Life after Chavez: America’s oil gains could be Canada’s loss – by Yadullah Hussain (National Post – March 6, 2013)

The National Post is Canada’s second largest national paper.

Oil is critical to Venezuela’s earnings, so there could be the potential for a change in approach to foreign investment in the sector
Brent crude prices didn’t move much as traders absorbed the death of Hugo Chavez who ruled the world’s sixth largest OPEC producer, but it may mask a long-term shift that could impact North American energy trading patterns.

“Over the longer term, changes in policy towards the energy sector might eventually allow Venezuela’s oil production to return to the much higher levels seen in the late 1990s,” said Tom Pugh, commodities economist at Capital Economics. “However, any such recovery would take many years.”

Venezuela is home to the world’s largest proven oil reserves of around 296.5 billion barrels, but its production has steadily fallen under Mr. Chavez who diverted Venezuela’s oil revenues to his pet projects and weakened the state-owned Petróleos de Venezuela, which is responsible for developing the country’s enormous riches.

Evan as 40% of Venezuelan oil exports headed towards the United States, Mr. Chavez’ despised Washington’s policies and was actively pursuing a policy to shift exports to China, the Caribbean, Central America and other Asian markets.

“U.S. imports of Venezuelan petroleum products peaked in 1997, at 379,000 bbl/d, and have since fallen to as low as 23,000 bbl/d in October 2012,” the U.S. Department of Energy said in a January note.

Despite severe disagreements, the two countries’ oil industries are “naturally attractive oil trading partners” due to their proximity, according to the U.S. Department of Energy.

“The robust trade in crude oil from Venezuela to the United States is due to the compatibility between the configuration of some U.S. refineries and the quality characteristics of Venezuelan crude, which is predominately sour and medium or heavy.”

This is a worrying development for Canadian crude producers, which offer similar type of heavy crude to the U.S. Gulf Coast refineries, and may lose out if Venezuela reforms its oil industry.

Despite shrinking U.S. oil imports, Canada is now it southern neighbour’s largest supplier of crude, accounting for nearly 30% of all U.S. imports last year. Much of these gains were at the expense of heavier crudes from Venezuela and Mexico.

A long-term reversal in Venezuela oil production could compete with Canada in the United States and even China and Asian markets.

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