The U.S. move to oust Venezuelan President Nicolás Maduro has sparked speculation that Washington could look to Venezuelan oil to reduce — or even replace — its reliance on Canadian crude oil imports.
In practice, however, such a shift would be both difficult and unlikely. While Venezuela holds nearly 18 per cent of the world’s proven oil reserves, years of mismanagement have sharply curtailed production, leaving the South American nation responsible for just 1 per cent of global output. Venezuela currently produces roughly 1 million barrels of oil per day — less than a quarter of the approximately 4.5 million barrels per day Canada exports to the U.S.
U.S. energy companies operated in Venezuela once — it didn’t end well. In 2007, the Venezuelan government seized their operations, prompting ExxonMobil and ConocoPhillips to reject the terms of the takeover. The government still owes both companies billions of dollars in compensation, including a claim of $10 billion from ConocoPhillips. ExxonMobil’s claim is considerably smaller.
Today, Chevron is the only major U.S. oil company still operating in Venezuela, accounting for approximately 25 per cent of the country’s oil exports.
In the near term, these recent developments are unlikely to have a material impact on oil prices. Political risk in Venezuela has long been priced in, and the country’s current production levels are too small for short-term disruptions to significantly impact the broader market. The oil market is oversupplied as it is.
While the U.S. is statistically energy independent — producing more crude oil than it consumes — the type of crude it produces is not compatible with its refineries, which require heavier blends, particularly along the Gulf Coast. Outside of Canada, there are only two other significant heavy oil producers: Mexico and Venezuela.
Venezuela’s Orinoco Petroleum Belt benefits from excellent access to tidewater and relative proximity to the U.S. Gulf Coast. Its heavy crude, which requires complex coking capacity, is well suited to Gulf Coast refineries, as well as select facilities in parts of Asia and Europe.
Even with this potential refinery fit, significant structural challenges remain. Venezuela’s oil sector suffers from a deteriorating gathering system, chronic power shortages, and aging refineries and upgraders. Restoring production to levels seen 15 years ago would require a massive investment estimated at more than $100 billion — roughly twice the combined capital investment made by major U.S. oil companies worldwide in 2024.
With ongoing political uncertainty, it is unclear whether U.S. firms would be willing to make the substantial, long-term investments required in Venezuela. Companies will need at least a minimal level of confidence that they will be paid, and even under ideal conditions, ramping up oil production could take five to seven years.
Complicating matters, Venezuela has extensive current arrangements with China. Over the past two decades, the country has received an estimated $62 billion in cash injections from China. Additionally, China Petroleum & Chemical Corporation (Sinopec), a major oil producer and Asian refiner, is entitled to as many as 2.8 billion barrels under current agreements with Venezuela’s state oil firm, PDVSA, according to Morgan Stanley Research (cited by Bloomberg). These existing arrangements further increase the risks for any U.S. firms considering a long-term investment in Venezuelan oil.
But what does this mean for Canadian oil production? In the short-term, Venezuelan oil is unlikely to displace Canadian crude.
Crude oil exports to the U.S. are distributed across five regions, known as PADDs (Petroleum Administration for Defense Districts). Except for PADD1 (Atlantic), all regions source Canadian heavy oil. Refineries in PADD2 (Midwest) and PADD3 (Gulf Coast) are the primary destinations, with the majority of Canadian production going to PADD2. The main risk for Canadian supply lies is PADD3, which also has the greatest refining capacity. Canadian exports to PADD3 increased 505 per cent between 2013 and 2023, largely offsetting declining shipments from Mexico and Venezuela. On a percentage basis, PADD3 accounts for roughly 10 per cent of Canadian exports to the U.S.
Over the longer term, any displacement of Canadian oil will depend on Venezuela’s ability to sustainably increase production — a challenge that would require massive investment. Displacing Canadian supply to PADD2 would also require new pipeline capacity to move oil from the Gulf Coast to refineries in the Midwest.
While Canada’s oil exports to the U.S. face little risk in the short term, the current situation highlights the importance of trade diversification and underscores the need for continued investment in export infrastructure.
Independent Opinion
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