Shift to Venezuelan oil by no means a sure bet

“Just because they have oil in the ground doesn’t mean that they can get it out logistically, so I don’t think anyone in this (sector) is immediately panicking.”

— Heather Exner-Piro, Macdonald-Laurier Institute

Canadians are questioning what the repercussions will be for this country in the wake of the forced removal of Venezuelan President Nicolás Maduro and his wife by American forces late last week.

What was the international legal basis for the Trump administration’s unilateral extraction of a foreign head of state? And how will this affect Canadian sovereignty — particularly after Trump’s public musings regarding the annexation of Greenland and his talk of Canada as the 51st state.

And there are rightful questions to be asked by Venezuelans as well. Who is actually in charge of the country now? Will there be a public backlash and will whoever is left in charge — Trump cronies or leftover Maduro administrative officials — face an uprising by Venezuelans opposed to American interference?

This increasing uncertainty has severe and potentially lasting political and social implications for the Americas. But it also has some interesting ramifications for Canada’s oil industry, and the American companies that have already heavily invested in the that industry.

After all, oil is at the heart of why Trump acted against the Venezuelan president in the first place — not drug trafficking or dismissive concerns that Maduro stole the last election. Had he been concerned about Venezuelan democracy, Trump would not have allowed Maduro’s Vice-President Delcy Rodriquez be sworn in as interim president following Maduro’s removal.

On Saturday, Trump said the U.S. would take control of Venezuela’s massive oil reserves and recruit American companies to help resurrect the country’s oil industry.

“We’re going to have our very large U.S. oil companies, the biggest anywhere in the world, go in, spend billions of dollars, fix the badly broken infrastructure, the oil infrastructure, and start making money for the country,” Trump said during a press conference.

But as several pundits have noted, the capture of Maduro and the confiscation of Venezuela’s oil reserves will not necessarily translate into a sure bet for attracting major oil companies back to the country — particularly those that were already bruised by the former Venezuelan government of Hugo Chavez.

In the mid-2000s, several major global oil companies began shifting their focus and their capital away from Venezuela to Canada after Chavez nationalized the country’s assets and dramatically increased taxes to help pay for reforms to the country’s social programs.

Chavez had convinced a majority of Venezuelans that the country and its citizens were being robbed by the large oil companies. As a result, companies like Exxon, Shell and ConocoPhillips lost billions of dollars, and instead began investing in Canada’s oilsands production.

At this point, roughly 16 per cent of Canadian oil and gas assets are controlled by American-owned enterprises, according to data from Statistics Canada in 2022. However, the big four oil sands companies, including Canadian Natural Resources, Cenovus Energy, Imperial Oil and Suncor Energy, are estimated to be 60 per cent American owned, according to a recent report by the Alberta Federation of Labour.

These four also represent about 80 per cent of the total oilsands production. So there is some valid concern about the potential impact against Alberta’s oil industry, and the Canadian jobs attached to it.

Nevertheless, while there is tremendous potential for oilsands development in Venezuela — more than enough to offer a potential risk to Alberta’s oil industry — there are several factors against this happening anytime soon.

Venezuela’s oil industry today is a shadow of its former self, and it will take hundreds of billions of dollars of investment to rebuild it.

And like any multinational company, the world’s oil barons look to stability and growth potential more than ideology when it comes to making decisions about where to invest their time and money. Trump’s regime change in Venezuela, and his ongoing talk of other military interventions in Mexico, Colombia and Cuba, do not offer stability in a region that sorely needs it in order to spur investment.

As Reuters reported this week, Venezuela has one of the largest estimated reserves in the world, but production has plummeted over past decades amid mismanagement, lack of investment and U.S. sanctions.

By comparison, Canadian operations, while they have higher capital and operating costs, offer companies political stability, an already established access to the U.S. market and a reliable legal and environmental framework.

That’s not to say that Canada should sit idly by and do nothing. Prime Minister Mark Carney’s stated efforts to work together with Alberta to build a new oil pipeline to the Pacific, among other initiatives, would help expand Canada’s trade network outside of the U.S. market.

And whatever we may think of Trump’s regime change in Venezuela, there’s no doubt that American oil companies are watching the situation carefully.

But we have to wonder whether these same companies will hesitate to put their business interests at further and unnecessary risk.