Venezuela's U.S. Oil Loss Is Canada's Gain

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Last week, the U.S. announced effectively an embargo against all trade with Venezuelan state entities and associates.

The oil industry has been supplying over 90% of federal revenues.

From field mismanagement to underinvestment to the 2017 U.S. ban on new lending, Venezuela's oil production is now a quarter of what it was a decade ago.

In January, the U.S. imposed sanctions on PDVSA, Venezuela’s state-owned oil company, basically banning U.S. imports of Venezuelan crude.

But, as the U.S. seeks to help privatize Venezuela when/if Nicolás Maduro leaves office, "Chevron Wins 90-Day Venezuela Waiver Despite Agency Opposition" at the end of July.

This is strategic: Venezuela leads the world with over 300 billion barrels in proven oil reserves, as reported by BP.

This year though, oil output has stabilized at around 750,000 b/d since April, although this is still down 45% from 2018.

In turn, U.S. oil imports from battered Venezuela have spiraled.

Latest EIA data indicate that U.S. imports from Venezuela were just 11,000 b/d in May, compared to 631,000 b/d in January.

In 2018, Venezuela accounted for just 6% of total U.S. oil imports, versus nearly 20% back in the 1990s.

The collapse is even more noteworthy because the heavier crude that Venezuela sells is a good fit for the U.S. refinery system, also configured to process heavier grades imported from NAFTA partners Mexico and Canada.

"Sanctions on Venezuela's oil firm sends U.S. refiners scrambling."

U.S. oil imports from Mexico, however, a nation whose production has been sliced in half since peaking in 2004, have sunk 45% over the past decade to 720,000 b/d in 2018.

As such, even with a 150% boom in domestic U.S. crude production, Canada has been leaned on most to fill-in.

In 2018, for instance, Canada accounted for half of total U.S. crude oil imports and nearly a quarter of U.S. refinery crude oil intake.

On average, since the shale revolution took off in 2008, annual U.S. imports from Venezuela have been falling by 90,000 b/d, while imports from Canada have been rising by 180,000 b/d.

Canada's oil exports to the U.S. have steadily tripled over the past 20 years, increasing every year since except 2009.

Data source: EIA; JTC

BP reports that Canada has nearly 170 billion barrels of proven oil reserves, made even more attractive for investors because of Canada's democratic and predictable political climate.

With a reserves-to-production ratio of ~90 years, "Canada is North America's Great Oil Security Blanket."

Looking forward, at over 5.2 million b/d last year, Canadian oil production could rise to 7 or even over 9 million b/d over the next 20 years.

Canada joins the U.S. and Brazil as the critical triad of non-OPEC incremental suppliers.

As seen by forced production shut-ins in Alberta province, more oil pipelines are essential to alleviate an oil glut that has led to an economic crisis and helped Premier Rachel Notley lose her re-election campaign in April.

For example, first proposed in 2008, the $8 billion, 0.83 million b/d Keystone XL pipeline running from Alberta to Nebraska and then linking to the Gulf Coast is inching along numerous legal challenges.

As for embattled Venezuela, PDVSA's struggle to satisfy the ~250,000 b/d of domestic demand has led to chronic fuel shortages.

Just announced, a $3 billion expansion of Chinese investment in Venezuela's oil industry seeks to raise production by 120,000 b/d, defying the secondary U.S. sanctions that target foreign firms trading with the country.

"China will determine the future of Venezuela," investing nearly $70 billion in the South American country from 2001-2018.

Venezuela's oil shipments to China and via Russia do not offer much financial relief since they are simply IOUs for loans.

The coming IMO 2020 bunker rule, which will reduce sulfur content in marine fuels from 3.5% to 0.5%, could be even more of an albatross for Venezuela's high-sulfur grade.

"​Low-sulphur marine rules to threaten Venezuela oil exports."

The degree of compliance among shippers will surely be high: major ports and insurers will demand that ships use compliant fuel.

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Last week, the U.S. announced effectively an embargo against all trade with Venezuelan state entities and associates.

