Can the US Replace Canadian Oil with Venezuela's?

TL;DR

Even if the US absorbed 100% of Venezuela's current oil output of around 1 million barrels per day, it would represent only about 17% of America's crude oil imports, versus the 65% Canada supplies. Venezuela's production has fallen over two-thirds from its 3.5 million barrel peak, and US Gulf Coast refineries lack the spare capacity to immediately swap out Canadian heavy crude.

Transcript

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 fac... Read More

Key Insights

• Venezuela sits on the largest oil reserve in the world, holding a fifth of the world's total proven oil reserves, yet its production today accounts for just around 1% of global output after collapsing under mismanagement, sanctions, and corruption.
• Oil makes up about 80% of Venezuela's exports, which is why many believe the US capture of Maduro was really motivated by oil rather than Trump's stated crackdown on the fentanyl crisis, given Venezuela's relatively minor role in America's drug problem.
• Venezuela's oil production peaked at around 3.5 million barrels per day but has fallen by over two-thirds to roughly 1 million barrels per day today, driven by economic mismanagement, corruption, sanctions, and a mid-2010s oil glut.
• Canada supplies around 65% of America's crude oil imports, so even if the US absorbed 100% of Venezuela's current output, that would still only equal about 17% of America's total crude imports, far short of replacing Canada.
• Canada and Venezuela both predominantly produce heavy sour crude, a thick, high-sulfur oil that is harder to refine and yields lower-value products like asphalt and industrial fuels, making the two theoretically substitutable at US heavy-oil refineries.
• US Gulf Coast refineries in PADD 3 have a cumulative capacity of 9.8 million barrels per day but run at 90% utilization, meaning America lacks the spare infrastructure to immediately substitute its Canadian oil imports.
• Canada's oil is effectively landlocked, produced mainly in Alberta with most pipelines directed to the US, where the country sends 80% of its produced oil, leaving it heavily exposed to any shift in US import sources.
• Chevron is the only US company that has maintained operations in Venezuela through joint ventures, after firms like Exxon Mobil and ConocoPhillips were bought out of their operations for a fraction of their worth during the 2007 expropriations.

Questions & Answers

Q: What happened to Venezuela's president Nicolas Maduro?

Last Saturday, in the middle of the night, a US Delta Force team invaded Venezuela and captured President Nicolas Maduro over a span of just 2 hours and 20 minutes, extracting him to New York to face US federal charges. Maduro and his wife were brought to New York, where he pleaded not guilty to charges of narco-terrorism conspiracy, cocaine importation conspiracy, and possession of machine guns and destructive devices.

Q: Why do people believe the US invasion of Venezuela was really about oil?

Oil is one of Venezuela's main industries, making up about 80% of the country's exports, and Venezuela sits on the largest oil reserve in the world with a fifth of the world's total proven reserves. While Trump attributed his actions to a crackdown on Venezuela's role in the fentanyl crisis, many believe the real motive is oil, especially given the country's relatively minor role in America's drug problem and Trump's subsequent moves to develop its oil output.

Q: How much oil does Venezuela currently produce compared to its peak?

Venezuela's oil production peaked at around 3.5 million barrels per day but has fallen by over two-thirds to just around 1 million barrels per day today. Despite the country sitting on a fifth of the total proven oil reserves globally, its production now accounts for only about 1% of the world's total output, a collapse driven by economic mismanagement, corruption, sanctions, and a mid-2010s oil glut.

Q: Can the US realistically replace its Canadian oil imports with Venezuelan oil?

It is unlikely in the near term. Even if the US absorbed 100% of Venezuela's current output of around 1 million barrels per day, 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 imports. The US also lacks the immediate refining infrastructure to substitute its Canadian oil, as Gulf Coast refineries are already running at high utilization.

Q: Why is Venezuela's oil considered similar to Canada's?

Canada and Venezuela both predominantly produce the same type of heavy sour crude oil, a thick, hard-to-extract oil with a high sulfur content that is generally harder to process than sweet light oil and produces lower-value end products, commonly used for asphalt and industrial fuels. The US has long built much of its oil infrastructure specifically to handle and refine this type of heavy oil, making the two theoretically substitutable at America's heavy-oil refining facilities.

Q: Why is Canada's oil industry especially vulnerable to this situation?

Canada's oil is effectively landlocked, with production occurring predominantly in the middle of Canada and Alberta. While some infrastructure reaches the west coast, most pipelines are directed toward the US, where Canada sends 80% of its produced oil and about 97% of its oil exports. Attempts by Alberta to expand pipeline capacity westward have long been held up federally and by British Columbia, leaving Canada heavily dependent on US demand amid trade war tensions and 51st state comments.

Q: What limits the US Gulf Coast's ability to swap in Venezuelan oil?

The US is divided into five petroleum administration for defense districts, or PADDs. The Gulf Coast refineries in PADD 3 have a cumulative capacity of 9.8 million barrels per day but are only at 90% utilization. This means the US does not actually have the spare infrastructure to immediately substitute its Canadian oil imports, even though Canadian and Venezuelan heavy crude could theoretically be refined interchangeably at those facilities.

Q: How did Venezuela's economy deteriorate under Maduro and before him?

Venezuela nationalized its oil industry in 1976, creating state-run PDVSA, and expropriated foreign assets in the 2000s. Under Chavez and then Maduro, elected in 2013, the country eroded democratic institutions and faced mismanagement, corruption, and sanctions. In 2019, the US imposed a complete embargo on transactions with PDVSA. As a result, Venezuela's GDP contracted to less than a third of its size from 2012 to 2025, and the country experienced hyperinflation with prices rising by hundreds of thousands of percentage points.

Summary & Key Takeaways

• Last Saturday, a US Delta Force team invaded Venezuela, captured President Nicolas Maduro, and extracted him to New York to face federal charges including narco-terrorism conspiracy, cocaine importation conspiracy, and possession of machine guns and destructive devices, over a span of just 2 hours and 20 minutes.

• Trump quickly shifted focus from drugs to oil, announcing the US would send large oil companies to rebuild Venezuela's neglected infrastructure, take and sell 30 to 50 million barrels, and control the country's oil sales indefinitely, raising fears Venezuela could displace Canada as a US oil supplier.

• Despite the hype, the numbers show replacing Canada is unrealistic in the near term: Venezuela produces only about 1 million barrels per day, US Gulf Coast refineries are already at 90% utilization, and Canada still supplies roughly 65% of America's crude imports.