Energy analysts have expressed significant doubt regarding bullish statements that US oil giants will quickly invest tens of billions of dollars to rebuild Venezuela's dilapidated oil infrastructure.
Requirement of Iron-Clad Assurances
Without an absolute assurance of full reimbursement from the American government, experts believe multinational oil companies to move with great care.
“It seems hasty to discuss any upcoming plans,” an official commented recently.
The optimistic timeline of less than a year and a half has been boldly outlined. Nevertheless, realistic assessments paint a different picture.
A More Realistic Schedule
“It’s probably going to take 36 months for any kind of output increase,” said an energy analyst.
The analysis indicates operators would likely spend:
- The first year: Sorting through new operating agreements.
- Year two: Commencing reconstruction of equipment.
- The third year: Being able to boost yield.
This suggests an increase of around 500,000 barrels per day possibly by 2029.
Appetite Compared to Readiness for Risk
There is a critical difference between multinationals’ interest and their appetite to invest substantially.
“I think their curiosity is an high score, on a range of one to 10. However, their appetite is a four or five, because there is a lack of certainty yet.”
Experienced diplomats in the sector share this view. The thinking is that companies will publicly express enthusiasm while privately moving with extreme caution.
The Colossal Cost
The required outlay would be colossal. Research projections suggest that increasing production by between half a million and a million bpd would require in excess of $10 billion in capital spending over two to three years.
But, rebuilding production to peak levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over many more years.
The Unanswered Question of Government Backing
The suggestion of firms being compensated by the US taxpayer has been often mentioned. Nevertheless, specific plans on any guarantee have not yet been provided.
This lack of certainty is the main impediment behind the sector's caution. Operators seek guarantees against sovereign risk and the risk that a subsequent administration could renege on any promise.
“They must be shielded from sovereign risk, that we’ve seen in Venezuela before.”
Therefore, while rhetorical confidence runs high, the practical challenges suggest a journey of slow deliberation for any significant investment in the Venezuelan energy industry.
