Energy analysts have shown considerable skepticism regarding bullish predictions that American oil giants will rapidly invest tens of billions of dollars to revive Venezuela's dilapidated oil infrastructure.
Requirement of Absolute Guarantees
Lacking an “iron-clad guarantee” of financial backing from the Washington, experts believe global energy giants to act with extreme caution.
“It seems hasty to comment on any future business activities,” a spokesperson said recently.
The aggressive timeframe of under a year and a half has been publicly outlined. Yet, expert analyses paint a longer timeline.
A Probable Schedule
“It’s probably going to take multiple years for any kind of production bounce,” noted one industry expert.
The analysis indicates energy firms would likely spend:
- Initial phase: Securing new regulatory frameworks.
- Year two: Investing in overhaul of equipment.
- The third year: Being able to meaningfully increase output.
This suggests an increase of around half a million barrels per day possibly by the end of the decade.
Desire Versus Willingness for Risk
Experts make a critical difference between multinationals’ interest and their appetite to invest substantially.
“I think their curiosity is an eight, on a scale of one to 10. However, their willingness is a mid-range score, because there is significant uncertainty yet.”
Veteran diplomats in the region share this sentiment. The thinking is that majors will politically express enthusiasm while actually acting with extreme caution.
The Enormous Cost
The required investment would be colossal. Research estimates suggest that increasing production by between 500,000 and a million bpd would require in excess of $10 billion in investment over several years.
However, rebuilding production to previous levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over many more years.
The Unanswered Issue of Federal Guarantees
The idea of oil giants being paid back by the government has been often floated. However, formal assurances on any guarantee have so far not been forthcoming.
Without certainty is the key impediment for the industry's reluctance. Operators seek safeguards against political risk and the risk that a subsequent government could cancel any deal.
“It is essential to be insured against sovereign risk, that we’ve experienced in Venezuela previously.”
Therefore, while rhetorical promises runs high, the financial challenges suggest a path of slow deliberation for any significant investment in the Venezuelan oil sector.
