Will Venezuelan oil disrupt the Canadian oil and gas sector?

On January 3rd, U.S. special forces seized Venezuelan President Maduro and his wife. It quickly became apparent that President Trump wanted control of Venezuela’s oil and other resources. Vice President Delcy Rodriguez assumed the powers and duties of acting president. Rodriguez quickly gave in to threats and handed over 50 million barrels of oil to the U.S. Trump has plans to give access to U.S. oil super majors to bring Venezuelan oil production back to previous levels. Venezuelan heavy crude compete directly with Canada’s oil sands heavy crude. Will Venezuelan oil disrupt the Canadian oil and gas sector? Or, is Trump handing over a gift to Canadian oil producers and Canadian energy investors?

For the following I have borrowed much from the Globe & Mail, blended with my own commentary and observations.

With President Donald Trump doubling down on his promise that U.S. companies will soon pump Venezuelan crude back into the global market, Canada’s oil and gas sector is taking stock of its own advantages amid geopolitical uncertainty.

Oil imports from Canada have become increasingly important to U.S. oil refineries in recent years. In 2023, 60 per cent of U.S. crude oil imports originated in Canada, up from 33 per cent in 2013, according to the U.S. Energy Information Administration. In 2024, the Canada-U.S. energy trade was valued at roughly US$150-billion.

I put Canadian energy stockson the table in late 2020 (about 500% ago). The main thesis is still playing out – Canada’s producers are uber low cost and very efficient. They are build for the lower price environment.

The potential long-term problem for Canada is that Venezuelan oil is a similar grade to that from the oil sands, which makes up the bulk of this country’s exports to the U.S.; it’s thick, heavy, dense crude.

At a Jan. 9 meeting with the chief executives of some of the United States’s largest oil companies, Mr. Trump said his administration would decide which of them would be allowed into Venezuela to redevelop reserves.

But the rebuild of Venezuelan fossil-fuel infrastructure will take time. And the U.S. oil and gas sector says that Canada is – and will continue to be – its most important energy trading partner.

A neighbourly relationship

The energy systems of Canada and the U.S. are inextricably linked. Over the past 20 years, heavy crude from the oil sands has virtually replaced supplies once shipped to the U.S. from Venezuela.

“That has been a tremendous asset to the North American energy system,” said Mike Sommers, CEO of the American Petroleum Institute, an oil lobby.

Given that it would take years for Venezuelan crude to potentially re-enter the market, “Canada is going to continue to be an important partner for decades and decades to come,” Mr. Sommers told media Monday during the API’s annual State of the Industry press conference.

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“In addition to that, we expect demand is going to continue to increase. So I think that there is going to be room for significant amounts of imported Canadian crude in addition to new barrels coming from Venezuela.”

Prime Minister Mark Carney has played down the risks to Canada’s place in the global market should Mr. Trump’s plan to resuscitate the Venezuelan oil sector succeed.

Mr. Carney last week trumpeted his support for Canada’s oil producers as they struggle with the uncertainty of a U.S. takeover of Venezuela’s oil industry, saying they should be able to dodge the threat because Canadian producers will be competitive over the medium to long term.

Robust reserves, long-life assets

The competitiveness of Canadian oil lies in the size of its reserves and the type of its assets.

Alberta’s oil sands are the single largest source of Canadian supply, hitting around 3.4 million barrels each day in 2025. And that basin is extremely competitive, said Kevin Birn, the chief analyst for Canadian oil markets at S&P Global Energy, an intelligence firm.

Years ago, that wasn’t the case.

Oil sands assets are incredibly expensive to develop. First, there’s the upfront capital – the infrastructure, roads and power lines that need to be built to install the equipment to get oil out of the ground.

The bulk of assets in the oil sands were developed from roughly 2001 to 2020. Because the most significant costs were upfront, the current cost to produce a barrel is relatively low, Mr. Birn said in an interview, averaging between US$22 and US$35 a barrel. Even when oil sands mines are expanded, they are typically developed near existing facilities, negating the need for much new infrastructure.

While it’s true that the oil sands have endured more price volatility than their global peers for the past 20 years – partly because of delays in bringing on adequate pipeline capacity, Mr. Birn said – the volume of their reserves means they will continue to produce for the next 25 to 50 years. Most oil and gas wells typically last between 10 and 15 years.

“This gives Canada an incredible advantage of being very resilient and very cost-competitive globally.”

Canada’s offshore wells are also “some of the most economic assets on the planet,” Mr. Birn said.

Opinion: Venezuelan oil affects Canada only a little. But even a little is too much

Much like the oil sands, they, too, required massive upfront financial commitments. But Mr. Birn points to the Hibernia oil field, which started producing oil in 1997 off the coast of St. John’s. “It was only meant to last 20 years, and it’s still going.”

That the fully depreciated asset continues to produce oil means it has an incredibly low operating cost, he said.

The question of prices

Mr. Trump has said that part of the attraction of boosting Venezuelan barrels is the fact it will lower oil prices, thereby reducing the cost of gasoline for Americans.

Neither U.S. nor Canadian producers will “have a great time” in a low-price environment, Mr. Birn said. But where shale producers south of the border will lose production because they can’t justify the incremental costs to drill in such a market, the opposite is true in the oil sands.

“They’ll actually hit the gas in a low-price environment, because they’re going to go for volume to try to combat the lower price, and that will drive down their operating costs,” he said.

