role in ensuring reliability in the electricity markets, which is a longer-term concern across several markets in the US. This is fuelled by the growing demand, primarily due to data centers , coupled with planned retirement of thermal power plants that provide necessary stable generation on the US grid.
 |
 |
As of now, the threat of tariffs has taken a backseat to other fundamentals. Factors like weather-driven gas price increases, and reliability in the long term are playing a bigger role in electricity pricing.
To protect your company from this volatility, it’s crucial to have a strong procurement and risk management strategy in place. The first step is to understand the impact of energy prices on your business, and what the overall goal of your energy procurement strategy should be – for example, is it more beneficial for your company to aim for long term stability, even if it means paying slightly above market prices or aim to stay as close to the market as possible? Depending on your location and consumption profile, this might involve exploring long-term contracts with suppliers, capitalizing on the currently stable long-term market, and securing positions now to mitigate future risks. It is important to align your energy procurement practices to withstand these volatile moments, keeping a close eye on how markets are evolving and making the most of opportune times.
At E&C Consultants, we work closely with our clients to develop strategies that help them navigate volatile markets and manage risk effectively. Our core area of expertise allows us to provide updates on the changing dynamics in energy markets and advise large energy consumers on how best to adapt to these changes in order for you to keep in line with the goal of your organization.
You may also be interested in
|
Monthly Market Analysis Want to keep track of events impacting the energy markets? We help you understand market movements so you can stay ahead of the curve. |
Local knowledge, global reach Whatever your energy needs, we have the capability, adaptability and integrity to assist you. Get in touch now. |
Video: Risk Management in times of extreme volatility The most common risk management strategies among energy buyers during a period of exacerbated volatility.
by Jens Lievens |
||||||
 |
 |
 |
All experts, all in one place
At this 1-day conference, attendees will have the chance to consider practical examples of how international companies organize their energy procurement within the context of the energy transition.
