← Shift Key with Robinson Meyer
Shift Key with Robinson Meyer
Why Trump’s Oil Imperialism Might Be a Tough Sell for Actual Oil Companies
00:52:38
Rob talks about the removal of Venezuela’s Nicolás Maduro with Commodity Context’s Rory Johnston.
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- [00:02]
A
You are listening to Shift Kiki Maps weekly podcast about decarbonization and the shift away from fossil fuels. On this week's show Venezuela, we talk with an oil analyst about what would be involved if the US Actually tried to ramp up production in Venezuela and what it could mean for the energy industry as well as what it could mean for the politics of oil and decarbonization in North America and the world. It's all coming up after this on Shift Key. This episode of ShiftKey is brought to you by Heatmap Pro. You already rely on Heatmap for daily reporting and commentary on the energy transition. That's why you listen to this show. Well, Heat Map Pro brings all of our research, reporting and insights down to the local level. It's a software platform that tracks all local opposition to clean energy projects and data centers. It forecasts community sentiment and it guides data driven engagement campaigns. Go to heatmap News Pro to book a demo and see the premier intelligence platform for project permitting and community engagement. That's heatmap News Pro. Hi, I'm Robinson Meyer, the founding executive editor of Heatmap News, and you are listening to ShiftKey, Heatmap's weekly podcast about decarbonization and the shift away from fossil fuels. It is Tuesday, January 6, 2026, and over the weekend the United States entered Venezuela and captured its president Nicolas Maduro, and his wife, Celia Flores. Maduro was flown to New York City and will now stand trial on several charges, including cocaine trafficking and conspiracy to possess machine guns, which is a peculiar charge for a foreign leader. In court on Monday in Manhattan, he pled not guilty and described himself as still the country's president down the street. On Monday, China and Russia denounced the incursion, while the US Ambassador to the un, Mike Waltz, described it as a law enforcement action to remove an illegitimate foreign leader. Why this comes to our attention, though, is that President Trump has talked about the action in notably energy focused and imperialistic terms, saying that the US Was going to, quote, take back Venezuela's oil reserves. Trump referred to oil about 20 times in his remarks immediately following the invasion, essentially using this idea that the US Would control the Venezuelan oil industry to justify the broader operation to the American public. He even said that US Oil companies would pay for the US Presence in Venezuela. Now, there are a number of issues with this, including the fact that the US doesn't seem to be occupying Venezuela at the moment, but let's step back. Is this even possible? What is Venezuela's current role in the global oil market and what could it be? If Venezuela became a major producer, what would that mean, for instance, for the global balance of power in oil or for say, US Domestic politics, where fossil fuels are both an important consumer good, but also a big industry, a major employer, a driver of economic growth, and also, of course, the cause of climate change. Well, here to talk about all that and more is a returning Shift Key guest, one of my favorites, Rory Johnston. He's a Toronto based oil markets analyst and the founder of Commodity Context. Rory is someone I always like to talk to about how the reality of the oil industry collides with politics. So, Rory Johnston, welcome back to Shift Key.
- [03:28]
B
Thanks so much for having me, Rob.
- [03:30]
A
It's so good to have you. So can you start just by describing, you know, before Saturday, what role did Venezuela play in the global oil market?
- [03:44]
B
Yeah. So actually, let's rewind a couple. Let's rewind even to like earlier this year before Trump took office for a second time. At that stage, Venezuela was producing roughly a million barrels a day, which would put it at the status of a medium sized OPEC oil producer, but far, far lower than it has produced historically and obviously far lower than it likely should be producing given that, as I'm sure listeners have read by this stage, Venezuela boasts the largest oil reserves on planet Earth.
- [04:14]
A
I want to talk about that, but yeah, yeah, exactly.
- [04:16]
B
So the discrepancy there I think is notable and that is largely due to the fact so Venezuelan oil production peaked in the early 70s and late 90s, around three to three and a half million barrels a day, depending on the source you're using. And that, you know, essentially when Chavez came in, nationalized all the aspects of the oil industry and then gradually pushed more and more preferential dealings for international oil companies in the early 2000s, forced international oil companies still operating in Venezuela to put more and more cooperative effort in with pdvesa, which is the Venezuelan national oil company. So from that kind of above 3 million barrels a day level, production steadily fell into the two, two and a half million barrel a day. And then things really collapsed under the watch of Nicolas Maduro following in 201718 the imposition of much heavier oil specific sanctions and sanctions specifically on PDF from the then first term of the Trump administration and then production fell from around two and a half million barrels a day, cascaded lower throughout throughout those following years until hitting a low point of around 300,000 barrels a day at the depths of kind of COVID in 2020. From their production grinded higher through kind of 2021, 2 3, 4 under the Biden administration. And the Biden administration attempted to ease back on the sanctions that were imposed on Venezuela, largely in an effort to get the Maduro government to agree to and facilitate freer and fairer elections. Now, spoiler that didn't work. And the election that was recently held in Venezuela was roundly internationally condemned as kind of a fraud. And the opposition government by all independent observers won that election. Now when we're talking about the Trump administration kidnapping a foreign leader, that is very, very much true. We should also just at the front acknowledge that it was an illegitimate leader regardless of the legality of Trump's actions. Maduro himself was there fraudulently and this is a bad, this was a bad regime. So you understand pieces of what the Trump administration was saying. But the way they went about doing this kind of kidnapping him and his wife in the middle of the night is fairly extraordinary. But just to get to go back to the oil side. So that's the real reason that Venezuela is producing so little is that it has essentially been starved of capital and expertise. So it has these massive reserves, but it doesn't have the ability to import foreign capital to get international oil companies in to do that. And basically so that million barrels a day of production, again it's sanctions still the vast majority of that was traveling and is traveling to China, which is the kind of buyer of last resort for pretty well every sanctioned barrel in the world, be it Venezuelan or Iranian or Russian. They are the kind of least sanction sensitive. The one, except the one exception to this is barrels that are co produced by Chevron, which has a kind of a special deal with essentially a waiver on the, on the sanctions. And those barrels, roughly 150,000 barrels a day, are still traveling to the United States as part of this deal, but all the rest of them are going to Venezuela.
