Thank you very much for inviting me to participate in the hearing this afternoon.
I'm pleased to represent the University of Calgary School of Public Policy and the Haskayne School of Business. I have 25 years of experience as an analyst of global energy geopolitics at Eurasia Group and at the Columbia University Center on Global Energy Policy. Venezuelan energy has been a consistent area of focus throughout this time.
My perspective and expertise focus on the energy market, particularly the oil market and the refined petroleum products market, which are very significant factors in the outlook for Venezuela. I would like to make three points in my opening comments today.
The first point is that Venezuela's oil sector recovery is very closely linked to global oil market conditions. This involves the overall level of spending across all oil and gas investment and where Venezuela sits from a competitiveness perspective versus other upstream opportunities around the world, including Canada, the U.S. and elsewhere. This is important because the Venezuelan government and its national oil company lack the financial and technical resources that countries like Saudi Arabia or Norway have to develop their own resources directly without reliance on international investors.
Despite the current situation with high oil prices and uncertainty in the Strait of Hormuz, overall, the upstream oil and gas investment is much weaker now than it was 25 years ago during the high-water period of Venezuelan oil production around the time the Hugo Chávez government took office. Industry's appetite for frontier-type, high-risk investments is much lower, and there's a preference for U.S. shale and other projects like the oil sands and deep water that are a bit lower-risk. This reduces the possibility that Venezuela will be able to increase its production from the current one million barrels a day or so up to the 3.5 million barrels a day level that it had in the late 1990s.
The second major point is that the private sector and capital markets are not the only factor here. There's also the question of the U.S. government's commitment to rebuilding Venezuela's oil sector, which is linked closely not just to a strategy for Venezuela but to its larger national security strategy towards the western hemisphere. The point is that Venezuela's oil sector recovery is unlikely to be left to the free market alone. The Trump administration will likely provide risk guarantees, low-cost capital and even some form of physical security to oil companies re-entering Venezuela. Whether that's enough to trigger new foreign investment remains to be seen.
The Trump administration likely views Venezuela as a long-term oil resource for U.S. markets. They will also see oil as the key to consolidating a new U.S.-friendly successor government to Maduro. They certainly want to avoid a scenario where Russia and China regain influence or, as other experts have discussed here, the country descends into some kind of unrest due to a lack of basic services. Oil is a factor that can help mitigate all those risks from a U.S. perspective.
Notwithstanding geopolitical entanglements in other parts of the world, the Trump administration will try to deliver the necessary conditions for an oil recovery in Venezuela—capital, security, labour, materials—and, importantly, try to create a stable, recognized government that can both implement and uphold the rule of law around petroleum. It's a very tall order overall, but one that Canada should watch closely.
Lastly, for Canada specifically, a potential uplift in Venezuelan production is significant. An additional 500,000 to one million barrels a day of oil production from Venezuela would change the prices we receive for our oil on the U.S. gulf coast. It would also change the business case for a project like Keystone XL, which would build deeper links between Alberta and the U.S. gulf coast. It would not eliminate the case for that project entirely, but it would change the economics.
At the same time, a reduced flow of Venezuelan barrels to Asia would also increase demand in that market for Canadian heavy oil, and that would be further exacerbated by disruptions in heavy oil from countries like Saudi Arabia and Iraq right now. As such, efforts by the provincial and federal governments to pursue additional west coast pipeline and export capacity appear well founded.
Thank you for the opportunity to share my thoughts, and I look forward to your questions.