Market specialists have voiced deep caution regarding bullish predictions that US energy majors will rapidly invest billions of dollars to fix Venezuela's crumbling oil infrastructure.
Demand for Solid Guarantees
Absent an absolute assurance of full reimbursement from the American government, experts believe global energy giants to move with extreme caution.
“It seems premature to speculate on any future business activities,” a spokesperson said this weekend.
The optimistic timeframe of under 18 months was boldly outlined. Nevertheless, expert analyses indicate a longer timeline.
A Probable Timeline
“Chances are going to take multiple years for any significant output increase,” said one chief investment officer.
He suggested operators would likely spend:
- Initial phase: Sorting through new operating agreements.
- Year two: Beginning reconstruction of infrastructure.
- The third year: Reaching a position to boost production.
The result could be an boost of around half a million barrels per day possibly by the end of the decade.
Interest vs. Appetite for Investment
There is a critical difference between multinationals’ interest and their appetite to invest heavily.
“In my view their interest is an eight, 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 region reinforce this caution. The thinking is that firms will publicly express enthusiasm while actually acting with deliberate slowness.
The Vast Investment Required
The monetary outlay would be vast. Research estimates suggest that increasing production by between 500,000 and a million barrels per day would require in excess of $10 billion in investment over two to three years.
But, restoring production to peak levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over six or seven years.
The Unanswered Issue of Government Backing
The idea of oil giants being paid back by the government has been repeatedly floated. However, specific plans on this proposal have so far not been announced.
The absence of clarity is the main factor behind the industry's hesitation. Companies seek protection against nationalization and the possibility that a subsequent president could renege on any agreement.
“You need to be shielded from sovereign risk, that we’ve experienced in Venezuela already.”
Ultimately, while political confidence runs high, the operational challenges suggest a road of slow deliberation for any major financial commitment in the country's energy industry.
