In late August, Washington announced it had taken a stake in 65 billion barrels of Venezuelan crude oil reserves.
The deal more than doubles U.S. territorial oil reserves, a White House fact sheet says.
Canada is currently the United States’ largest foreign oil supplier, and produces a type of oil comparable to Venezuela’s.
Yet energy analysts say the agreement is unlikely to displace Canadian crude, at least in the near term. Venezuela’s oil industry needs enormous investment in order to raise production, while Canada is a well-established U.S. supplier.
“Canada is really the most important fundamental pillar of U.S. energy security, even if that continues to be underappreciated in the United States,” said American energy analyst David Goldwyn.
Others say, however, that Canada should not underestimate the deal’s significance — and implications for Canada.
“The U.S. is the world’s largest oil producing nation and they have just gained increased access and control over one of the largest known oil reserves on the planet,” Lisa Baiton, CEO of the Canadian Association of Petroleum Producers, told Canadian Affairs in an emailed statement.
“Canada has significant advantages today, but we cannot be complacent and should move urgently to capture a greater share of the global market.”
‘Yuge’ potential
Venezuela has the world’s largest proven crude oil reserves, with approximately 300 billion barrels.
But decades of political and corporate mismanagement have caused its industry to wither.
In January, the month U.S. forces captured then-president Nicolás Maduro, Venezuela produced just 900,000 barrels of oil per day, down 75 per cent from a 1970 peak.
Under the new agreement, the Pentagon received a 35 per cent stake in North American Blue Energy Partners (NABEP), a private oil producer already operating in Venezuela. NABEP holds concessions to develop 17 oil fields and is expected to raise billions in private capital to scale production.
The deal grants the U.S. Department of State the right to purchase, at cost, 20 per cent of the production from those fields, plus a right of first refusal on the remainder.
The agreement “ensur[es] a stable supply of low-cost oil that can facilitate refilling the Strategic Petroleum Reserve … and to provide supply for military and other sensitive uses,” the White House fact sheet says.
Realities of competition
If Venezuela raises production, its oil could compete directly with Canadian heavy crude.
Today, Canada supplies about two-thirds of U.S. crude imports, sending about 4 million barrels a day south.
Canadian and Venezuelan crude are not identical but are sufficiently similar to serve the same refineries, says Kevin Birn, a Canadian energy analyst with S&P Global Energy.
“They would compete barrel for barrel for space in U.S. Gulf Coast refineries,” Birn said.
But Goldwyn does not think the NABEP deal will impact Canada in the next couple years.
“ I don’t think the Venezuelan situation poses a significant threat to Canadian production,” said Goldwyn, who is a senior fellow at the Atlantic Council, a D.C.-headquartered think tank.
Goldwyn notes that more than half of the fields associated with the NABEP deal lack adequate electricity or pipeline connections, while other fields require extensive repairs.
Any private investors would need to agree to U.S. oversight and to selling part of their production at cost.
A future Venezuelan government could also challenge the agreement, Goldwyn notes. And Russian or Chinese companies — which were formerly operating in the country — may assert claims over some of the assets.
“ Why would [investors] want to do that in the next two years rather than look at Suriname or Guyana or Sub-Saharan Africa or Canada?” he said. “You know, places with far less political risk.”
Canada’s crude moves through a time-tested pipeline network, while Venezuelan oil must arrive by tanker, adding to its total production cost. Away from the coasts, Midwest refineries are directly connected to Western Canada and have few alternatives.
“The mid-continent of the United States is essentially only able to be supplied by Canada,” said Goldwyn.
Competition would be greater along the Gulf Coast, but Canadian crude currently occupies an entrenched position there as well.
“The overall economic implications to Canada [of the NABEP deal] are far, far less than the overall swings in the oil price we’ve seen in the last four weeks,” said Birn.
The diversification imperative
Goldwyn distinguishes the NABEP arrangement from Venezuela’s broader reforms and moves by established oil producers.
Oil giant Chevron said this week it plans to invest more than US$7 billion in Venezuelan facilities to raise production. Others, including Eni and Repsol, have announced similar plans.
Goldwyn expects such activity to add approximately 150,000 to 200,000 barrels per day, with growth beginning next year and continuing for five to eight years.
But this assumes “there are no new sanctions by a future U.S. administration, and that there is reasonable domestic peace in Venezuela,” he said.
With the possibility of heightened competition, Canada — which currently sends about 90 per cent of its oil to the U.S. — needs to prioritize increasing its export capacity, says Baiton, of CAPP.
Canada must focus on “adding new customers, growing production and exports, and strengthening our economic sovereignty,” she said in her email.
Two years ago, Canada completed an expansion of its Trans Mountain pipeline, increasing its Pacific export capacity. The pipeline, which runs from Alberta to the B.C. coast, can now carry nearly 900,000 barrels per day, up from 300,000.
Trans Mountain aims to further increase capacity by 300,000 barrels a day by late 2028.
Ottawa and Alberta have also announced plans for a separate million-barrel-per-day pipeline to the Pacific, though it is not yet clear how this pipeline would be funded.
Goldwyn expects Canada to be an attractive supplier for buyers looking for dependability.
“As countries grow a little bit wary of dependency on the United States because of the volatility of the Trump administration, that’s an advantage for Canada — if it can deliver the export infrastructure necessary to access those markets.”
