Industry experts have voiced considerable skepticism regarding recent predictions that US oil giants will quickly pump vast sums of dollars to fix Venezuela's broken oil infrastructure.
Demand for Iron-Clad Assurances
Without an “iron-clad guarantee” of full reimbursement from the American government, experts believe multinational oil companies to act with significant hesitation.
“It would be too early to speculate on any potential investments,” an official said this weekend.
The ambitious timeline of less than 18 months was boldly outlined. Yet, industry projections suggest a different picture.
A Likely Schedule
“It’s probably going to take 36 months for any significant recovery in production,” noted an chief investment officer.
He suggested energy firms would likely spend:
- Year one: Navigating new regulatory frameworks.
- Following phase: Beginning overhaul of equipment.
- Year three: Starting to significantly ramp up production.
The result could be an increase of around 500,000 bpd possibly by the end of the decade.
Appetite Compared to Appetite for Risk
Analysts draw a important separation between multinationals’ interest and their appetite to invest significantly.
“I think their attention is an high score, on a range of one to 10. However, their appetite is a much lower, because there is a lack of certainty yet.”
Experienced diplomats in the country reinforce this sentiment. The thinking is that companies will politically express enthusiasm while actually moving with deliberate slowness.
The Colossal Cost
The required investment would be enormous. Independent analysis suggest that adding between 500,000 and a million barrels per day would require more than $10 billion in capital spending over two to three years.
Yet, rebuilding output to historical levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over many more years.
The Unanswered Question of Taxpayer Funding
The suggestion of oil giants being compensated by the US taxpayer has been often floated. However, specific plans on any guarantee have so far not been forthcoming.
Without a solid plan is the key impediment for the industry's hesitation. Companies seek guarantees against nationalization and the chance that a different government could refuse any deal.
“They must be protected from sovereign risk, that we’ve seen in Venezuela before.”
Ultimately, while political optimism runs high, the operational realities suggest a path of extreme caution for any significant venture in the Venezuelan oil sector.
