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United States President Donald Trump announced in a post on Truth Social Media last Friday that the U.S. had struck an agreement to “secure more than 65 billion barrels of proven oil reserves in Venezuela, at no cost for American Taxpayers,” adding that the “transaction more than doubles American oil reserves.”
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This was the logical next step following the ousting of the country’s president Nicolas Maduro in January. It was clear then, and remains clear now, that the aim of the U.S.’s intervention earlier this year was to secure a new oil supply.
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Venezuela produces heavy oil that is very similar to oilsands crude, making it a close substitute for Canadian crude imports. This resemblance is precisely why the situation raises critical questions regarding the future of the Canada-U.S. energy trade.
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After all, Canada exports about 4.5 million barrels per day to the U.S., accounting for about 80 per cent of Canada’s production and more than 85 per cent of its total crude exports.
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But the relationship runs both ways, with Canadian oil accounting for almost 60 per cent of total U.S. crude imports.
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What matters, however, is the share of total U.S. consumption. On that measure, Canada supplies about 25 per cent of the oil refined in the U.S. But the national number masks significant regional disparities: Canadian oil accounts for less than five per cent of the oil refined along the Gulf of Mexico, but about 70 per cent of the oil refined in the Midwest.
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Geography matters significantly. Currently, only the Canadian oil used along the Gulf of Mexico coast is at risk of near-term displacement. Refineries in the Midwest currently have little alternative to Canadian oil due to the lack of infrastructure needed to move Venezuelan oil from the Gulf of Mexico.
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Building this capacity would take years and billions of dollars, leaving only the smaller volume of Canadian crude reaching the gulf vulnerable to competition in the short term.
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Even with sufficient investment to surmount this transportation hurdle, Venezuela’s current output, at roughly one million barrels per day, is a fraction of what Canada ships south of the border.
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The more immediate impact is likely to show up in the price rather than through direct displacement, as increased imports of Venezuelan oil into the Gulf Coast could widen the discount between Canadian crude and West Texas Intermediate (WTI).
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Hence, Trump’s latest announcement has little impact in the short term. However, the commitment to invest US$100 billion in rebuilding Venezuelan production deserves to be taken seriously, even if the timeline may be longer than the president suggests.
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Many analysts estimate it would require about US$10 billion per year over the next 10 to 15 years to restore production to its glory days of about three million barrels per day.
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The recent events should be another reminder to Canada that trade diversification is not merely a strategic objective, but an urgent necessity.