In the latest move by the Trump administration to take control of Venezuelan oil tankers, the uncertainty surrounding the fate of the world’s largest proven oil reserves has resurfaced. Due to U.S. sanctions, Venezuela has been largely excluded from the global oil market, despite holding more known oil reserves than Canada or Saudi Arabia.
The potential resumption of oil flow in Venezuela, reminiscent of the pre-Chavez and Maduro era, could significantly impact Canada, given the historical connection between Venezuelan and Canadian oil over the past 25 years. The chemical engineer Lino Carrillo highlighted the identical nature of bitumen in Venezuela’s Orinoco Belt and Alberta, where he has worked extensively.
Venezuela benefits from favorable climate and geography, making its heavy crude more accessible for extraction compared to Canada’s oil sands. The country’s heavy crude deposits near the Orinoco Delta and conventional oil reserves around the Maracaibo Basin are strategically located closer to tidewater.
The challenges facing Venezuela’s oil industry are largely self-inflicted, with political firings, brain drain, and mismanagement contributing to its decline. In contrast, Canada has emerged as a beneficiary of Venezuela’s setbacks, with Canadian oil gradually replacing Venezuelan crude in the U.S. Gulf Coast refineries.
The potential resurgence of Venezuelan crude production, contingent on the lifting of sanctions, could pose a competitive threat to Canadian oil in Gulf Coast refineries. However, significant investments in infrastructure and operations would be necessary to revitalize Venezuela’s oil sector, surpassing the costs of transitioning in the U.S.
While Venezuela holds promise in terms of oil production, political instability and operational challenges present significant risks. The Maduro government’s stance on U.S. demands concerning Venezuelan oil ownership adds to the existing uncertainties surrounding the industry.
The prospect of Venezuelan oil making a comeback underscores the importance for Canada to diversify its oil export markets, with a renewed focus on building infrastructure towards the West. This shift would enhance Canada’s energy security by expanding market options and reducing dependency on traditional routes.