How Trump’s Canadian Oil Tariff Would Hit U.S. Refineries

The largest refinery in the Midwest will have an unpalatable choice if President Trump imposes tariffs on Canadian oil: Pay more for the crude that it transforms into gasoline and diesel, or slash production.Both options threaten to increase prices at the pump, albeit modestly if Mr. Trump sticks with the 10 percent rate he announced this month.It is not clear whether the tariff will take effect after Mr. Trump decided to hold it in abeyance until at least early March.Yet this refinery, built around 1889 on the south shore of Lake Michigan, near Chicago, is a reminder of just how difficult it can be to undo trade ties that go back decades.Mr. Trump, like many American leaders before him, appears to be yearning for a kind of energy independence that experts say is impractical and would not benefit individuals or the oil industry.“We don’t need their oil and gas,” Mr. Trump said last month, referring to Canada. “We have more than anybody.”It boils down to this: No matter how much oil the United States pumps — and it already is the top producer in the world by far — its refineries were designed to run on a blend of different types of oil. Many can’t function well without the darker, denser, cheaper crude that is hard to find domestically.Canada is flush with that oil, known as heavy crude. And facilities like this one, BP’s refinery in Whiting, Ind., were built around that supply.Companies have little reason to spend billions of dollars reconfiguring their systems for trade policy that may be fleeting. Not to mention there is uncertainty about the trajectory of global demand for gasoline and diesel, which some experts think could peak in the next decade as more people buy electric cars as well as trucks that run on natural gas and other fuels.“You can’t turn the Titanic on a dime, and the industry is kind of the same way,” said Rick Weyen, a retired refining executive who worked at the Whiting refinery for several years in the 1980s and ’90s.Whiting, a facility of tanks, towers and more than 800 miles of pipelines, is among the most dependent in the country on Canadian oil. On any given day, between 65 percent and three-quarters of the crude flowing through it is of the dark, viscous variety found in the oil sands of Alberta. The rest is lighter, and much of it can come from Texas, New Mexico and other U.S. states.BP can tweak its recipe — but only so much. Too little of the viscous stuff and the company would need to cut back its production of the fuels that power cars, trucks and airplanes. The refinery normally makes enough gasoline in a day to fuel more than seven million cars, or about 3 percent of the gas-powered vehicles on American roads.The oil and gas industry, which was one of Mr. Trump’s biggest supporters in last year’s election, has urged him to exempt energy from the tariffs on Canada, saying the taxes could cause prices at the pump to rise. (During the campaign, Mr. Trump pledged to slash people’s energy bills by more than half.)“It’s not as simple as switching things out,” said Chet Thompson, chief executive of the American Fuel & Petrochemical Manufacturers, a trade association.In a sign that Mr. Trump heard the industry, which gave more than $75 million to his campaign, he lowered the planned tariff on Canadian energy imports to 10 percent, from 25 percent.At that level, some consumers may see gasoline prices rise a few cents, but analysts said much of the added cost would be absorbed by Canadian oil producers and U.S. refiners that are effectively locked into doing business with each other. The effects could be more severe if Canada were to retaliate against Mr. Trump’s trade policies by making its oil more expensive, such as by imposing an export tax.A concurrent tariff on Mexican oil, even at 25 percent, is widely expected to be less disruptive on this side of the border because the United States imports less Mexican oil and the Gulf Coast refineries that use it have access to more alternatives than the refineries in the Midwest.Hours before the tariffs were set to take effect, Mr. Trump put them on hold for at least 30 days in exchange for stepped-up border security measures from Canada and Mexico.A White House spokesman, Kush Desai, said in a statement that the deals demonstrated the president’s “commitment to using every lever of executive power to put Americans and America First.”Amid the uncertainty, Kelsi Thomas, a 23-year-old special-education classroom assistant, was trying to figure out what a North American trade war might mean for her. Gas prices — $3.10 a gallon last week at her local Love’s outside Chicago — were top of mind.“He was supposed to be bringing the prices down,” she said of Mr. Trump.Refining companies, many of which reported year-end earnings in recent weeks, have sought to reassure investors that they are prepared come what may.“Studying tariffs has been at the top of the list of things that we’ve been doing,” Maryann Mannen, chief executive of the fuel-making giant Marathon Petroleum, told Wall Street analysts last week.“It’s likely,” Ms. Mannen added, “that we would see cost increases. We believe that the majority of that will ultimately be borne by the producer and then, frankly, to a lesser extent, the consumer.”The day after Mr. Trump said he was putting the levies on hold, Marathon Petroleum’s stock price climbed nearly 7 percent.BP invited a reporter and a photographer to tour the Whiting refinery last week but canceled a planned interview with the refinery’s top executive.In a statement, the executive, Chris DellaFranco, said, “We plan for every scenario.”As with so much else these days, people’s feelings about the prospect of tariffs often track how they see the president himself.Connie Salas, a Republican who owns a flower shop in Whiting, brushed off the risk that she may soon have to pay more for plants like azaleas and cyclamen, or to fill up her delivery truck.“The fact that the prices have been ranging around the $3 mark, if it goes up to $3.50, no big deal,” Ms. Salas, 77, said of gasoline. “Whatever’s got to be done to make the country better is fine with me.”Humberto Martinez, a retired Whiting refinery worker, expressed more concern about Mr. Trump’s trade policy. He voted for former Vice President Kamala Harris.“My pension from BP doesn’t go up,” Mr. Martinez, 75, said. “What I’m scared of is I’m not going to be able to afford the same lifestyle.”