Canada’s oil story is not ending, but it is getting riskier as Washington talks and acts like Venezuelan crude could be steered toward US refineries that currently run Canadian barrels.
Pundits described a US military raid inside Venezuela to capture President Nicolás Maduro as an oil-driven intervention, arguing the US is no longer pretending it will not benefit directly from Venezuela’s oil industry. This connects to President Donald Trump’s earlier statement that Venezuela must “return to the US all of the Oil” and his order for “A TOTAL AND COMPLETE BLOCKADE OF ALL SANCTIONED OIL TANKERS” going into and out of Venezuela.
From a Canadian standpoint, the key number is scale. Canada is America’s largest crude supplier, exporting roughly 4 million barrels per day, worth about $130.0 billion annually. Venezuelan oil can substitute for Canadian barrels because the crude types are “easily interchangeable.”
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The Substack Policy Hawk flagged the “lowest hanging fruit” as Canadian oil that ends up on the US Gulf Coast. In that framing, about 450,000 bpd, or roughly 11% of Canada’s 4 million bpd exports to the US, eventually flows to Gulf Coast refineries.
They also put Venezuela’s current production at about 900,000 bpd and said it could be delivered to the Gulf Coast without major logistical hurdles, potentially undercutting Canadian crude on cost.
Most Canadian crude is refined in the US Midwest, not the Gulf Coast, and that is where the dependence is most visible.
Policy Hawk acknowledged the Midwest problem is harder. The post argued current infrastructure mostly moves refined products south, not crude north, but suggested two ways Venezuelan barrels could still work north over time: reversing existing pipelines if they stop carrying Canadian oil south, and barging oil up the Mississippi.
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It was also argued the Gulf Coast has spare refining capacity for this kind of crude and could refine more there while the Midwest refines less. In that scenario, more refined products would move north into markets currently supplied by Midwestern refineries, scaling gradually while exporting excess product in the meantime.
The price impact could be brutal even before volumes fully shift however. Holding share would push Canadian crude prices down, hitting Canada on both volumes and margins. Policy Hawk called “more than 20%” of Canadian oil exports being threatened a serious issue.
Canada’s outlets
Policy Hawk pointed to tidewater capacity as Canada’s main release valve. The Trans Mountain expansion was referenced here, which is capable of flowing 900,000 bpd, and it was reported that capacity could expand to 1.25 million bpd within five years.
At the same time, rail shipments peaked above 320,000 bpd in 2019 and have recently been under 100,000 bpd, implying about 200,000 bpd of swing capacity exist for further exports.
Even with those buffers, Canada still needs at least 500,000 bpd of additional pipeline capacity to tidewater within five years to deal with the scale of the challenge.
At the same time, there is push back on the Venezuela comeback narrative, with opponents saying reserves do not translate into quick production growth. An estimate of at least 3 years is needed to double output, adding about 1 million bpd. Commenters also put greenfield heavy oil costs at about $30,000 per flowing barrel, or roughly $1.0 billion for every 30,000 bpd increment achievable in “perhaps three years.”
Analyst Heather Exner-Pirot described the short-term impact as “mildly bullish” for Canada if Venezuela has to shut in heavy oil amid the chaos, and argued capital will be cautious, while reiterating the case for a northwest BC pipeline to Asian markets in the medium term.
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
