More oil production in Venezuela could hurt Canada’s oilpatch

Regime change in Venezuela could help the country regain its former prominence as an oil producer and threaten Canada's industry, which is producing record amounts of oil and is expected to continue to grow for several years.

The Canadian sector has done well better than expected last year even against the backdrop of persistently low commodity prices. Production continues to rise as oil and sand producers expand their operations.

But Canadian energy stocks fell Monday morning after the United States overthrew Venezuelan President Nicolas Maduro. Given Washington's involvement in Venezuela, there are rumors that the country's industry could be experiencing a renaissance – and experts say rising production in Venezuela could harm Canadian industry in the long term.

The challenge will be attracting big investment dollars from US companies, which is important given the “monumental” amount needed to rebuild Venezuela's shattered oil industry, says Commodity Context oil analyst Rory Johnston. And these same companies have been burned before after investing in the South American country.

World's largest reserves

Venezuela has the world's largest oil reserves and simply produces the same type of crude oil that is primarily produced in Western Canada – heavy oil.

In the short term, more oil from Venezuela may be exported to the U.S. Gulf Coast rather than to other foreign markets. In the long term, if US President Donald Trump gets his wish and more US companies start operating in Venezuela, the country will have the potential to bring much more heavy oil out of the ground.

Venezuela has done this before. Production peaked in 1970 at about 3.7 million barrels per day. Since then, various sanctions and failed government policies have reduced investment, with production averaging just about 900,000 barrels a day last year.

Meanwhile, Canada produces almost five million barrels a day. the vast majority of which are exported to the USA

Venezuela's return could threaten Alberta's oil-dependent economy, although that would likely be several years away.

“To get there, you have to spend a lot of money and do a lot of things right. [Venezuelan] oil coming out of the ground,” said Al Salazar, an oil and gas industry analyst with Enverus Intelligence Research in Calgary.

And most importantly, the country needs a “stable government.”

Venezuela “isn't like Saudi Arabia, where you can drill a bunch of wells and the oil comes out of the ground – it's heavy, heavy oil,” said Richard Masson, former CEO of the Alberta Petroleum Marketing Commission and executive fellow at the University of Calgary, in an interview with CBC Radio. Calgary opens its eyes.

The White House is pushing US oil executives are reinvesting in Venezuela. However, these companies answer to investors and boards of directors, who will likely be wary of spending significant capital in Venezuela while the political situation remains so uncertain, Masson says.

And while Venezuelan oil may be a competitive choice for U.S. Gulf Coast refineries, the bulk of Canadian exports go directly to refineries in the Midwest.

In Canada, this market is virtually blocked due to the proximity of the landlocked Midwest and the existing pipeline network between the two countries.

“Oil that is refined and used in the Midwest, Venezuelan oil is going to be much harder to come by,” Guitane da Silva, former director general of Canada's energy regulator, said in an interview with CBC News Network on Monday.

Canadian exports to Washington state and California will also be difficult to displace due to the long transportation route from Venezuela.

Chinese factor

The US is the second largest consumer of Venezuelan crude oil. Most of the country's oil is sold to China heavily discounted pricesand it is unlikely that Trump will allow this situation to continue.

If the US does succeed in redirecting Venezuelan oil to the Gulf Coast, China will presumably have to source barrels from another country.

Canada could fill the gap and is already ramping up crude oil exports to Asia with the expansion of the Trans Mountain pipeline between Edmonton and the Vancouver area.

The University of Calgary's Masson says that could bolster the case for building another pipeline to the West Coast – or at least further improving the existing pipeline system.

Alberta Premier Danielle Smith emphasized that point Monday, noting the urgency of building pipelines to export Canadian oil to new markets.

While the situation in Venezuela may not have much impact on the Canadian oil industry in the near future, it marks a bad start to the year for an industry reeling from the fallout. layoffs and consistently low prices.

Canadian oil production remains at record levels, but political turmoil is a variable that always puts pressure on or higher oil prices, and that is unlikely to change in 2026.