U.S. President Donald Trump is continuing his pursuit of Venezuela’s oil jackpot, announcing a new deal aimed at boosting production in the South American country. And while Trump is flaunting the potential controlling stake in a portion of Venezuela’s oil reserves as a warning to Canada, experts say there is little cause for concern in Western Canada.
An increase in Venezuelan exports to refineries located on the U.S. Gulf Coast would pose a competitive threat to the Alberta oilpatch, since both produce a similar type of heavy oil.
Venezuela boasts some of the largest underground deposits of oil, yet the country faces a number of challenges to ramping up production, in addition to political instability that could sink any ambition to rejuvenate the country’s oilpatch.
At the same time, the Canadian oilpatch is continuing to set new records for production, in addition to a handful of new and expansion pipeline projects in various stages of development to boost export volumes. Despite the ongoing trade war, the U.S. continues to increase its use of Canadian oil — which last year accounted for more than 60 per cent of the country’s crude oil imports.
A noticeable ramp-up of Venezuelan oil exports is still five to 10 years away, experts say, which is why the possible threat to Canada is not an urgent problem, said Ed Sprague, a former deputy energy minister in Alberta.
“If the Americans want to pursue this, they are going to have to spend time and [an] awful lot of money,” said Sprague, about the deal struck between the U.S. and Venezuela.
“One of the things we know about it is we don’t know very much about it,” he said.
The new ‘deal’
On Friday, Trump announced on social media that his administration had struck a deal with Venezuela to obtain majority control of one-fifth of the country’s oil reserves. As part of the agreement, the U.S. will have a direct equity stake in a private company, led by a Venezuelan businessman.
Trump described the arrangement as greatly increasing the U.S.’s oil supply and securing majority control of 65 billion barrels of oil reserves. Meanwhile, Venezuela’s acting president Delcy Rodríguez said the deal will bring in tens of billions of dollars in investment, while maintaining the country’s “ownership of and sovereignty” over its natural resources.
In a post on his Truth Social platform, U.S. President Donald Trump announced a deal that would allow the United States to control more than 65 billion barrels of Venezuelan oil.
Those two messages are “quite a bit different,” said Al Salazar, a Calgary-based analyst with Enverus, an energy analytics company.
“There’s a bit of discrepancy about what’s going on. It does give you pause,” he said. “Nobody knows what the terms are yet.”
That’s part of the reason why Canadian oil executives are taking note of the deal, but won’t be losing sleep over it. Instead, they’ll wait for any actual progress in reviving the depleted Venezuelan industry.
“Show me the barrel first before anyone actually moves,” he said of the reaction in the Canadian industry.
The Trump administration has been pressuring American oil and gas executives to invest in Venezuela’s energy sector, after the U.S. military attacked the country, capturing then-president Nicolás Maduro in January.
Oilsands decades ahead
The majority of Canada’s heavy oil comes from the oilsands region in Northern Alberta, where mines and industrial sites produce millions of barrels every day and have become one of the lowest cost sources of oil in North America.
One of the big advantages of the oilsands is that the multi-billion dollar facilities are all built, paid-off and continuously are improved, said Alex Filstein, a technology developer and reservoir engineer in the oilsands.
“We don’t need to spend more money on facilities. We just manufacture that oil. We just run those facilities. We have political stability and we have a very low cost of supply in Canada,” said Filstein, who is the chief technology officer at Watercut Inc.
It’s a stark contrast to Venezuela, which, at its peak in 1970, produced 3.7 million barrels per day.
Suncor’s Fort Hills oilsands mine cost about $17 billion to construct and began operating in 2018. (Kyle Bakx/CBC)
The country only pumped about 900,000 barrels per day out of the ground last year, following many years of declining investment because of sanctions and failed government policies.
Not only is the oil industry infrastructure in various states of disrepair and neglect, experts say its unknown how much money will be required to make those repairs, let alone construct new infrastructure.
“Nobody really knows the integrity of these facilities,” said Filstein, who describes the vague details and uncertainty in Venezuela as a major impediment for major US energy companies who may be reluctant to invest in Venezuela. The companies may choose to instead invest the dollars in their other operations around the world.
“Companies need stability and they need to know exactly how the dollars are allocated,” said Filstein.
U.S. President Donald Trump wants to control Venezuela’s energy industry and its vast oil reserves. As CBC’s Kyle Bakx reports, that’s being met in Alberta with both excitement and hesitation from businesses and energy workers.
Political hurdles
Besides the practical challenges, there is political instability, too.
If Venezuela’s oil industry does indeed rebound, by the time that happens, both the U.S. and Venezuela will likely have different leaders and potentially new governments as well.
“There is an open question about when Venezuela returns to democracy, would a future government honour this deal? So for the companies looking to invest, there’s significant cost risk as well as significant political risk in doing so,” said Colin Mang, an economics professor at McMaster University in Hamilton.
“It’s not clear that American oil companies will invest, at least not to the extent that the Trump administration is hoping,” he said.
In past decades, foreign companies have had their Venezuelan assets seized. In the case of ExxonMobil, it happened twice.
So far, a handful of companies, including Shell and Repsol, have expressed interest in potential new investments in Venezuela’s oil and gas industry. Chevron, which already has operations in the country, is considering an expansion.
The prospect of more heavy oil imports into the U.S. is not something Canada should be fearful of, said Sprague, the former Alberta deputy energy minister.
He points to how demand for oil around the world continues to climb and Canada is increasing its exports off the West Coast to foreign markets including China and India.
The Trans Mountain pipeline system, which transports oil from Edmonton to the Vancouver area, is at capacity, and an initial expansion is expected to be completed by the end of the year.
The Alberta government is also partnering with the federal government to develop a new pipeline project along a similar route. The federal government is expected to decide by Oct. 1, whether to designate the proposal as a “project of national interest” under the Building Canada Act.
“The United States is looking for a diversity of sources. That’s OK. We’re thinking of a diversity of markets,” said Sprague.