- [07:33]
A
So can you what is Venezuelan oil like? Because I think one thing that's come across in our previous discussions, one like theme in our previous conversations has been that although we talk about oil as a commodity, it is not the same everywhere in the world. When you extract crude, in some places it's more sulfurous, in some places it's less sulfurous, in some places it has more heavy compounds, in some places it's lighter. And that the chemical composition of oil is like quite important for, for what refineries it can go to for where it's useful in the global economy. Where what is Venezuelan oil like chemically? And where does it kind of plug in into different refinery complexes or like Global economic use cases.
- [08:19]
B
Yeah. So there's two main segments of the Venezuelan oil industry. You've got in the west of the country, which is around an area called Lake Maracaibo, where you have essentially shallow water and some kind of shoreside production. And this is largely kind of medium to lighter grades, more similar to what we would see in the US Gulf coast, et cetera. This is an area that's kind of has a longer history to it, but doesn't have the bulk of Those reserve, the 300 billion barrels a day or whatever that Caracas claims. In terms of reserves. The majority of those aren't there. They're actually in the east of the country in an area called the Orinoco Belt, which is actually very similar. It's actually very, very chemically similar to Canada's oil sand. So just again, for those that didn't listen to the first podcast when I was on here I am in Canada. So I do a lot of work with Canada's oil sands. And you have a lot of similarities between Venezuelan crude and Canadian crude in that it is very, very heavy, it has a high sulfur content, so it needs additional refining in order to get a higher yield of those kind of high value products like gasoline and diesel that most refiners make their money off of. It also that kind of weight and kind of gravity and density to it also complicates the logistics of producing and shipping and transporting that oil. You either need to upgrade it, which again similar to what we see in Canada and to like have a lighter grade of synthetic crude, or you need to dilute it with lighter hydrocarbons, what we call diluents, things like condensate and lighter natural gas liquids that kind of turn that really, really sludgy barrel into only a very heavy barrel that kind of is more comparable to say a barrel of Western Canadian select, which is itself a barrel of diluted bitumen. So that extra processing again as we talked about, you need more expensive refining equipment, things like what we would call a coker, which takes those very bottom, what we would call like the residual ends of the refinery slate after kind of that initial distill that would normally be petroleum coke and heavy sulfur fuel oil and things. And it basically takes the very, very heaviest elements of that piece and kind of gives you a yield of lighter stuff that you can still use. So that the end of that you basically have like a big solid lump of petroleum coke, which is essentially petroleum coal. And that is what's left over and that's what you're pulling all of that stuff out, what we call asphaltenes, things that are used in the making of asphalt, all of that gets pulled out and then you're left with a lighter, more valuable grade. But that's part of why as we're going to talk about the needed investment in Venezuela, it's in a lot of this heavier processing equipment and shipping equipment.
- [10:57]
A
Well, and I think that gets at this broader one of the many questions about this whole episode. Right. I mean, I am intentionally, let's say somewhat skirting past some of the political dimensions here. But let's be clear. The US Went in, arrested and or kidnapped a foreign leader who fraudulently stole a recent illegitimate election, which was kind of also a sliding doors moment for that regime. I think where it went from being a sanctioned and problematic regime to being an openly and clearly illegitimate one, that was not going to leave for any reason. Leaving that aside, what's been so interesting from an energy standpoint about this whole episode is the president is President Trump claiming, well, I mean, there's so many things to talk about here, but one of them has been this refrain from the president that the US has done this to go get oil and Venezuela's oil reserves will now become America's in some way, or American companies will now get access to Venezuelan oil and this will lead to American companies basically footing the bill for the reinvestment in this oil. One thing I'm hearing from you is that now, first of all, let's say even before we continue, the regime has been left in place insofar as we can tell. So Delsey Rodriguez, the current interim president of Venezuela, has said some kind of anti American things. There's reporting that she and the regime may have made some backed ordeal with the Trump administration to give preferential access to the US to some of these reserves in the future, but the regime itself still remains in Venezuela. I guess what I'm hearing from you is American companies going in and using this oil as the president claims is going to happen is not just a small thing. This would require tens or hundreds of millions of dollars of investment from American firms into what remains a geopolitically volatile, if not vulnerable situation, to say the least.
