“That’s why, in the short term, it is very difficult for Venezuelan oil to displace Canadian oil. In the long term, if the economic incentives are there, it remains a possibility,” says Service Credit Union Chief Economist Charles St-Arnaud.
Amid concerns that Venezuelan oil exports to the United States could displace Canadian oil, Service Credit Union chief economist told BNN that about 10% of Canadian oil is at risk of displacement in the short-term, with logistical and economic factors making it difficult for more to be displaced at this time:
“St-Arnaud explained that while more than 90 per cent of Canadian oil goes to the U.S., the risk of it being replaced by Venezuelan oil depends on which U.S. regions the oil goes to.
He said that 70 per cent of Canadian oil is exported to the refineries in the U.S. Midwest, 10 per cent is exported to the Gulf Coast and another 10 per cent goes to the West Coast.
“The only place where Canadian oil could be displaced is really at the Gulf Coast, where the U.S. could import oil directly from Venezuela to use in those refineries,” said St-Arnaud.
He explains that oil arriving at the Gulf Coast cannot travel north toward the Midwest refineries because the pipeline system is designed to bring Canadian oil from the Midwest to the Gulf Coast.
On the other hand, the refineries on the West Coast have direct access to Canadian exports because they are fed through a branch in the Trans Mountain system.
“So it will be very hard for Venezuelan oil to actually reach that region,” said St-Arnaud.”
St-Arnaud also says Canada should call the United States’ bluff if they try to use the threat of increased Venezuelan oil supplies in trade negotiations:
“He said the Canadian government can challenge this claim because the U.S. would require immense investment to increase production enough to displace Canadian oil.
“So that’s not a guarantee yet,” said St-Arnaud, adding that increased production in Venezuela would also contribute to the current global oil oversupply.”
This is an important reminder that, while Canada faces many challenges and there is real urgency to build new pipelines and energy infrastructure, what we have already built provides us with some resilience and buys us some time to adjust. We should use that time wisely.
Spencer Fernando
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