The Venezuela Oil Grab - What it Means for Oil Markets (and Canada)

What is discussed, and when

1. 0:00 – 3:00: Donald Trump, fentanyl crisis
2. 3:00 – 6:00: fentanyl crisis
3. 6:00 – 9:00: Exxon Mobil

Notable quotes from "The Venezuela Oil Grab - What it Means for Oil Markets (and Canada)"

• While Donald Trump has attributed his actions to a crackdown on Venezuela's role in the fentanyl crisis, many believe that the real motive behind all this is really the oil…

  about fentanyl crisis · at 1:06

• Something likely related to the expropriation of assets in 2007 when companies like Exxon Mobile and Kico Phillips were bought out of their Venezuelan operations for a fraction…

  about Exxon Mobil · at 5:57

Who and what is mentioned in this episode?

People

• Donald Trump — Person · 1 mention · first at 1:06
  With a country hosting a fifth of the world's total proven oil reserves. So, while Donald Trump has attributed his actions to a crackdown on Venezuela's role in the fentanyl…

Companies & orgs

• PDVSA — Company · 2 mentions
• Exxon Mobil — Company · 1 mention · first at 6:01

Concepts & topics

• fentanyl crisis — Concept · 2 mentions · first at 1:10

Full transcript with timestamps

0:00 Hey everyone, it's Richard. You're watching the plane bagel. As you're probably very much aware of at this point, last Saturday we had a meaningful escalation in the Venezuela US situation as in the middle of the night we saw a US Delta Force team invade the country and capture Venezuela's president Nicolas Maduro, extracting him to New York to face a number of US federal charges. A shocking update that followed months of US military activity in the region and something that's been met with conflicted feelings, controversy, and heated debate online. While Maduro was largely viewed internationally as an illegitimate ruler whose country has suffered severely under his reign, the US invading a country, plucking out its leader and then bringing them to the US to charge with crimes domestically naturally sets a pretty wild precedent and has led to some condemnation.

0:46 Especially because not long after this event, Trump began making moves to seemingly take advantage of the country's oil output. You see, oil is one of Venezuela's main industries, making up about 80% of the country's exports. And in fact, the country sits on the largest oil reserve in the world with a country hosting a fifth of the world's total proven oil reserves. So, while Donald Trump has attributed his actions to a crackdown on Venezuela's role in the fentanyl crisis, many believe that the real motive behind all this is really the oil, especially given Venezuela's relatively minor role in America's drug problem. And Trump hasn't done a whole lot to beat those allegations. The president has previously demanded that the country return supposedly stolen US oil assets.

1:27 And not long after the raid, the president announced that the US would be sending large oil companies to develop and rebuild Venezuela's long neglected oil infrastructure. With this also being followed by news that the US would be taking and selling 30 to 50 million barrels of oil from the country to quote benefit the people of Venezuela and the United States and announcing plans to control the country's sales indefinitely. Now, looking past the moral implications of invading a country and exploiting its natural resources, which yes, is a big one, but but looking past that for a second, some people have really run with this idea that the US could convert Venezuela into an energy powerhouse, whether for Venezuela's benefit or their own. uh with some going so far as to argue that the US economy is about to boom from all the supposedly free oil it's about to receive and some even warning of the meaningful risk this

2:15 all poses to Canada given that the country sends about 97% of its oil exports to the US and could potentially see this substituted with imports from Venezuela. But is this a realistic risk? Can America really just go in, capture all of Venezuela's oil output and then replace its reliance on Canada here? Or is it all just wishful thinking? Well, that's what I wanted to cover in today's video. And naturally, the controversial and exploitive nature of all this makes it a really ugly topic to discuss. And of course, the future of the oil markets is far from the most important aspect to this update, right? Millions of Venezuelans now face severe uncertainty regarding the future of their country and economy. It's unclear how beneficial America's involvement will be, whether they truly help rebuild the country and benefit its economy, as Trump has suggested, or simply exploit a vulnerable nation for its natural

3:03 resources. But today I want to narrow the scope to that discussion of oil and whether the US could feasibly meet its oil needs with Venezuelan exports because we have seen markets react to this. Canadian oil companies fell in price on Monday while US companies actually jumped in value. But also I'm not a geopolitical expert so I can't really speak to some of the greater unknowns uh with this situation. What I can do is try to clear up some of the misinformation specifically around oil and gas, which as a Canadian investment analyst, I've researched quite a bit to give more context that's seemingly missing from a lot of this online discussion about oil from Venezuela. And extend the conversation to its impact on the Canadian market. And this not to label any of this as good or bad.