The oil industry has been supplying over 90% of federal revenues.

From field mismanagement to underinvestment to the 2017 U.S. ban on new lending, Venezuela's oil production is now a quarter of what it was a decade ago.

In January, the U.S. imposed sanctions on PDVSA, Venezuela’s state-owned oil company, basically banning U.S. imports of Venezuelan crude.

But, as the U.S. seeks to help privatize Venezuela when/if Nicolás Maduro leaves office, "Chevron Wins 90-Day Venezuela Waiver Despite Agency Opposition" at the end of July.

This is strategic: Venezuela leads the world with over 300 billion barrels in proven oil reserves, as reported by BP.

This year though, oil output has stabilized at around 750,000 b/d since April, although this is still down 45% from 2018.

In turn, U.S. oil imports from battered Venezuela have spiraled.

Latest EIA data indicate that U.S. imports from Venezuela were just 11,000 b/d in May, compared to 631,000 b/d in January.

In 2018, Venezuela accounted for just 6% of total U.S. oil imports, versus nearly 20% back in the 1990s.

The collapse is even more noteworthy because the heavier crude that Venezuela sells is a good fit for the U.S. refinery system, also configured to process heavier grades imported from NAFTA partners Mexico and Canada.

"Sanctions on Venezuela's oil firm sends U.S. refiners scrambling."

U.S. oil imports from Mexico, however, a nation whose production has been sliced in half since peaking in 2004, have sunk 45% over the past decade to 720,000 b/d in 2018.

As such, even with a 150% boom in domestic U.S. crude production, Canada has been leaned on most to fill-in.

In 2018, for instance, Canada accounted for half of total U.S. crude oil imports and nearly a quarter of U.S. refinery crude oil intake.

On average, since the shale revolution took off in 2008, annual U.S. imports from Venezuela have been falling by 90,000 b/d, while imports from Canada have been rising by 180,000 b/d.

Canada's oil exports to the U.S. have steadily tripled over the past 20 years, increasing every year since except 2009.

Data source: EIA; JTC

BP reports that Canada has nearly 170 billion barrels of proven oil reserves, made even more attractive for investors because of Canada's democratic and predictable political climate.

With a reserves-to-production ratio of ~90 years, "Canada is North America's Great Oil Security Blanket."

Looking forward, at over 5.2 million b/d last year, Canadian oil production could rise to 7 or even over 9 million b/d over the next 20 years.

Canada joins the U.S. and Brazil as the critical triad of non-OPEC incremental suppliers.

As seen by forced production shut-ins in Alberta province, more oil pipelines are essential to alleviate an oil glut that has led to an economic crisis and helped Premier Rachel Notley lose her re-election campaign in April.

For example, first proposed in 2008, the $8 billion, 0.83 million b/d Keystone XL pipeline running from Alberta to Nebraska and then linking to the Gulf Coast is inching along numerous legal challenges.

As for embattled Venezuela, PDVSA's struggle to satisfy the ~250,000 b/d of domestic demand has led to chronic fuel shortages.

Just announced, a $3 billion expansion of Chinese investment in Venezuela's oil industry seeks to raise production by 120,000 b/d, defying the secondary U.S. sanctions that target foreign firms trading with the country.

"China will determine the future of Venezuela," investing nearly $70 billion in the South American country from 2001-2018.

Venezuela's oil shipments to China and via Russia do not offer much financial relief since they are simply IOUs for loans.

The coming IMO 2020 bunker rule, which will reduce sulfur content in marine fuels from 3.5% to 0.5%, could be even more of an albatross for Venezuela's high-sulfur grade.

"​Low-sulphur marine rules to threaten Venezuela oil exports."

The degree of compliance among shippers will surely be high: major ports and insurers will demand that ships use compliant fuel.

Please follow Jude on Twitter

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I am Principal at JTC Energy Research Associates, LLC. I hold a B.A. in International Relations from Penn State University, with a minor in Statistical Analysis. I got m...