Industry experts have voiced deep skepticism regarding bullish statements that US oil giants will quickly pump tens of billions of dollars to rebuild Venezuela's crumbling production facilities.
The Need for Absolute Guarantees
Without an absolute assurance of financial backing from the American government, analysts expect international firms to proceed with great care.
“It is too early to comment on any potential investments,” a representative commented in response.
The aggressive timeframe of less than 18 months was boldly outlined. However, realistic assessments suggest a different picture.
A Probable Schedule
“It is likely going to take three years for any kind of output increase,” noted an energy analyst.
He suggested oil companies would likely spend:
- Initial phase: Sorting through new government and security contracts.
- Year two: Commencing reconstruction of infrastructure.
- Year three: Being able to significantly ramp up production.
The result could be an increase of around 500,000 bpd perhaps by the end of the decade.
Desire Versus Appetite for Spending
Experts make a key distinction between multinationals’ interest and their willingness to spend heavily.
“In my view their attention is an eight, on a range of one to 10. However, their willingness is a much lower, because there is a lack of certainty yet.”
Veteran diplomats in the country echo this view. The expectation is that majors will politically talk up the opportunity while actually proceeding with deliberate slowness.
The Enormous Cost
The monetary investment would be vast. Research estimates suggest that adding between 500,000 and a million bpd would require over $10 billion in investment over two to three years.
But, restoring production to historical levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over six or seven years.
The Pending Question of Federal Guarantees
The prospect of firms being reimbursed by the federal government has been repeatedly raised. But, concrete details on such a mechanism have not yet been forthcoming.
Without clarity is the primary reason for the sector's reluctance. Firms seek safeguards against sovereign risk and the chance that a different government could renege on any deal.
“They must be shielded from sovereign risk, that we’ve experienced in Venezuela before.”
In summary, while rhetorical promises runs strong, the financial risks suggest a road of extreme caution for potential large-scale financial commitment in the Venezuelan energy industry.