3:41 Frankly, it's just not that simple. It would be great if Venezuela were able to rebuild and uh prosper from its oil industry. We're just going to focus on feasibility here and the risk this poses to Canada's own oil industry. But let's start with a bit of background on Venezuela. How did we get here? Well, as you may know, Venezuela is a country who in the past was a very prosperous nation in South America thanks to its oil wealth. The country nationalized its oil industry in 1976, creating the state-run PDVSA oil company and further expropriating assets in the 2000s from several foreign oil companies. with a country generally able to grow its economy amid years of high oil prices.

4:19 However, over the past few decades, Venezuela's economy has deteriorated meaningfully due to its dependence on oil, mismanagement of its economy, sanctions from other countries, and corruption within the government with a good chunk of this happening under Maduro's leadership. You see, Maduro was elected in 2013 following the previous leader's death and continued a trend from Chavez of eroding democratic institutions, consolidating power at the executive branch, and targeting civil liberties with Maduro accused of rigging elections to hold on to power in violently cracking down on disscent.

4:49 Something that led the US and a number of other nations to announce sanctions against the country and specific members of Maduro's regime. In particular, in 2019, the US imposed a complete embargo on transactions with PDVSA, effectively cutting off exports to key markets like India and the European Union. And as a result of these factors and an oil glut in the mid2010s, Venezuela saw its economy decimated. DDP contracted to less than a third of its size from 2012 to 2025. The country experienced a bout of hyperinflation that saw prices rising by hundreds of thousands of percentage points. And oil production, which peaked for the country at around 3.5 million barrels per day, fell by over 2/3 to today just around 1 million barrels per day. In fact, despite the country sitting on a fifth of the total proven oil reserves globally, production today sits at around just 1% of the world's total output. Now, the US has long been

5:41 putting pressure on the Maduro regime. But things really escalated last year when the US began bombing civilian boats accused of fing drugs and imposing a complete naval blockade against sanctioned oil tankers in December with Trump accusing the country of contributing to America's fentanyl crisis and even stealing US assets. Something likely related to the expropriation of assets in 2007 when companies like Exxon Mobile and Kico Phillips were bought out of their Venezuelan operations for a fraction of their worth. In fact, Chevron today is the only US company that's been able to maintain operations in Venezuela through joint ventures through all these years.

6:14 But this past weekend, things took a very unexpected turn when over the span of just 2 hours and 20 minutes, the US attacked Venezuela, captured Maduro, and extracted him from the country with the dictator and his wife being brought to New York where he's pleaded not guilty to charges of narotism conspiracy, cocaine importation conspiracy, and possession of machine guns and destructive devices. Now, since this update, the US has maintained its blockade on Venezuelan oil, even intercepting a Russian oil tanker accused of transporting oil from the country. And Trump has suggested that the US would run the country in the interim. But Trump has quickly shifted the focus of all this from drugs to oil, uh, presenting this as a development opportunity for the country's oil industry. And it's that aspect of the story that has raised questions over how this all might impact Canada's trade with the US when it comes to crude oil.

6:59 You see, Canada and Venezuela actually both predominantly produce the same type of heavy sour crude oil, which is a type of thick, hard to extract oil with a high sulfur content that's generally harder to process than sweet light oil and also generally produces lower value end products. Uh, with it commonly being used for ashvalt and industrial fuels. However, the US has long built a lot of its oil infrastructure to specifically handle and refine this type of heavy oil. In fact, back in the early 2000s, the US used to import about half of Venezuela's 3.5 million barrels a day.

7:32 And even as recent as 2023 was still importing about 23% of the country's total exports, with the US having a good chunk of its refining capacity right on the Gulf Coast, where it's able to receive oil from Venezuela via tanker. Now today, with Venezuela producing around 1 million barrels per day, even if the US were to absorb 100% of this export, it would still represent only about 17% of America's total crude oil imports, compared to Canada, which currently supplies around 65% of America's crude oil imports. But with the sheer size of Venezuela's oil reserves, there's the concern that if the US builds out this infrastructure and takes all of this output, either by commerce or exploitation, that they could completely replace the imports coming from Canada, which is meaningful for the country given that Canada's oil is effectively landlocked. Oil production occurs predominantly in the middle of Canada and Alberta. And while

8:23 there is infrastructure reaching to the country's west coast, most pipelines are directed towards the US where the country sends 80% of its produced oil. with attempts by Alberta to expand pipeline capacity out west long being held up federally and by British Columbia and amid heightened tensions between Canada and the US during the trade war and the comments around turning the country into the 51st state via economic pressure. This has naturally increased a lot of anxieties in the country. But how likely is it for Canada to be replaced here? Well, it's incredibly early in the whole Venezuela situation, but there are some pretty big holes in this idea of completely substituting Canadian oil. Firstly, there's the matter of regional infrastructure in the United States.

