Oil Blockage

As the rhetoric surrounding what the United States has in store for the Maduro regime in Venezuela I can not help but think how this will negatively affect Canada and its quest to grow production and distribution of oil resources across the country. Last Thursday a MOU between the Carney Feds and Daniel Smith’s Alberta UCPs laid groundwork for a potential pipeline to tidewater. There were plenty of caveats though and a business model that works is one of them.

Just how this business model will work if the United States moves on removing Maduro and supports a capitalist centric government in Caracas is a big question. Whether its a pipeline for bitumen or light crude going to the coast, having the reserves of heavy crude from Venezuela returning to the market will have a mighty impact on prices across the energy sector.

Venezuela has listed reserves of 303 billion barrels of oil. Canada is showing 160 billion barrels. The types of crude each countries reserves produce are very similar. Each generates a heavy crude that requires specialized refining capabilities. Not all countries that refine oil have the capacity to accept this type of crude. Gulf coast refineries in the US are all able to process heavy crude having initially configured for Venezuelan crude then when that became scarce due to political turmoil Canadian heavy crude was piped south.

Imaging though if the US manages to secure regime change in Venezuela and installs a US supportive government. There I already plany of chatter in the news regarding the return of the US oil majors to the Orinoco Belt to rebuild the infrastructure. Pulling this oil out and getting it to market is less costly then extracting the bitumen from northern Alberta which can only mean that Canada’s oil will be less in demand. Certainly with our largest market, the US.

A decade ago the government of India sought an agreement with Canada to build a pipeline to the East Coast for our heavy oil from which to ship to India. They would build refineries specifically to handle our crude. This would have locked the Indian Government into using heavy crude for decades. But no, our fearless leader told them to pound sand. Just as he told the German Government and Japanese Government when they asked about our natural gas. No thanks keep you dirty carbon needing money we don’t need to grow our economy.

So there is all this excited talk about the MOU with Alberta and how we are going to have new pipelines and greater capacity in existing ones. But to sell the oil where? Currently Canada produces 5 million barrels of crude a day exporting most of this to the US at a significant discount to market price. Venezuela is producing 1 million barrels a day right now but have produced up to 3 million prior to the collapse of the industry with Maduro. Returning this output to the US would cause great problems for Canadian producers trying to market their oil.

Now you are competing with a rebuilding Venezuelan industry supportive of US strategic needs which would likely include restriction of oil sales to China keeping crude prices at levels that do not allow Russia to rebuild its depleted military. Keeping this oil as the US is with Saudi oil in their sphere of influence is th big stick the US has in the Great Game. Canada’s reserves become very less valuable to the US and this will only go to supporting our PM Carney’s goals of destroying Canada’s carbon industry. Read that as oil industry.

In 2015 costs to produce a barrel of oil in Canada vs Venezuela were ruffly twice as costly in Canada. In 2025 costs of Canadian production have been amitorized into output whereas the rebuilding costs for the Venezuelan oil industry will likely not be insignificant. But these will be absorbed by the governments of both the US and Venezuela allowing this oil to flood to market at very low costs. Canada will be squeezed.

Already overburdened by regulation and taxation the Canadian oil industry has even more costs and limits being applied which stifle consideration of further investment which would grow output. Why would any company want to invest here in Canada when the next wild west of unregulated development will be happening just south of the largest market for oil. There is no reason! Companies will be putting their development dollars into the Venezuela oil industry as that is where the greatest return for the least risk exists.

So as Carney knows the announcement of the MOU with Alberta is simply theatre. There will be no new investment money from the private sector. And for sure Carney will not be spending public funds in this area. So do not hold your breath gentle readers. Canada as a growing concern is not happening just yet.