OPIS Insights

Canada entered the new year amid a number of energy and climate policy developments. Federal and provincial leaders advanced new frameworks for oil and carbon policy, global events reshaped energy geopolitics and markets began to recalibrate expectations over Canadian competitiveness. These moves are an important moment for how the country positions its oil sector, carbon pricing architecture and its role in global energy supply. A new federal-provincial agreement has redefined the relationship between oil development and climate policy at the same time when events in Venezuela required Canadian leaders to confront urgent questions of market access, competition and energy security.

Venezuela and the Return of Geopolitics to Oil Markets

On Jan. 3, the US carried out a military operation that resulted in the capture of Venezuelan President Nicolás Maduro. The Trump administration signaled its intention to take control of Venezuela’s oil industry and encouraged U.S. companies to revive production after years of sanctions, underinvestment, and operational decline. Venezuela holds the world’s largest proven crude oil reserves, estimated at roughly 303 billion barrels, or about 17% of global reserves. Production has fallen to roughly 1.1 million barrels per day, though stakeholders suggest that could double or even triple with sufficient capital and political stability. Still, a recovery would take time and sustained investment. U.S. officials estimate it could take at least a year before oil companies begin making meaningful infrastructure investments amid ongoing corruption and political instability.

For Canada, the issue is not Venezuela’s long-term potential but its near-term implications across specific U.S. refining regions. Venezuelan heavy, sour crude directly competes with Canadian oil sands barrels in U.S. refineries optimized for heavier grades, especially along the U.S. Gulf Coast. Venezuelan crude shipped to Louisiana refineries would likely be relatively cheap and easier to deliver by tanker than Canadian barrels constrained by pipeline capacity. Even modest increases in Venezuelan supply could therefore displace Canadian oil in the Gulf, Canada’s largest export market. At the same time, Canadian heavy crude remains more insulated in the U.S. Midwest, where refineries such as those in Minnesota are structurally tied to Canadian supply through pipeline infrastructure and processing configurations. These facilities rely largely on Canadian heavy crude, often blending in smaller volumes of domestic sweet crude, and produce products such as asphalt that are well suited to oil sands feedstock. As a result, competitive pressure from Venezuelan barrels is likely to be concentrated in the Gulf Coast rather than evenly distributed across the U.S. refining system.

Conservative Pressure and Renewed Urgency Around Pipelines
The developments in Venezuela quickly led to sharp political debate in Canada. Conservative Leader Pierre Poilievre argued that U.S. actions have altered the global energy landscape and increased the need for Canada to approve a pipeline to the Pacific Coast. In a public letter released Jan. 6 on X, Poilievre warned that every barrel the U.S. buys from Venezuela could displace a barrel of Canadian oil. He argued that Canada quickly needs new markets and called on the federal government to commit to approving a west coast pipeline within 60 days of an application being submitted. Poilievre also said Canada was right to condemn the Maduro regime after elections that were widely viewed as illegitimate and years of human rights abuses. However, he added that refusing to recognize an authoritarian regime should not come at the cost of eroding Canada’s energy competitiveness.

The Canada-Alberta Memorandum of Understanding

Weeks earlier, Ottawa and Alberta had already moved to reset Canada’s energy strategy. Prime Minister Mark Carney and Alberta Premier Danielle Smith in late November signed the Canada-Alberta Memorandum of Understanding (MOU) that established a framework for cooperation on oil market access, emissions reduction, and regulatory certainty. The agreement acknowledged that oil development and climate policy are now politically and economically linked.

The MOU centered on support for privately built and financed pipelines capable of moving at least 1 million barrels per day of Alberta crude to the West Coast, with Asian markets identified as a priority. Alberta committed to submitting a project application to the federal Major Projects Office by July 1. The agreement also envisions exports through a deepwater port on the British Columbia coast, contingent on Indigenous co-ownership and shared economic benefits. Advancing this project could require amendments to the Oil Tanker Moratorium Act, which has been a long-standing constraint on West Coast exports. Pipeline development under the MOU is explicitly tied to the Pathways Alliance carbon capture, utilization, and storage project. Federal officials have emphasized that both initiatives must advance together, with the goal of reducing the emissions intensity of Alberta oil to best-in-class levels for heavy crude. This linkage aims to strengthen Canada’s competitiveness as emissions performance increasingly influences global procurement decisions.

The MOU also recalibrated federal provincial relations on carbon pricing. Ottawa agreed to halt plans for an oil and gas emissions cap and to suspend Clean Electricity Regulations in Alberta, pending a new industrial carbon pricing agreement. Alberta, in turn, committed to strengthening its Technology Innovation and Emissions Reduction system and aligning it with the federal benchmark. The agreement targets a minimum effective carbon price of CAD 130 dollars per tonne (USD 96), with equivalency arrangements to be finalized by April 1.

Following the MOU, Alberta’s TIER system entered its 2026 compliance period on Jan. 1, under increased scrutiny. The system is expected to expand to cover large power generators and to serve as the primary mechanism for delivering Canada’s industrial carbon pricing commitments in the province. Canada and Alberta also committed to finalizing methane regulation equivalency and a trilateral agreement with the Pathways Alliance by April 1. Together, these requirements reinforce a structural shift in which carbon policy now functions as a prerequisite for major energy infrastructure.

Alberta also plans this year to launch a Direct Investment Pathway that would permit regulated entities to meet compliance obligations through direct contributions to approved decarbonization projects within the province. Guidance on eligibility and valuation is expected early this year and will shape compliance strategies under a higher carbon price environment.

Carney Frames Canadian Oil as Low Risk

Against the backdrop of Venezuela and growing political pressure, Prime Minister Carney and Premier Smith converged on a similar narrative, even as they approached the issue from different political perspectives. Speaking in Paris on Jan. 6, Carney said Canada welcomes the prospect of greater prosperity in Venezuela but emphasized that Canadian oil remains competitive. He pointed to Canada’s political stability, lower geopolitical risk, and progress on reducing emissions intensity, including through the Pathways carbon capture project. Carney also linked the Venezuela situation directly to the rationale for the MOU, noting that diversifying exports to Asia and reducing reliance on the US market were central reasons the agreement was signed.

Premier Smith was more explicit in her sense of urgency. In a Jan. 5 statement, she said the capture of Maduro underscored the importance of expediting pipeline development to diversify oil export markets. She confirmed that Alberta is working to submit an application to the Major Projects Office and expects the federal government to move forward speedily once it is filed.

A Defining Moment for Canada’s Energy Identity

These developments are a potential recalibration in Canadian energy policy. Oil development and carbon pricing are being presented as mutually dependent. Market access is tied to emissions reductions, and regulatory flexibility is being exchanged for stronger and more durable pricing commitments. At the same time, geopolitics has reentered the policy conversation. The prospect of Venezuelan oil returning to global markets has made the risks of over-reliance on a single export destination more concrete, reinforcing long standing arguments for diversification. Canada is attempting to position itself as a reliable oil supplier in an unstable world, while signaling to investors, allies and trading partners that carbon constraints will tighten rather than fade.

The months ahead will likely prove to be a critical interval. Canada and Alberta aim to finalize carbon pricing, methane, and Pathways agreements by April 1 that will determine whether the MOU holds together as a coherent policy framework. By July 1,  a pipeline application is expected to be ready for federal review, putting the government’s commitment to market access to an early test. What is unfolding is an attempt to reconcile both under real world pressure from global geopolitics, shifting markets, and domestic political demands. This may ultimately be remembered as the period when Canada moved from debating energy tradeoffs to actively redefining how oil, carbon pricing, and global competitiveness fit together in a rapidly changing world.