- [13:13]
B
Yeah. So let's work backwards in terms of the order, the order in which this is going to happen, because I think we're starting with this question of US Investment. So to kind of ballpark this to get back to a level of, say where Venezuela was a decade ago. So from a million barrels a day to two or two and a half million barrels A day, a decade ago, what would it take to get from here back to there? Because as you note, this industry is deeply, deeply dilapidated. It's essentially been left to rot for decades of underinvestment and corruption and kind of a lack of care really for this operation. Let's just say there wasn't a lot of operational excellence going on in Venezuela over the last little while. So we're talking about 50 to 100 billion with a B dollars and we're talking 5 to 10 years. In order to really get this ramped up in a meaningful way, we need to. Basically every aspect of the Venezuelan oil industry needs reinvestment. You're looking at upstream in terms of the wellheads, talking pipelines, upgraders, refineries, gas re, injection, shipping capacity, all these things kind of have a lot of investment needed. And these are all not cheap things. And as you note, it's not exactly a stable regime. So you know, in terms of a company that's looking to invest, you need a really, really good reason to take that risk.
- [14:37]
A
When you talk about the kind of investment and the expertise needed here, my understanding, and this might be wrong, is that that expertise exists in basically two places, either the Middle Eastern oil firms or the North American oil field services and multinational oil firms. Have we seen any interest and Trump of course says that it's the Americans who are going to go in and do it. So have we seen any interest from an American multinational? Obviously Chevron's there, but an Exxon, a Halliburton, to go in and make that investment. Has there been any sign that these companies are interested in, in that kind of large scale, long term fixed capital investment in Venezuela right now?
- [15:21]
B
I think you've seen a little bit of lip service, but I would say this is lip service more for the White House's benefit than for the benefit of these companies investors at this point. This is kind of like a validation of yeah, absolutely. Thank you so much for getting rid of Maduro. We would love to reinvest. But to your point, there's a lot that needs to happen between now and then as to what that would actually make sense. So first of all, we're going into likely a down cycle in the oil market, first of all. So it's not exactly the moment that people are going to be tripping over themselves to invest in kind of frontier risky assets where there's lots of other things going on. You mentioned ExxonMobil. Exxon Mobil does, has historically had operations in Venezuela, but now Exxon Mobil's Big investment is actually right next door in Guyana. So actually, in an interesting way, this actually does benefit ExxonMobil indirectly, given that one of the weird lingering risks, risks with Guyanese oil production investment is that the Maduro government was really saber rattling around these territorial conquest claims that a large portion of Guyana was stolen from Venezuela. So I think that is, that presumably is going to fall away. So that's a benefit to those companies that are investing in Guyana. And in terms of Venezuela, you're right. So Chevron's there. One of the main reasons that Chevron's there, one of the main reasons that it's able, it's been able to get these sanctions waivers, is that it's there essentially earning back a bunch of debts that are owed to it by the Venezuelan government over a lot of these kind of prior, prior work and previous expropriations. Another company, I think, that isn't currently operating in Venezuela, but does have a $12 billion claim against the Venezuelan government is ConocoPhillips. Similarly, during the 2000s, a bunch of Conoco's assets were similarly expropriated, given that it refused to kind of bow to Chavez's demands. And they just basically took all the assets. So they were awarded, it was 8.8 and a half or roughly a billion dollars in damages by an international tribunal, plus interest. So that $12 billion likely represents that plus interest plus some other claims. But this is something that, you know, of the companies that we could be looking at in terms of going forward that I think would be the next one I look at just in terms of who could be interested. But again, even if, even if that, for instance, is something that's interested, and I should note also that Trump apparently reportedly has said, has told these companies that if you want to see a dime of this money, you have to be the one to kind of invest in and rebuild Venezuela's oil industry. So that's a bit of the carrot and the stick element here that the Trump administrations are trying to use to incentivize US Oil companies to go back in.
- [18:01]
A
In other words, if the Trump administrator, the Trump administration saying, if you want us to enforce these claims on your behalf, you have to invest in Venezuela, like these sovereign claims on your behalf, you have to invest in Venezuela and produce oil so that we, in some sense that could range from Trump family members to the American government to Americans get a slice of the actual production.
- [18:25]
B
Yeah, yeah. So that I think is kind of who we'd be talking about. Obviously, there's also service companies and there could be a bunch of smaller players. I think one of the trends we have seen over the past year is as you've started to see a rollover in the productivity of the US Shale patch, there's been a lot of talk about a lot of these independent or smaller independent companies that have historically only operated stateside. They're beginning to look further afield for other assets, other sources of reserve growth in order to kind of keep that up, given that presumably we're about to see the rollover in U.S. crude production as well.
- [18:59]
A
When you say rollover, do you mean that basically we're tapping out the Permian Basin and other places where for the past 15, 20 years the US has had ample domestic oil reserves that are available pretty cheaply, but now we've kind of tapped out the cheap oil. And so if these companies want to keep producing at current global oil costs, they've got to start looking for cheaper reserves abroad.
- [19:23]
B
Yeah, that's correct. And I want to stress, I think this is a source of economic exhaustion, not one of physical geological exhaustion. There's still lots of oil there. It's just going to take higher prices in order to justify the additional drilling, additional stimulation, et cetera.
