Energy analysts have voiced considerable skepticism regarding bullish predictions that US energy majors will quickly commit billions of dollars to fix Venezuela's dilapidated production facilities.
The Need for Iron-Clad Assurances
Absent an “iron-clad guarantee” of financial backing from the US federal government, experts believe global energy giants to act with significant hesitation.
“It seems premature to discuss any potential investments,” an official said recently.
The optimistic timeline of under a year and a half has been publicly proposed. Nevertheless, industry projections indicate a more cautious outlook.
A Probable Timeline
“Chances are going to take three years for any meaningful recovery in production,” commented an energy analyst.
He suggested energy firms would likely spend:
- The first year: Sorting through new government and security contracts.
- The second year: Investing in rebuilding of infrastructure.
- Year three: Reaching a position to meaningfully increase output.
This would lead to an increase of around 500,000 bpd perhaps by 2029.
Interest vs. Appetite for Spending
Experts make a critical difference between companies' curiosity and their willingness to spend heavily.
“I believe their curiosity is an high score, on a scale of one to 10. I think their appetite is a four or five, because there is no clarity yet.”
Experienced diplomats in the sector echo this view. The thinking is that majors will politically call it fantastic while actually moving with great care.
The Colossal Price Tag
The financial outlay would be colossal. University projections suggest that adding between half a million and a million barrels per day would require more than $10 billion in capital spending over two to three years.
Yet, returning output to previous levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over many more years.
The Pending Issue of Federal Guarantees
The prospect of firms being reimbursed by the US taxpayer has been often raised. But, concrete details on any guarantee have so far not been forthcoming.
Without a solid plan is the key factor for the industry's reluctance. Operators seek safeguards against nationalization and the chance that a different government could cancel any agreement.
“They must be shielded from sovereign risk, that we’ve seen in Venezuela already.”
Therefore, while rhetorical promises runs high, the operational realities suggest a road of slow deliberation for any significant investment in the Venezuelan energy industry.
