Industry experts have expressed considerable doubt regarding bullish claims that American large firms will quickly commit vast sums of dollars to rebuild Venezuela's crumbling energy sector.
Demand for Absolute Guarantees
Absent an absolute assurance of full reimbursement from the US federal government, analysts expect multinational oil companies to act with significant hesitation.
“It would be premature to discuss any upcoming plans,” a spokesperson said this weekend.
The aggressive timeline of less than 18 months has been boldly suggested. Nevertheless, industry projections indicate a different picture.
A Likely Outlook
“It’s probably going to take multiple years for any kind of recovery in production,” said an chief investment officer.
The analysis indicates energy firms would likely spend:
- Year one: Navigating new operating agreements.
- The second year: Investing in rebuilding of equipment.
- Year three: Being able to boost output.
This suggests an increase of around 500,000 bpd perhaps by the end of the decade.
Appetite Compared to Appetite for Risk
There is a key distinction between companies' curiosity and their appetite to invest significantly.
“I believe their interest is an high score, on a range of ten. However, their willingness is a mid-range score, because there is a lack of certainty yet.”
Seasoned operators in the sector echo this view. The expectation is that companies will publicly express enthusiasm while actually acting with great care.
The Enormous Investment Required
The required bill would be vast. Research analysis suggest that adding between 500,000 and a million barrels per day would require in excess of $10 billion in funding over several years.
But, restoring output to previous levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over six or seven years.
The Unanswered Issue of Taxpayer Funding
The prospect of firms being compensated by the federal government has been repeatedly floated. But, formal assurances on such a mechanism have not yet been provided.
This lack of clarity is the main reason for the sector's reluctance. Operators seek protection against nationalization and the possibility that a subsequent government could refuse any deal.
“They must be insured against sovereign risk, that we’ve seen in Venezuela before.”
Therefore, while rhetorical optimism runs strong, the operational challenges suggest a road of slow deliberation for potential major venture in the country's energy industry.