- [19:38]
A
Well, and that's one weird thing about this whole episode is that the President has authorized a non congressionally approved military action in Venezuela. The President's then describing it to the world and to Americans in I would say openly imperialistic terms in we are going there to take their resources. And ultimately this is all about the resource. And this seems like as much about a redo of how the President thinks the Bush administration should have approached Iraq where he's like, oh, yes, well, Iraq. Like, I wasn't against the Iraq War. Instead we should have actually taken the oil.
- [20:13]
B
This is actually, yeah, this is a quote that I come back to frequently about, about his reaction to the war. He just seemed like personally confused about why we did all this work. And I'm sorry, you Americans, I'm not, I'm a Canadian, but we weren't in the Iraq War. But why Americans did all this work in Iraq and didn't get the oil, at the end of the day, that seems to like, legitimately personally confuse him. And I think he sees this as like, oh, okay, yeah, obviously if we liberate Venezuela from Nicolas Maduro, we get oil contracts. That's how, that's how all of this works. Right.
- [20:46]
A
What's so funny is that the conspiratorial explanation for Iraq he sees as what should have been the real police, political justification for Iraq. And he's using that to justify the current Venezuelan episode, like incursion, even though it doesn't actually seem to make sense on those terms, because in the background of all of this is that oil right now is $57 a barrel, maybe 58 by the time we release this, maybe 56, 59. But oil is not expensive globally. We are not at an expensive oil moment. In fact, the world seems to have more oil supplied at this particular moment that it knows what to do with. And so just politically, there's a hazard to interpreting all of this through the lens of domestic politics, because you can get quite Machiavellian and sociopathic. But, like, politically, it is very funny. That. Or not funny. It's confounding that a president whose biggest issue is cost of living, inflation, the economy, is justifying this international adventurism on the basis of a commodity that is actually very cheap at the moment, and that is not form like that has actually decreased in price over the past year. And where the president should be saying, look, we have cheap oil. We don't need to worry about this.
- [22:01]
B
Even the political sensitivity domestically is also interesting here, given that, realistically, while obviously, I think in Trump's mind, lower pump prices are always better in all circumstances, there's a little bit of a degree of the prospect curve here that consumers don't really care that much more if gas prices are 250 a gallon versus $3 a gallon, but they care a lot more if it's $4 a gallon rather than 350 a gallon. So there's a lot more sensitivity on the upside, and we're not in that sensitive part of the nominal pump price curve anymore. In fact, we're at the lower end where that prospect curve ends up working the other way for U.S. oil producers that now it's like, if anything, it could be actually in the US Interest for slightly higher oil prices, prices that are high enough to not push and kind of force the US Shale patch into rollover. So I think that's another aspect of this. And I think also you mentioned these very explicitly, kind of imperialistic. I kind of likened it to like a Settlers of Catan board, that he views it as like, oh, yeah, I get your president, therefore I get your resource on this tile. That's not really how it works in any sort of the world. But I think even from the view of US Oil companies, I think actually some of these statements, and we've seen this before, that Trump's public statements create legal liabilities down the road that these companies, if they're looking to invest lots, billions of dollars into this country, they want to make sure that they're on solid legal, contractual ground. That would likely mean that they don't want to be seen as this being a state coerced contract that could be tossed out by some future tribunal or, you know, so far, most of these companies have been on the right side of international law and contract here. They don't want to be on the wrong side of it. I think that is one more element that complicates the kind of re entry here is the feeling of like, what is the basis, the legal basis for these contracts and is that sound looking forward?
- [24:05]
A
So there's this initial reinvestment that would have to happen in Venezuela. One line you hear tossed around from the president, from the federal government and members of the Trump administration, but also I think from outside commentators, is that Venezuela has the world's largest oil reserves. There's some speculation this might not be true, that this is the result of a Chavez kind of the Chavez government reporting astronomically huge reserves to opec, which then passes on the information, like just reports the information as given, and then it winds up, you kind of have this fake fact floating around that Venezuela has these giant oil reserves. So first of all, does Venezuela have the world's largest hydrocarbon reserves, like proven hydrocarbon reserves? And number two, let's say that Trump has made some backdoor deal with the existing regime, that these existing issues are ironed out to actually, you know, use those reserves. What kind of investment are we talking about on that end?
- [25:08]
B
Yeah, the mucky answer to this, like largest reserve question is there's lots of debate. I would say there's a reasonable claim that at one point Venezuela has a lot of oil. Let's just say it that way. Venezuela has a lot of oil, particularly the Orinoco belt, which again, similar to.
- [25:25]
A
The oil sands, this is the Orinoco flow. We're going to call this the Orinoco flow question.
