Energy analysts have voiced deep skepticism regarding optimistic predictions that US energy majors will rapidly commit tens of billions of dollars to fix Venezuela's broken oil infrastructure.
The Need for Absolute Guarantees
Absent an “iron-clad guarantee” of financial backing from the Washington, analysts expect multinational oil companies to move with extreme caution.
“It would be premature to speculate on any upcoming plans,” a representative said recently.
The ambitious timeline of under a year and a half was publicly suggested. Yet, industry projections suggest a different picture.
A More Realistic Outlook
“It’s probably going to take 36 months for any significant recovery in production,” noted an energy analyst.
The analysis indicates energy firms would likely spend:
- Year one: Securing new government and security contracts.
- Year two: Commencing rebuilding of facilities.
- Final phase: Reaching a position to boost production.
This suggests an boost of around half a million barrels per day maybe by the end of the decade.
Appetite Compared to Readiness for Spending
Experts make a important separation between firms' attention and their readiness to commit heavily.
“In my view their interest is an eight, on a range of one to 10. I think their readiness is a much lower, because there is significant uncertainty yet.”
Experienced diplomats in the country share this view. The thinking is that majors will politically talk up the opportunity while privately acting with deliberate slowness.
The Enormous Price Tag
The monetary outlay would be enormous. University estimates suggest that increasing production by between 500,000 and a million bpd would require more than $10 billion in investment over two to three years.
Yet, restoring production to peak levels of around 2.5 million barrels per day could require a massive $80 billion to $90 billion over six or seven years.
The Outstanding Question of Government Backing
The idea of firms being paid back by the federal government has been repeatedly mentioned. But, specific plans on any guarantee have so far not been announced.
This lack of clarity is the key reason for the industry's reluctance. Firms seek guarantees against nationalization and the risk that a different administration could renege on any promise.
“You need to be protected from sovereign risk, that we’ve experienced in Venezuela previously.”
Therefore, while political confidence runs high, the operational risks suggest a road of measured steps for potential significant financial commitment in the country's energy industry.
