Yesterday, the US attacked Venezuela and captured its president and his wife. This move has significant implications not only for Venezuela and its people, but it also stands to have significant consequences for Alberta and its oil industry.
To put it mildly, this has major implications for Alberta separatists, and in particular those who are in a great big hurry to make Alberta "the 51st State". Let's talk about that.
Whether the US installs a puppet government, or allows Venezuela to enter into "free elections" doesn't really matter. What matters here is the Americans ability to gain control not just of oil production in Venezuela, but also to control the markets that Venezuela sells its output into. This will grant the US de facto control over what they want most from Venezuela - its oil.
Why Venezuelan oil in particular? Well - the short answer there is that Venezuelan crude is virtually identical to Alberta crude - heavy, sour, and difficult to process. The US refinery complex is largely built around processing that heavy sour crude. The US has its own crude oil production, but it exports most of it because it's light sweet crude that sells on the open market for higher prices, and its refinery capacity isn't designed to handle light sweet crude.
So, how does this affect Alberta separatists? Buckle up, this is a doozy.
As noted in the article above, the majority of US oil imports come from Canada - and Alberta in particular. In fact, this observation is central to the assumption that separatists make that a sovereign Alberta will be "just fine" economically - they presume that the US will continue to import crude from Alberta at current volumes with growth. It's a really nice story at first, but it has a few problems.
With control over Venezuela's oil, the US can play any number of games which will be detrimental to Alberta, and in effect will give them control over the market.
The simple scenario is for the US to simply mandate that the heavy/sour crude it imports has to come from Venezuela. Yes, Venezuela's crude production is currently about 1/4 that of Alberta's right now, but that's a time problem. This move would effectively shut Alberta's oil patch out of its primary market.
The next scenario is a bit more subtle. The US enables Venezuela to produce a whole bunch more heavy crude, which it could then dump on the market, softening prices for heavy crude in general. This will inevitably create a serious problem for Alberta producers who will suddenly find that they are producing oil at prices that are below the cost of production.
Just as the US oil patch is facing down a softening market for much of its domestic crude production (a result of other factors in the market), we have to recognize that if a flood of Venezuelan production were to land on the markets, it will impact the viability of Alberta oil production (most of which has a floor price for profitability that is quite high - running somewhere around $50 USD / bbl on the low end. That means at anything below $50 / bbl, Alberta production is being sold at a loss - even right now, the price for Alberta crude is getting perilously close to that threshold.
So, how does this impact the separatists? Among other things, a lower price means that Alberta will garner less government revenue from royalties, and frankly, expanding production when the market is being flooded with cheaper product from a rival source rapidly becomes impractical.
If I were an Alberta separatist, I'd be really worried about this prospect. Consider the $500 billion line of credit that the APP is currently trying to get the US to promise. In the current conditions, that's already handing a huge lever to the US, but if the US also happens to control a rival source of crude, it turns into a cudgel.
Second, this situation weakens the bargaining chip that the Separatists are depending upon in negotiating their line of credit. They are assuming the US will be dependent on Alberta oil indefinitely - which is a large bargaining chip if true. The US has just turned the tables on that, enabling them to demand much more favourable terms for any line of credit they might extend to a newly independent Alberta.
In other words, by attacking Venezuela, the US has suddenly turned the tables on Alberta Separatists - smiling to their faces, while preparing to knife them the moment their backs are turned.
Without the oil card to play, an independent Alberta suddenly becomes a very vulnerable power on the stage - it has a woefully small population for its size, and frankly would be quite trivial for the US to take over with a small military force. The odds of a "Free Alberta" remaining free for very long after declaring independence are slim at best. The likely outcome would not be integration with the US, but rather becoming a "protectorate" or "territory" of the US - and the American track record for how it treats such territories is appallingly bad.
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