- [25:30]
B
Yeah, exactly that. This similar to the Canadian oil sands. We're talking about more than like a trillion barrels of oil in place, the actual resource in the ground. But then from there you get to this question of what is technically recoverable and then from there, what is economically recoverable. And in many cases, these. The explosion in again, both Venezuelan and Canadian reserve estimates occurred during that massive boom in oil prices in the mid-2000s. And that created the justification for booking those as reserves rather than just resources. So I think that there is ample I mean in the same way like Russia and the United States don't actually have super impressive looking reserves on paper, but they do a lot with them. And I think in actuality that matters a lot more than the amount of technical reserves you have in the ground because as we've seen, Venezuela hasn't been able to do much with those reserves. So in order to how to actually get that operating, this is where we get back to the we're talking tens, hundreds of billions of dollars and a lot of time. And these companies are not going to do that without seeing a track record of whatever government replaces the current vice president as acting president, which I should also note vice president and oil minister, which I think is particularly relevant here. So I think there's lots that needs to happen. But companies are not going to trip over themselves to expose themselves to this risk. We still don't know what the future is going to look like for Venezuela. And at least so far, while again there are reports of backroom deals, but all the public statements out of the new government have been fairly anti American, like you stole our president. It's not a great sign out the gate. I think the other important thing is here, let's just back up for one second here because we're talking really far in the future. I think there's in terms of this other timeline of what's going to happen over the next kind of weeks and months because I think that's the more immediately pertinent question for the oil market and the US's kind of engagement in what, what's going to come next. So I think the most important immediate piece here is that this blockade that the Trump administration had imposed, quarantine. You know, these used many, many different words to describe it. But essentially you floated a massive portion of the US Navy off the Venezuelan coast and you're preventing the export of oil on sanctioned barrels. They've seized two different Venezuelan linked shadow oil tankers. They were chasing a third one for a while until it kind of got away because it painted a Russian flag on the side of its ship. So like they were doing things that were preventing the free export of Venezuelan and that really did have an impact on Venezuelan supply to the market. In December, for example, the average flow export set of tankers under Venezuela fell about 40% from November levels. I think the most immediate question is if this current government can last and it doesn't kind of fully devolve into like post conflict factionalism. Let's assume for a second it stays put and it's just the Nicholas Maduro regime with a different figurehead on top. The next main question is does the Trump administration ease up on this blockade? Because presumably at least what he has said is that the blockade was meant to build pressure against Nicolas Maduro who is now in U.S. custody. So you don't need to build pressure against Maduro anymore. Now he's they've also said both Trump and Rubio have said that this the quarantine will remain in force as a means of building pressure on this admin on the new administration to meet US Demands. Now what are US Demands? No one really knows in this context. It's not like there's a published stated list but we can kind of like from the comments, okay, maybe it means preferential access for U.S. oil companies. Maybe that means kicking out all of the Russian and Chinese firms and expertise that had been investing and helping kind of stabilize the oil industry given the lack of the vacuum of western expertise. So like there's a whole bunch of things this could mean. But I think if the Trump administration wants the new regime to last as a partner in whatever they're planning, they're going to need to let those tankers start flowing again and that will likely result in the near term means more Venezuelan supply on the market than there was in December. So that is going to be bearish for oil prices. All sequel but all those barrels will likely be headed to China given that the barrels still remain sanctioned. Now the next step now we're talking we've gone from weeks to maybe months, three to six months forward. Now it's the question of what happens with the sanctions. By the same kind of token, if they want US Companies to invest in Venezuela, they're going to need to remove sanctions from Venezuela in order to do that and again in order to help both benefit on the US Side and support the new government that once those sanctions are removed that is what will then allow that roughly million barrel a day flow that's larger going to China. Well that will allow it to divert and more more strongly go towards the United States again. Now the United States is a particularly on the US Gulf coast is a much more natural home market for Venezuelan barrels because they're heavy sour barrels and they're literally right across the Gulf on the other side very, very easy and much, much closer than China is. And I think that is this next question. So what we're looking at over the immediate term is what happens with the blockade. The assumption is that it's going to ease up soonish. Let's say over the next month and then going forward in the next couple months, what happens with the sanctions? Again, we assume that they're going to gradually unwind, but that really depends on what the kind of relationship between Trump and the new administration ends up looking like. We still don't really know for sure.
- [31:18]
A
So several things. You mentioned the Gulf coast refinery complex in the near term, or let's say in the medium term, if Venezuela is reopened to some degree to American trade, if sanctions are lifted, is this a massive boon for the Gulf coast refinery complex? Because all those heavy barrels can go to refineries that basically already have the equipment on hand to refine because they are used to processing Canadian crude, which is quite similar. As you were saying, is it good for them maybe at the like, is it good for the Gulf coast refineries, maybe at the expense of American drillers or Canadian drillers? Like, what does the how does this affect kind of the rest of North American oil dynamics?
- [32:03]
B
Yeah, excellent question. I think the does it help us Gulfless? Yes, I think more supply availability will mean more competition, which will mean lower prices for those refineries. But I think when people hear that, they think it's like, oh, you know, they're going to get it for $20 a barrel cheaper or something. We're probably talking a couple dollars a barrel. Now that's helpful, no doubt, but it's not the kind of like existential life or death kind of shift in pricing that I think a lot of the commentary is implying. Now, to your point, who is that mainly going to hurt less? So US Drillers, because that's going to be the light sweet grades, those are largely being exported and not consumed by the US Gulf coast refineries.
- [32:47]
A
And actually, if you had more heavy crude, could you just increase your demand for light sweet crude and then mix them together To a degree for sure.