9:03 Yes, it is true that Canadian and Venezuelan oil is similar and could theoretically be substituted for one another at America's heavy oil refining facilities, a good chunk of which are located on that Gulf of Mexico. But even still, the US doesn't actually have the infrastructure to immediately substitute its Canadian oil imports. As a bit of background, the US is divided into five petroleum administration for defense districts or pads for short. The Gulf Coast refineries in pad 3 have a cumulative capacity of 9.8 million barrels per day and is only at a 90% utilization. So, while these facilities could technically absorb all of Venezuela's output without impacting its imports from other countries to these facilities, this is most likely where we could see Canadian oil substituted for Venezuelan oil. But the thing is, PAD 3 isn't where Canadian oil is predominantly processed. Today, only

9:51 about 424,000 barrels per day are sent to that district by Canada. Instead, about 78% of Canada's crude oil exports are processed in pad 2 and four inland districts where 100% of the oil imported by refineries comes from Canada and where it's not really feasible to send Venezuelan oil given that pipeline infrastructure for crude oil tends to be southbound and transporting via freight is far less economic. Now, yes, there could be substitution at the other pads to offset lower processing of Canadian oil at pad 2 and four, but given the pipeline infrastructure that's been long built out between Canada and the US, it's unlikely that would be more economic when you also factor in the transportation needed to then get that oil to its domestic and markets. And building out the infrastructure to send Venezuelan oil north within the United States would take billions of dollars of investment, state approvals, and years

10:43 of planning and construction. So right away about 80% of Canada's oil doesn't face immediate substitution risk from Venezuelan oil given how America's infrastructure is set up. Yes, the 50 million barrels could disrupt Canadian imports temporarily, but the represents less than 10 days of America's crude oil import demand. Secondly, when we talk about infrastructure on the Venezuelan side, it's questionable whether there's going to be much appetite from US firms to repair the long neglected facilities and pipelines. According to Francisco Manaldi, director of the Latin America Energy Program at the Center for Energy Studies, Venezuela would need investments in excess of $100 billion to bring production above its peak to 4 million barrels per day in a decade, which would be about the same as what Canada is currently supplying to the US.

11:28 But because the National Oil Company is bankrupt and the country itself is in debt, there's not really any money internally to make that investment. So, they would have to rely on foreign investment to develop its industry. Yet political instability and corruption are some of the biggest deterrence and risks to foreign direct investment. Yes, one would hope that with Maduro being ousted that the country could begin its path towards stabilization. Uh but these things don't exactly resolve themselves overnight. And so far anyway, it's not looking promising that we've had meaningful change in the country. The country is currently being run by Maduro's vice president, Deli Rodriguez, while Maduro's cabinet members remain in place. And since Maduro's capture, the government has declared a 90-day state of emergency with pro Maduro armed militias now searching phones in the capital of Caracus and arresting

12:15 journalists and citizens who spoke in support of Maduro's capture. So despite how it's been framed by some, the country hasn't exactly been liberated. There's also the belief that the toppling of Maduro leaves the country open to a violent power struggle between armed groups, especially given that the US hasn't maintained any sort of presence in the country to help address any sort of a power vacuum. So you can imagine the challenges US companies would face trying to develop oil infrastructure in a country where armed groups are actively hostile against US involvement. Now Trump has suggested that Rodriguez is fully cooperating with the US and publicly the interim president has stated that she is open to energy relations where all parties benefit. But a common view between Maduro's regime and the opposition party is that Venezuelans should be the main beneficiary of the country's oil production, not the US. which might make

13:02 the headline about handing over $3 billion worth of oil a bit bizarre, but that oil is largely stranded due to the US embargo. So, it really just presents a way for the country to try and recuperate losses on oil that's likely actively costing it money to store. It doesn't necessarily represent a willingness to work with the US longer term. Not to mention that a good chunk of Venezuela's skilled labor in the oil industry has actually long fled the nation for countries like Canada because of the country's political instability.

