This week’s dramatic events in Venezuela alter the geopolitical context for a new Canadian pipeline, adding an important strategic rationale to the case for this national project.
Venezuela has the largest proven oil reserves in the world. If authoritarian leader Nicolas Maduro’s capture leaves the country’s oil fields and export infrastructure under effective American control, the consequences would extend beyond its own borders.
One important effect would be on Canada’s oil export outlook to the United States.
Canada currently exports about four million barrels a day of crude oil to the U.S. Most of it flows by pipeline to Midwest refineries designed to process Canadian heavy crude. Those export volumes are “sticky”: difficult and costly to replace, and tanker-shipped Venezuelan oil would not directly compete for those inland refinery slots. As a result, a Venezuelan comeback would be unlikely to materially displace Canada’s existing core exports to the U.S.
The more important impact lies in the future. Venezuelan heavy oil would flow mainly to American coastal refineries, especially along the Gulf Coast. That is precisely where Canada’s forecast export growth to the U.S. would otherwise occur.
If Venezuelan production were rebuilt and exports to the U.S. rose, those barrels would compete directly with the marginal Canadian barrels this country has been counting on to grow U.S. sales over the next decade. Practically, Venezuela would not need to displace today’s Canadian exports to matter. It only needs to use refinery capacity that Canada is counting on for future sales.
The scale of this effect can be roughly estimated. Only a portion of Canada’s exports — about one million barrels a day — go to U.S. coastal refineries where tanker-shipped crude competes directly. If Venezuelan exports to the U.S. increase by several hundred thousand barrels a day while refinery demand is flat or falling, those barrels must replace something. In practice, it would crowd out a share of the new Canadian barrels targeting those same coastal refineries, rather than Canada’s long-established Midwest flows.
The volume implications are significant, but not extreme. Compared to current baseline forecasts, Canadian exports to the U.S. could be 100,000 to 300,000 barrels a day lower by the late 2020s, and 200,000 to 600,000 less by the 2030s, depending on how quickly Venezuelan output recovers and whether American refinery demand is flat or declining. These are not cuts from today’s levels, but reductions in what Canada would otherwise have expected to export.
Price effects may matter just as much as volume. Canadian heavy oil typically trades at a discount to U.S. benchmark prices, reflecting quality, transport costs and competition for heavy-oil refinery demand. A reliable return of Venezuelan heavy oil to U.S. Gulf Coast refineries would add competing supply in the market that sets marginal prices. The likely result would be widening pressure on Canadian heavy oil price discounts, especially if Venezuelan barrels are marketed aggressively to regain market share. Even modest widening of these discounts can significantly reduce Canadian producer revenues and government royalties, regardless of whether export volumes fall.
This brings the pipeline debate back into focus. Calls for additional pipeline capacity to the B.C. coast are often made on the need to diversify Canada’s export base. A U.S.-controlled resurgence of Venezuelan oil complicates that case.
Greater competition in the U.S. market strengthens the strategic case for diversification. More access to Asian markets could reduce Canada’s vulnerability to wider American price discounts. Venezuelan oil could compete in Asia and put some downward pressure on prices, but the effect would likely be modest. Higher shipping costs and a U.S.-focused export strategy mean Venezuelan volumes to Asia would likely remain limited.
The objective conclusion is not that another West Coast pipeline is either unnecessary or clearly justified, but that this geopolitical change alters the rationale. The original case for additional West Coast capacity was based on growth opportunities, such as expanding access to offshore markets and improving returns through diversification.
American control of Venezuelan oil would likely leave Canada’s current exports intact while tightening future market conditions, limiting growth into the U.S., and putting downward pressure on prices. In this case, a West Coast pipeline becomes more important, providing strategic insurance by reducing exposure to U.S. price discounts, increasing flexibility and improving industry resilience while continuing to support growth.