- [32:55]
B
Although again, I think the US Gold coast actually has enough heavy sour already. And actually this is where we come into the Canadian export element here, which is again, this is where this is.
- [33:04]
A
The next question is this there's some speculation that this is all so that Trump can have leverage when he's negotiating with Carney because it allegedly would decrease the amount of oil that the US Would need from Canada. Do you think there's any credence to that?
- [33:19]
B
So the first thing I'll say in like the thrust of substance. No, but let me explain why. To my point, the US Gulf coast appetite for heavy sour was largely already satiated without Venezuela's barrels. So this is mostly about them getting an even better deal than they are already getting. And we know that the demand for heavy sour was satiated because the prior to the startup of the Trans Mountain expansion in Canada, which diverted some flow from the Gulf coast out the west coast, but prior to that we saw all the incremental export of Canadian barrels to the US Gulf coast were not being consumed in the Gulf coast but were rather being re exported. So basically making it all the way down to Houston and then jumping on a tanker from Houston, then, then going largely to India actually. So that was actually again just to how wide and far these supply chains can stretch. So it's not like they were in desperate need of the barrel. But I do think that yes, this is going to mean that they get a slightly better deal given that increased kind of incremental competition. And that does hurt Canadian exporters on the margin. Again, we're probably talking, let's say you shift from four or five dollars a barrel differential to maybe six or seven, maybe a little, maybe a little bit wider, but not like huge because it doesn't take actually that much cost to ship a barrel all the way around the world on a tanker. So a lot of this stuff becomes fungible to some degree given a couple dollars of pricing wiggle room on either side. But to this question of, you know, does this, as I've seen many claim quote like Neuter Mark Carney's negotiating position in the renegotiation of USMCA or as Canadians call it, Kuzma because everyone has a different name we call this thing. But in terms of what actually, sorry.
- [35:11]
A
Oh, I see.
- [35:12]
B
We just put, we just put the C up front instead of, instead of later. But yeah. So what does it mean for that? I think that there was always an overstatement of the degree to which oil played into these negotiations in the first place, given that oil was, I mean it was threatened to have sanctions or tariffs put on it and at the end of the day they, the White House ended up bending to pressure from virtually every single person with the connection to the industry be like this is a terrible idea. I think there's another thing here that.
- [35:44]
A
I really want to see still the 10% energy tariffs though on Canadian US oil.
- [35:49]
B
Technically yes, but all of those flows are exempted under USMCA exemptions. So functionally, technically, yes. Functionally, no. And that again is part of this challenge. I don't even know if you could find the 10% tariff in any statute or any kind of rule written down anywhere. But as far as I'M aware it hasn't been repealed, but I think this is the other thing is that in terms of more forcible competition with Canadian crude, the other important thing to note here is that the vast majority of Canadian crude exports don't go to the US Gulf coast, they go to the US Midwest. And there's no real way for Venezuelan barrels to get from the US Gulf coast north to the Midwest because all the pipelines point south. Now people have been like, well, you could just build more pipelines. Entirely true. I want to stress that in the oil market and in all commodity markets, virtually anything is possible. We're really good at this stuff. We have a lot of capacity to do really crazy things. But a far smaller set of those things are economically viable and an even smaller set are actually profitable. So there was during this time last year when we were talking about tariffs and Trump saying that we don't need Canadian oil and everything else, there was this discussion, like a very serious discussion that the White House was having with industry presidents about, okay, what would it take to convert the entire U.S. refining fleet to run on domestic light sweet oil. And the answer is hundred, two hundred billion dollars in a decade plus of work. Like, sure, it can get done, but it would be for no actual gain. So you could do it, but for what? And I think the same exact thing applies to the question of Venezuela. So if in a crazy kind of like Risk meets, like Settlers of Catan World, where, you know, Canada's not going to be the 51st state, Venezuela is going to be the 51st state.
- [37:42]
A
I keep wanting to compare things to Paradox Interactive, but actually I think Paradox games tend to have a more realistic understanding of resource extraction dynamics than what you're describing. Maybe it's, I don't know if you know these, but it's.
- [37:55]
B
I do, I do, but no. So I think yeah, any, all of this is possible, but again, who is going to pay for it? The companies that Trump expects to do this have no financial incentive to do so. So yes, there could be some kind of like political pressure that you do see something on the margin, but again it's not going to be like a full throated endorsement of this is like a shift in corporate strategy.
- [38:18]
A
It does seem though like it, it further increases the impetus for Canada to continue building out transcontinental pipeline just from a geosecurity economic security standpoint so that it can do something with its own crude. If the US were to continue to look for alternative, like the US continues to kind of make erratic and unpredictable decisions in the energy sphere. And it seems like Canada would like an insurance policy of being able to export its own crude along its own Pacific coast. And this seems like it's only going to make it more likely that Canada continues to pursue that word.
