Market specialists have expressed considerable skepticism regarding recent predictions that US energy majors will quickly invest vast sums of dollars to fix Venezuela's broken energy sector.
The Need for Absolute Guarantees
Absent an solid promise of full reimbursement from the US federal government, specialists predict international firms to move with significant hesitation.
“It seems premature to comment on any upcoming plans,” a spokesperson said in response.
The aggressive schedule of less than 18 months has been boldly proposed. Yet, expert analyses indicate a different picture.
A More Realistic Outlook
“Chances are going to take three years for any significant production bounce,” noted an industry expert.
The analysis indicates oil companies would likely spend:
- Year one: Securing new regulatory frameworks.
- Following phase: Investing in reconstruction of infrastructure.
- The third year: Being able to meaningfully increase output.
The result could be an rise of around half a million barrels per day perhaps by the end of the decade.
Appetite Compared to Appetite for Investment
Analysts draw a key distinction between multinationals’ interest and their willingness to spend heavily.
“In my view their interest is an high score, on a range of one to 10. But their appetite is a four or five, because there is no clarity yet.”
Experienced operators in the country echo this sentiment. The expectation is that majors will politically talk up the opportunity while in practice acting with great care.
The Vast Cost
The required outlay would be vast. Research estimates suggest that adding between half a million and a million bpd would require more than $10 billion in investment over two to three years.
However, restoring output to peak levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over many more years.
The Unanswered Issue of Government Backing
The idea of firms being reimbursed by the government has been repeatedly floated. Nevertheless, concrete details on this proposal have so far not been announced.
Without a solid plan is the main reason for the sector's hesitation. Companies seek protection against nationalization and the risk that a future administration could refuse any promise.
“They must be insured against political change, that we’ve experienced in Venezuela before.”
Therefore, while rhetorical promises runs high, the operational risks suggest a path of extreme caution for any significant venture in the country's oil sector.