13:29 So, with all that's in the air regarding Venezuela's government, it's questionable whether the region will be able to attract this talent back to Venezuela. And beyond all of this, it just might not make economic sense. The global oil market is currently overs supplied. The International Energy Agency projects a surplus of 3.8 million barrels per day in global oil markets this year, something that's been dragging down benchmark prices for oil. Not to mention that heavy oil like what Venezuela produces actually sells at a discount to the widely cited West Texas Intermediate which is for sweet light oil. Western Canadian Select for example which is Canada's heavy oil price benchmark currently sits at $45 a barrel compared to WTI around $60. Clauddio Galenberti the chief economist and global director of market analysis at Rystat Energy estimates that the break even price for oil development in

14:18 Venezuela is around $80 a barrel. So beyond the operating net back, the profitability you would see with existing infrastructure likely being negative, it doesn't make a whole lot of economic sense to go to a country with armed regimes hostile to you, spend billions of dollars on developing infrastructure, waiting through years of planning, development, and construction only to produce more unprofitable oil, all while the market is currently in over supply. In fact, another estimate by Rice Energy even suggests that the country needs $53 billion over the next 15 years just to keep Venezuela's crude oil production flat with there only being an estimated 300,000 barrels per day of additional supply that could be brought online with limited incremental spending. So, yes, in the short term, we could see the US begin substituting a portion of its Canadian imports with oil from Venezuela. Uh, but the amount of

15:09 infrastructure investment needed to expand Venezuelan oil production and refining in the US just doesn't make a lot of economic sense in the current environment. That could change in the future. Prices could fluctuate higher. Trump has suggested he could subsidize companies who go and help develop Venezuela's infrastructure and technology could improve the net back of production in Venezuela. Canada's own heavy oil production has itself managed to achieve low-cost production despite the complex nature of its operations.

15:36 But in a recent meeting with oil executives where Trump pushed to achieve a $100 billion investment commitment, Exxon CEO Darren Woods went so far as to describe Venezuela as uninvestable. And while Chevron, who currently accounts for about a fifth of the country's production, is expected to bolster output, some experts only anticipate investments in the $50 million range, far from what would be needed to revolutionize the industry. And that's all without considering the other players in all this. There are of course other world powers like China and Russia who Venezuela is actually in debt to who likely won't be too keen about the US taking its tankers and cutting off its key oil supplier with China previously estimated to be buying up to 3/4 of Venezuela's embargoed oil. Other Latin American leaders and even American allies will likely push back against any attempt at adventurism in Venezuela. And

16:23 even within the US, it's very likely we see political push back to American involvement in a foreign country. Now, for Canada's part, it also will take many years to build out the infrastructure needed to sell oil to other markets. But the country has been making some progress in diversifying its reliance on the US here. In May 2024, the country completed its Trans Mountain pipeline expansion, which tripled pipeline capacity to its West Coast to nearly 900,000 barrels per day. And the federal government recently signed an agreement with Alberta to kickstart the construction of another pipeline to its coast. Now, none of this is to say that Canadian oil companies don't face any risk with this update. Uh the truth is that any added supply to the market is going to hurt the price that oil producers are able to sell for. And with enough investment, really anything is possible here. The US could even develop

17:06 its infrastructure and shut out all crude oil imports by relying completely on domestically produced oil if it chose to do so. But hopefully this video helped to explain the nuance of the situation and why toppling Maduro is hardly enough to bring stability back to the region as we've seen with the toppling of dictators in other countries, let alone enough to enable the US to begin a US enterprise in Venezuela. It would be great if this was the first step towards stability in the region and if Venezuelan people are able to benefit and prosper from the development of their oil industry and other important sectors. But the truth is today we're just far from that reality. Anyway, that's the video. I hope you found it helpful. If you did, please do make sure to like, subscribe, all that good stuff. It does help the channel tremendously. And let me know your thoughts on the updates we've seen

17:48 in Venezuela. Uh, thanks again for joining me. And as always, be safe out

Questions about this episode

What is discussed in "The Venezuela Oil Grab - What it Means for Oil Markets (and Canada)"?

In order: 0:00 Donald Trump, fentanyl crisis; 3:00 fentanyl crisis; 6:00 Exxon Mobil.

What is mentioned in this The Plain Bagel episode?

4 people, works and ideas are mentioned, including fentanyl crisis, PDVSA, Donald Trump, Exxon Mobil. Each one on this page links to its own page with every episode that mentions it.

How long is "The Venezuela Oil Grab - What it Means for Oil Markets (and Canada)"?

The episode runs 18 min; the transcript is about 3,459 words in 26 timestamped sections.

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