- [38:57]
B
Straight out of my mouth, Rob, because I completely agree. And ever since the kind of threats of tariffs on Canadian crude last year, it's something I've been heavily, heavily pushing for in the Canadian discussion, which is there is already the discussion on the commercial necessity of another pipeline because Canadian production continues to grow and we want to avoid bottlenecked exports and bloats and differentials on the Canadian side of the border, et cetera, et cetera. But I think on top of that, there is a strategic kind of imperative here as well, that during that debate around tariffs last year, one of the big challenges is that while many different kind of exporters of goods into the United States, most of the research showed that either U.S. firms or U.S. consumers were eating the bulk of that tariff increase. But that likely wouldn't have been the entire case in the case of oil, because there is a kind of a mutually dependent relationship that we probably, it probably would have been closer to 50, 50 in terms of the tariff split. Now, I think that the only way to insulate or kind of build resilience against that is increased optionality, which in this case means a pipeline to not the United States. Now, you could go Canada has three coasts. We could go to the Arctic, we could go to the east coast, but those are more expensive and more questionable in terms of their commerciality. But west obviously makes a lot of sense. You're going right into the Pacific Basin. You're going right into the primary area where you're still seeing a lot of oil demand growth in Asia. China has recently superseded the United States as the primary importer of Canadian crude shipped out the Trans Mountain pipeline, a fact, by the way, that is only going to become likely more true if China stops consuming as much sanctioned Venezuelan crude. So again, there's both this kind of strategic rationale and there's going to be a very natural commercial pull effect at the same time. So all of this is happening. And again, for those that don't follow Canadian pipeline politics super closely over the last couple months, the big story in Canadian oil has been this memorandum of understanding between the Carney government in Ottawa and the Premier Daniel Smith government.
- [41:10]
A
We need to have you on in the future to discuss this because this is to some degree even more relevant, I think, to American climate politics than whatever this mess is in Venezuela. But yes, yes.
- [41:21]
B
So just as you know, we'll have a full conversation on this later. But like, exactly, we're going to, we're.
- [41:25]
A
Going to talk about this in the Future.
- [41:26]
B
Yeah, the 30 seconds is basically that Carney wanted higher industrial carbon taxes and carbon capture and sequestration and the Alberta government wanted a 1 million barrel a day bitumen pipeline to the west coast or heavy oil pipeline to the West Coast. And I think this is one of those things that there was already debates around. Okay, well, what is the argument for this pipeline? Is it commercial, is it strategic, et cetera, et cetera. This is all that we're seeing right now in the likely now increased competition in the U.S. gulf coast, just as one more piece of an argument for that pipeline to be built. And I think that there's also this question of like, should it be entirely commercial or should there be some kind of government involvement in this pipeline? Obviously already the Alberta government is one that's going to submit the proposal to Canada's major projects office, et cetera, et cetera. But I think the strategic kind of sovereign risk level elements are not something that private companies can really value themselves. It's not a value per se to their shareholders. And these companies are largely prevented from entire industrial cooperation because of antitrust laws. So it needs to be something else. It needs to be some kind of government level actor that puts a value on the strategic optionality. And that I think is something that this argument that we're having right now really bolsters as well.
- [42:47]
A
I want to ask one last question which is I have seen the argument that what this Venezuelan incursion is actually about is, yes, opening up the huge amount of Venezuelan reserves and maybe getting the global price of oil so low or unlocking so much global oil supply that the US is able to push back in some way against an increasingly seemingly Chinese led energy transition. There are different parts of this question that I would obviously kind of want to complicate the premise of. But I want to ask you, does that seem plausible to you as all, is there some future here where the US threads the needle on, on regime stability, on getting a more international investment in Venezuela and is able to unlock some new equilibrium of global oil prices in a way that makes fossil fuels even more competitive with batteries or EVs or are you just always going to be constrained by various other marginal producing prices around the world and you're going to have a hard time pushing much past 50 or I don't know, 45 given the geological resource.
- [44:04]
B
Yeah. So like, let's just first deal with this premise that this is like a conscious strategic policy from the Trump administration. On that front, I would generally say that I'm probably slightly less charitable even in the kind of like Machiavellian kind of grand strategy here, that I think that rather than this being a concerted policy to make oil cheaper, I would say it's more the fact that oil is cheap right now because of actions that OPEC largely took last year by unwinding its production cuts, which has facilitated this degree of kind of aggressive foreign policy that Trump is now pursuing. I think that. But in any other world where oil markets were tighter, you would not have seen Trump drop 14 bunker buster bombs on Iran last summer and you wouldn't have seen a blockade of Venezuela and you wouldn't have seen sanctions against Rosneft and Lukoil in Russia. All these things have actually maintained the oil market far tighter than it otherwise would be right now. So right now, as you're noting, like we're sitting around $60 a barrel on Brent. If it wasn't for these various sanctioned kind of entities and kind of dislocation which is manifested as a massive buildup of oil and water that can't really get where it's supposed to be going, which is functionally a loss of effective supply for the market. If it wasn't for that, prices would be way, way, way lower than they are right now, probably sub 50. And I think that that is something that so far, I think just to this point, that I think that the low prices are facilitating Trump more than Trump is some kind of grand strategist at getting oil prices lower. Now, yes, I think net, long term, a Venezuela that is not run by a corrupt, incompetent Chavista government is going to be negative or is going to be positive for Venezuelan oil supply and thus negative for long term oil prices. I think that is absolutely true. But as we've noted so far, it's still a Chavista government and we don't have any immediate kind of visibility on how that government is going to prove to International Capital that it is going to be a good partner given a very long history of being a very, very bad partner. In fact, I saw an estimate the other day that basically put Veniceville at the very, very bottom, the, the last place of major oil producers in terms of attractiveness of investment, given the policies. And again, even it wasn't for sanctions that you have to partner with pd, you have, they have extremely high taxes and royalties. You have all these things that would need to change if you were to really want Venezuelan oil production to rise. Now, this could, these could be part of what Trump is talking about in terms of these demands that the new government has to meet. But again, we're still in such early days, we don't know if any of that's actually plausible, if they're actually going to play ball on that. And again, someone asked Trump on Air Force One, it was like, who's running Venezuela right now? And he's like, well, you're not going to like the answer because it's us. And the challenge is that if he thinks that, that's going to be really problematic for any companies that are operating in Venezuela, because Venezuela is a largely jungle country historically, the United States does not have a good track record of insurgencies in jungle countries. I think that's a really, really challenging thing to pull off. And I don't think he has the appetite for that kind of, of engagement. So I think he's going to keep brow, he's going to keep brow beating Caracas, but at the end of the day, he has to play ball with them. So it's going to depend on how willing they are to play ball.
