Venezuela's Oil Revival Threatens Canadian Dominance in US Market

Venezuela's oil industry revival is becoming a growing concern for Canadian producers. Nine months ago, energy analyst Rashid Husain Syed warned that a resurgence in Venezuelan production could threaten Canada's dominant position as the largest supplier of crude to the US.

The latest development is a major deal between the US and Venezuela, which will give the US significant economic interest in Venezuelan oilfields containing about 65 billion barrels of reserves. This means Venezuelan heavy crude can now compete with Canadian heavy oil for customers in US refineries designed to process heavy oil.

Canadian producers shouldn't panic yet, as geography and infrastructure remain their greatest advantages. However, the threat is real, especially on the US Gulf Coast where Canadian oil currently accounts for only about 5% of crude processed. If Venezuelan production rises significantly, those refineries will be a natural destination, putting downward pressure on the price American refiners are willing to pay for Canadian heavy oil.

The situation highlights the need for Canada to reduce its dependence on the US market. The Trans Mountain Expansion has nearly tripled capacity on the pipeline system between Alberta and Vancouver, giving Canadian producers greater access to Pacific markets. Further reducing Canada's reliance on the US will require even more export capacity, which is why another proposed West Coast pipeline is now being advanced.