The U.S.’s capture of Venezuelan President Nicolás Maduro is raising questions about the potential impact on Canada’s oil industry.
“The oil business in Venezuela has been a bust, a total bust for a long period of time,” President Trump said at a Jan. 3 press conference, hours after Maduro was taken into U.S. custody.
“We’re going to have our very large … companies … go in, spend billions of dollars, fix the badly broken … oil infrastructure, and start making money for the country.”
The share prices of major Canadian energy companies fell sharply in the immediate aftermath of Maduro’s capture. So far, however, Prime Minister Mark Carney has downplayed concerns that increased Venezuelan production represents a significant threat to Canadian exports.
“Canadian oil will be competitive because it is low risk, clearly low risk, low cost … and low carbon,” he said at a Jan. 6 press conference.
Industry experts are echoing this view.
“This is certainly not going to be an existential threat to the Canadian … sector in any sense,” said oil industry expert Kevin Birn, who is chief analyst for Canadian oil markets at the financial information firm S&P Global.
“Could it rebalance the heavy [crude oil] market and cause a widening of the [price] differentials over a longer term? Yeah … but … it’s definitely going to be within the range of price volatility that the Canadian sector has seen for many, many years.”
Venezuela’s impact
Venezuela’s oil output is directly relevant to Canada because both countries are key players in the heavy crude market.
Total global oil supply is about 100 million barrels a day, and heavy crude accounts for about a tenth of this market, Birn says.
Canada produces about 3.4 million barrels a day of heavy crude, meaning it currently supplies about a third of the world’s heavy crude.
U.S. Gulf Coast refineries are set up to process heavy crude, and are instrumental in setting crude prices.
A meaningful revival of Venezuela’s oil industry could impact that market, says Birn. “The presence or rejuvenation of Venezuela … could cause the heavy market to go from one of tight to surplus … and that would have a negative impact on that differential [for Canadian oil producers].”
However, both Birn and Rory Johnston, founder of commodity research platform Commodity Context, stressed that Venezuela’s oil sector has suffered years of neglect and capital flight, making a rapid return to historical production levels unlikely.
At its height, Venezuela produced more than three million barrels a day; today, it produces less than one million.
“This is not a case of a few wells that have been turned off,” Birn said. “This is a case where the well is gone.”
Johnston said history also offers reassurance.
“Canadian barrels have co-existed with Venezuelan barrels in the global market and in the U.S. Gulf Coast market,” he said. The likely impact, he added, would be incremental. “We’re talking about a couple dollars a barrel on the margin.”
Canada’s vulnerability
The Canadian oil industry’s significant reliance on the U.S. presents risks, however.
Canada is unusually concentrated for a major exporter, notes Birn.
“Even with the completion of the TMX, 90 per cent of crude oil exports still flow south,” he said, referring to the Trans Mountain expansion line that transports Alberta oil to the B.C. coast for international export.
That concentration has historically made commercial sense, Johnston says, because the U.S. was the world’s largest heavy crude consumer and a low-risk trading partner.
“The private sector did what the private sector does,” he said. It shipped barrels “to where they’re consumed to get the highest netback profit.”
Now, the U.S.’s status as an increasingly unreliable trade partner makes a strong strategic case for diversifying. This is where governments are best suited to act, Johnston says.
“You need some level of government to be the one that puts a dollar value on strategic optionality,” he said.
In the Jan. 6 press conference, Carney emphasized Ottawa’s focus on increasing Canada’s strategic options.
“We’ve got competitive product, and we’ll be diversifying our markets, and that’s one of the reasons why we signed the comprehensive MOU with Alberta,” Carney said, referring to Ottawa’s recent agreement with Alberta to develop energy infrastructure.
In a press statement released Jan. 6, Conservative Leader Pierre Poilievre said the Carney government must do more to diversify Canada’s export opportunities:
“If Venezuelan supply returns, Gulf Coast refineries … can easily switch between Venezuelan and Canadian oil without major retooling. … In other words, we need other customers. Fast.
“If we don’t get the federal government out of the way of a pipeline to the Pacific, we could suffer enormous losses of jobs, tax revenue and sovereignty,” Poilievre’s statement said.
Johnston says the lesson is not that Venezuelan oil threatens Canada’s energy sector, but that moments like this expose long-standing vulnerabilities.
“Markets tend to actually concentrate naturally,” he said.
“ I think this is where the government needs to come in,” he said, in order to counter the “impulses” of an unchecked market and “ force some degree of diversification.”