- [47:39]
A
Right. And I think that's what one of the lessons I've tried to wrap my head around here is that on the one hand, it seems like the Trump administration is willing to use the military to execute Trumpist international goals, potentially illegally, far beyond at least what the first Trump administration was interested in doing. At the same time, he doesn't really seem to have any interest for the hard parts of that. And a lot of his goals would require, including potentially what we thought his goals were around Venezuela would require either a long term occupation or some kind of effective regime decapitate, like removal. And so you wind up with this odd dynamic where he's both lying, as always, but bringing his own goals down. Right. The Trump administration has brought its own goals for what it seemingly wants out of Venezuela down to where it's not even clear what they're getting out of what they just did, at the same time that he's willing to use the military to execute those goals, even though they have no relation to how he initially expressed them or how he initially justified them totally.
- [48:49]
B
And I think in the same way that we were kind of referencing his comments about Iraq and like, why didn't we get the oil? I think the way that I was viewing this, and the way I am still viewing this in terms of Trump's appetite for engagement is through the lens of what we saw in Iran in June. That in the same way that no other president would have used the US military to drop 14 bunker buster bombs on three different nuclear sites in Iran. Arguably, if you had just said that that happened in a vacuum to like someone a couple years ago, one their heads would blow up and they're like, okay, so oil prices went to a million dollars, but no, you got an immediate spike on the Monday following those strikes. And then immediately after that he basically said, and now we're going to sign a peace deal. And then prices dropped by more than $10 a barrel by the end of that day. So he has a tendency to do the unilateral, flashiest, kind of made for TV move followed by an obvious lack of appetite for the hard, dirty follow through work of actual regime change or occupation or counterinsurgency or any of these things. So I think that he's going to try and figure out a way to like an off ramp on this pretty quickly. And I think what we've already seen is that he seems very willing to work with the acting president on achieving these goals, often to the point of actually saying that the leader of the opposition, Maria Machado, quote, doesn't have the respect of the Venezuelan people, even though her party, the opposition party, won in the elections, even though she was not in the elections because Maduro prevented her from running. But I don't know if that's evidence that she doesn't have to support again, given that her candidate won. So it's one of these things that like they're choosing to go with the regime that they've been demonizing and that many members of that regime are still wanted on tens of millions of dollars of DEA rewards, seems very willing to work with them as long as they are willing to play ball. And I think this is this question over the next couple weeks is like are they willing to play ball?
- [50:51]
A
And also is playing ball mean playing ball with putatively American interests or simply with Trump family corrupt interests?
- [50:59]
B
Also that and on that front we have no idea. Right. We've seen reports that you already have a couple like groups of Wall street and hedge fund types that are interested in going down and viewing the investment and everything else. But again, I think this is on the one hand, I think this is probably more lip service to the White House, like, good job, Mr. President, you've done great to open up these investment opportunities for us. But I also think that in many cases Venezuelan debt on various ways is trading at 30 cents on the dollar. You're going to have a lot of distressed debt investors that are very interested in getting in at these prices. And you're going to have a replay of there's a long history of US Hedge funds trying to get distressed debt secured from Latin American countries. This is, I think, yet another example of what we're going to see there.
- [51:45]
A
Well, there's so much more to talk about. We're going to have to leave it there. Rory Johnson, thank you so much for joining us. This was great as always. We've got to have you on to talk about, actually, Canadian politics next.
- [51:56]
B
Vt. Robin, thanks, because in some ways.
- [51:58]
A
That'S the more I feel like that's going to shape a lot more domestic climate politics maybe over the next few years than whatever just happened in Venezuela. Thank you so much for joining us and we'll talk soon.
- [52:10]
B
Thanks so much for having me.
- [52:12]
A
Thanks so much for listening to this episode of Shifts Key. We'll be back next week with an all new episode. Shift Key is a production of Heat Map News. Our editors are Gillian Goodman and Nico Loricella. Multimedia editing and audio engineering is by Jacob Lampert and by Nick Woodbury. Our music is by Adam Kramolow. You can follow our Venezuela coverage and our coverage on everything else at heatmap News. See you until then. Next week.