Industry experts have voiced considerable caution regarding bullish predictions that US large firms will quickly invest tens of billions of dollars to fix Venezuela's crumbling oil infrastructure.
The Need for Absolute Assurances
Absent an absolute assurance of financial backing from the American government, experts believe global energy giants to move with significant hesitation.
“It seems too early to discuss any future business activities,” a representative stated in response.
The ambitious timeline of less than a year and a half was boldly outlined. Yet, realistic assessments suggest a longer timeline.
A Probable Schedule
“It is likely going to take multiple years for any significant production bounce,” said an industry expert.
Experts believe operators would likely spend:
- The first year: Sorting through new government and security contracts.
- Year two: Commencing rebuilding of infrastructure.
- Final phase: Reaching a position to significantly ramp up output.
This suggests an increase of around half a million bpd perhaps by 2029.
Appetite Compared to Willingness for Risk
Analysts draw a important separation between multinationals’ interest and their willingness to spend significantly.
“In my view their interest is an eight, on a scale of one to 10. However, their willingness is a four or five, because there is no clarity yet.”
Seasoned diplomats in the region echo this sentiment. They believe that majors will publicly talk up the opportunity while actually moving with extreme caution.
The Enormous Cost
The required outlay would be enormous. University analysis suggest that adding between 500,000 and a million bpd would require in excess of $10 billion in capital spending over several years.
But, restoring output to previous levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over many more years.
The Outstanding Question of Government Backing
The suggestion of oil giants being compensated by the federal government has been repeatedly raised. Nevertheless, concrete details on such a mechanism have not yet been forthcoming.
The absence of clarity is the main impediment behind the industry's caution. Operators seek guarantees against sovereign risk and the risk that a different president could cancel any deal.
“They must be protected from political change, that we’ve experienced in Venezuela previously.”
Therefore, while rhetorical promises runs strong, the financial risks suggest a road of slow deliberation for potential significant investment in the country's oil sector.
