Key Takeaways:
- A regime change in Venezuela could lead to a resurgence in the country’s oil production, potentially posing a threat to Canada’s oil industry.
- Venezuela has the world’s largest reserves of oil, with the same type of crude as Western Canada, and could potentially export more oil to the US Gulf Coast.
- A comeback by Venezuela could pose a risk to Alberta’s oil-dependent economy, but this is likely several years away.
- The Canadian oil industry has fared better than expected in the past year, with production continuing to climb despite low commodity prices.
- The US is pushing for US oil executives to reinvest in Venezuela, but the country’s uncertain political situation may deter investment.
Introduction to the Situation
The recent ouster of Venezuela’s Nicolás Maduro by the US has sparked speculation about the potential impact on the Canadian oil industry. With Venezuela having the world’s largest reserves of oil, a regime change could lead to a resurgence in the country’s oil production, potentially posing a threat to Canada’s oil industry. The Canadian sector has fared better than expected in the past year, with production continuing to climb despite low commodity prices. However, the prospect of rising Venezuelan production could bruise the Canadian industry in the long run.
Venezuela’s Oil Industry
Venezuela has the world’s largest reserves of oil and produces the same type of crude as Western Canada, known as heavy oil. The country’s oil production peaked in 1970 at about 3.7 million barrels per day, but has since declined due to various sanctions and failed government policies. In recent years, output has averaged around 900,000 barrels per day. A comeback by Venezuela could pose a risk to Alberta’s oil-dependent economy, although this is likely several years away. According to Al Salazar, a Calgary-based oil and gas analyst, "a lot of money and a lot of things have to go right to bring that [Venezuelan] oil out of the ground," including a stable government.
Impact on the Canadian Oil Industry
The Canadian oil industry has fared better than expected in the past year, with production continuing to climb despite low commodity prices. However, the prospect of rising Venezuelan production could pose a threat to the Canadian industry. According to Richard Masson, former CEO of the Alberta Petroleum Marketing Commission, "Venezuela is not like Saudi Arabia where you can drill a bunch of wells and the oil comes out of the ground – this is heavy, heavy oil." The White House is pushing US oil executives to reinvest in Venezuela, but the country’s uncertain political situation may deter investment. Additionally, the bulk of Canadian exports are shipped directly to refineries in the Midwest, which would be difficult for Venezuelan oil to reach.
The China Factor
The US is Venezuela’s second-largest customer for crude oil, but most of the country’s crude is sold to China at heavily discounted prices. If the US succeeds in redirecting Venezuelan oil toward the Gulf Coast, China would presumably need to find barrels from another country. Canada could fill this gap, and has already been ramping up its crude oil exports to Asia following the expansion of the Trans Mountain pipeline. According to Masson, this could support the case for another pipeline to the West Coast – or, at least, further improvements to the existing pipeline system.
Conclusion and Future Prospects
While the situation in Venezuela may not have much of an impact for the Canadian oilpatch in the near term, it marks an unlucky start to the year for an industry dealing with the aftermath of layoffs and persistently low prices. Canada’s oil production remains at record levels, but political turmoil is a variable that always weighs on – or boosts – oil prices, and that’s unlikely to change in 2026. As Alberta Premier Danielle Smith emphasized, the urgency of building oil pipelines to export Canadian oil to new markets is crucial to the industry’s future success.