How Shifts in Venezuela-Canada Oil Trade Affect the Safety Sector

US control over the world’s largest proven reserves of crude oil will have significant impacts on the national economies and industrial bases around the world for years to come.

Change won’t happen overnight. The senior leaders of Venezuela remaining in place after Maduro’s arrest are of the same political stripe. While they will likely allow new foreign capital to increase oil production (if the US agrees), it’s going to be a very difficult country to get anything in Venezuela done for some time.

The basics of who owns what, permits, regulations, taxes, labor, safety, etc., will take time to get sorted out. So in the short term, the political and military situation in Venezuela is not likely to have significant impact on Canada, and is unlikely to present opportunities for the North American oilfield safety services industry.

Venezuela’s oil infrastructure is in horrible condition. Experienced personnel are gone. But with a stable government, industry will go where the oil is, at which point significant opportunities will emerge. That will take time and a lot of money. In three to five years, Venezuela could be back to its last peak production level of 3 million barrels per day during the pre-Chávez era 20 years ago.

In the near term, the prospect of Venezuela’s heavy crude displacing Canadian crude supply to the southern US refineries over a five to ten year time horizon will definitely weaken Canada’s position in trade (and other) negotiations with the USA.

It’s difficult to predict the broader effects across the economy of the further weakening of Canada’s position as a trade partner for the USA, but it’s hard to see a significant upside – unless Canadian leaders adopt a more cooperative and collaborative posture in relation to US demands (i.e. “elbows politely down”). And every action that harms Canadian resource and manufacturing industries will reduce the domestic market for safety services. In that scenario, only the strongest safety services providers will survive.

On the bright side, US domestic production declines over the next five years alone should be similar to prospective output increases in Venezuela, which would predict stable demand for Canadian crude. (Of course, this assumes we don’t see a return to anti-hydrocarbon environmental policies in Canada and the US after the next round of federal elections.) Canada has historically competed with Venezuela to supply refineries in the southern US and Eastern Canada. However, Venezuelan oil can reach the Gulf (of America / of Mexico) Coast for less than the cost of pipeline shipment from Canada.

Some will see the developments in Venezuela as a really good reason to push for a new export pipeline to Pacific tidewater. However, a pivot toward China as a key customer for Canadian oil most certainly will not be positive for the relationship with the USA.