Market specialists have expressed considerable caution regarding bullish claims that US large firms will rapidly commit tens of billions of dollars to fix Venezuela's crumbling oil infrastructure.
The Need for Iron-Clad Protections
Absent an absolute assurance of complete repayment from the US federal government, experts believe multinational oil companies to proceed with extreme caution.
“It is hasty to discuss any upcoming plans,” a spokesperson said in response.
The optimistic timeline of less than 18 months has been boldly outlined. Nevertheless, industry projections paint a longer timeline.
A Probable Timeline
“It is likely going to take 36 months for any kind of recovery in production,” said one energy analyst.
He suggested energy firms would likely spend:
- Initial phase: Sorting through new government and security contracts.
- Following phase: Investing in rebuilding of equipment.
- The third year: Reaching a position to significantly ramp up production.
The result could be an boost of around 500,000 bpd perhaps by the end of the decade.
Appetite Compared to Appetite for Investment
Experts make a key distinction between firms' attention and their readiness to commit substantially.
“I believe their interest is an eight, on a scale of ten. I think their willingness is a four or five, because there is no clarity yet.”
Experienced diplomats in the sector echo this view. The expectation is that companies will politically call it fantastic while privately proceeding with deliberate slowness.
The Enormous Price Tag
The financial bill would be vast. Independent estimates suggest that adding between 500,000 and a million barrels per day would require more than $10 billion in investment over two to three years.
However, rebuilding production to peak levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over six or seven years.
The Pending Question of Government Backing
The idea of energy companies being reimbursed by the US taxpayer has been repeatedly floated. But, concrete details on any guarantee have not yet been provided.
Without certainty is the main reason for the sector's reluctance. Companies seek guarantees against political risk and the risk that a future administration could refuse any deal.
“You need to be shielded from political change, that we’ve experienced in Venezuela previously.”
Ultimately, while political promises runs high, the practical risks suggest a road of extreme caution for potential significant investment in the Venezuelan oil sector.