Still, the sector is keeping its eye on the geopolitical forces that could roil commodity markets, including events in Venezuela, Russia and Iran.

“Concerns remain around impacts on global supply as well as Canadian energy,” CIBC Capital Markets said in its 2026 outlook this week.

The 30 million to 50 million barrels of Venezuelan crude destined for the U.S. Gulf Coast could add “competitive friction,” it said, adding that any resurgence in supply from the South American country could once again widen the difference between Canadian and U.S. benchmark oil prices.

“While longer-term sentiment remains optimistic,” the near-term outlook continues to be volatile, it said.

Only 10% of Canadian oil is at risk

This means that, in the short term, Canadian oil remains indispensable to U.S. refineries, especially those in the Midwest, which consume nearly 69 per cent of Canada’s total oil exports. For Venezuelan oil to reach these refineries, significant logistical changes would be required, including reversing the pipeline flow – which currently runs from the Midwest to the Gulf Coast – and expanding capacity.

On the West Coast, refineries in Washington state benefit from direct access to Canadian crude via the Trans Mountain system. Shipping Venezuelan oil by tanker to the Pacific Northwest is prohibitively expensive, further reducing the likelihood that it will displace Canadian supply in that region. As a result, only Canadian oil exported to the Gulf Coast – representing about 10 per cent of total exports, or 350,000 b/d – is vulnerable to short-term competition from Venezuelan crude.

The risk for Canada is therefore limited. Even if Gulf Coast refiners switched entirely to Venezuelan oil, the impact would be a 10-per-cent reduction in oil exports, about US$15-billion, or a 2-per-cent decline in Canadian exports.

Also, global oil demand increases might offset some or all of this U.S. demand decline.

Nevertheless, 2 per cent would be a lot. The shock would be felt most acutely in Alberta, where such a drop could mean an 8-per-cent hit on provincial exports and a 3-per-cent reduction in GDP.

Canada needs to diversify

For Canada, the lesson is clear: Trade diversification is not merely a strategic objective. It has become an urgent necessity. The country’s heavy reliance on the U.S. market, where more than 90 per cent of Canadian oil is exported, exposes it to significant risks.

The recent expansion of the Trans Mountain (TMX) pipeline has demonstrated the tangible benefits of diversification. Since its operational start in May, 2024, the share of Canadian oil exports to non-U.S. destinations has tripled, rising to 9 per cent from 3 per cent. 

Don’t frack baby, don’t frack

Meanwhile the U.S. fracking industry is pulling back and shutting down.

Famed oil driller Harold Hamm said he will shut down his company’s drilling in North Dakota’s Bakken shale for the first time in decades because operations are not worthwhile at the current price of oil.

“This will be the first time in over 30 years that Harold Hamm has not had an operation with drilling rigs in North Dakota,” the founder of shale driller Continental Resources told Bloomberg in an interview. “There’s no need to drill it when margins are basically gone.”

Venezuela is uninvestable

My first thought/observation after the U.S. seized and claimed Venezuelan oil as their own was that Venezuela was uninvestable. And perhaps even more so after the raid and increased instability. We still have the same corrupt dictatorship in power, with alleged ties and partnerships with the drug cartels. The ‘consortium’ is not likely to walk away from tens to hundreds of billions of dollars of oil money without putting up a fight.

Exxon Mobil’s CEO echoed that sentiment when he was invited to the White House.

Exxon’s chief executive Darren Woods said: “We have had our assets seized there twice and so you can imagine to re-enter a third time would require some pretty significant changes from what we’ve historically seen and what is currently the state.

Today it’s uninvestable.

Of course, Trump then said that Woods and XOM is no longer invited to the Venezuelan oil festivities. Ai caramba!

Exxon Mobil is a very conscious low-cost producer and may also benefit from the oil marketplace disruption as the frackers pull back. The XOM stock price is up 10.63% over the last month.

Chevron , the only oil major still active in Venezuela (and likely to benefit near term from the oil seizure) is up 11.2% over the last month.

Canadian oil majors over the last month

• Canadian Natural Resources up 8.7%
• Suncor up 17.2%
• Imperial Oil up 16.25%
• The sector XEG.T up 7.4%

Canadian pipeline stocks have also been moving higher, but in modest fashion.

Hmmm? What are the markets trying to tell us? Canadian oil and gas investors say – ‘thank you President Trump’?

Nobody knows how this plays out, to state the obvious. It’s possible that Venezuela becomes the producer of unintended consequences. The U.S. shale players take a seat while lower cost Canadian and lower cost U.S. producers step up.

Managing your oil and gas exposure

Oil is likely the world’s most interesting commodity. It can also be one of the most volatile on the investment front. Oil and gas stocks can disappoint investors for long periods. As always it’s key to have a plan, and stick to that plan. In my wife’s Canadian RRSP account the oil and gas stocks are at 15%, the pipelines just above 18%. I’d put the pipelines in the defensive equities category along with utilities and consumer staples XST-T.

I’m happy to chip in modest fashion. I added to Suncor this past week, as that company appears to be receiving the energy analysts’ top spot. My own Canadian RRSP has oil and gas stocks in the 10% area. The pipelines are in the 15% range.

If you use the TSX Composite as a benchmark, the energy sector is just under 15%, with oil and gas stocks in the 7-8% area. Pick a target and understand the risks and benefits.

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