The United States intervention in Venezuela and seizure of the country’s president immediately raised questions about what impact American stewardship of the oil-rich nation could have on demand for Canadian bitumen.
But Werner Antweiler, an associate professor at the University of British Columbia and expert on international oil economics, argues it won’t make a new pipeline from Alberta to B.C.’s coast any more necessary, or economically viable.
He called the arguments otherwise “opportunistic.”
“They will find any reason to make their political case, but that is not the same as making an economic case,” Antweiler said.
Shifts in the market reflect future expectations, but Antweiler says the circumstances on the ground in terms of oil production haven’t changed. That will take years and require a much larger political transformation.
Alberta Premier Danielle Smith had said earlier in the week she thought the situation increases the urgency of expediting projects to diversify and expand oil exports — including a new pipeline to the West Coast, according to the Canadian Press. Smith signed a memorandum of understanding with the federal government in November to explore a possible pipeline project.
Premier David Eby opposes this push and responded to Smith’s latest comments on Tuesday by arguing that no private proponent has stepped up to pay for a pipeline, and the only way to make one happen would be with massive public subsidies.
Eby called for promoting energy independence, but suggested it would be better to spend public funds to increase Canadian refining capacity. He said this could satisfy domestic and demand and be shipped abroad.
“It’s something we should be talking about,” Eby said. “As opposed to shipping raw resources out as quickly as possible.”
But Antweiler takes issue with this plan as well. He said Eby is “misunderstanding” how refinery economics works, and that it is a lot easier to ship crude oil than gasoline.
“You build refineries to satisfy our local demand,” Antweiler said. “If the local demand isn’t there, it’s not going to pay off.”
The last major Canadian refinery to come online — Canada has 17 total — was the Sturgeon facility built north of Edmonton. This was built with substantial public investment, but has turned into a financial boondoggle.
Anweiler says a better option would be to upgrade the current Trans Mountain pipeline and dredge Burrard Inlet to allow more oil to be loaded onto ships, lowering costs. Eby is supportive of these types of plans.
Real impact of Venezuela situation on global oil markets a long way off
The idea behind building a new pipeline is to transport oil to tidewaters more cheaply. This would diversify trade and make Alberta oil more competitive, particularly important if the market was suddenly flooded with Venezuelan oil.
But Antweiler said it is unlikely Venezuela’s oil industry can ramp up production and push the price down any time soon.
He said the country’s oil infrastructure has been “ruined” by years of corruption and mismanagement. Experts estimate this could require as much as $100 billion to fix.
President Donald Trump met with oil executives at the White House on Friday to try to drum up that investment, according to U.S. news outlets. But Antweiler said companies will likely be reluctant to make an investment when the next U.S. administration could lose interest.
And even if that investment is made, it may be years before the gains are realized. Antweiler said Venezuela produces fewer than 1 million barrels per day, down from a peak of more than 3 million 30 years ago.
“Anyone who’s suggesting you could just flip the switch and crank up the production from 1 million to 3 million barrels today, that’s completely unrealistic,” Antweiler said.
This is also a small fraction of global oil production, currently about 100 million barrels per day.
Another problem facing long-term investors is that “peak oil” is likely already reached amid flattening worldwide population and decarbonization efforts in major economies such as China.
“In China, every second car that is now being sold is either electric or hybrid electric,” Antweiler said.
But Smith continues to push for a new pipeline. Antweiler says this is partly because Alberta has a “chip on its shoulder” that dates back to Pierre Trudeau’s National Energy Plan.
“They want this pipeline no matter what,” he said. “Even though it doesn’t make economic sense.”