Energy analysts have shown deep doubt regarding bullish statements that American large firms will rapidly invest tens of billions of dollars to fix Venezuela's broken energy sector.
The Need for Iron-Clad Assurances
Lacking an solid promise of full reimbursement from the US federal government, experts believe global energy giants to move with extreme caution.
“It would be too early to discuss any future business activities,” a representative commented this weekend.
The ambitious schedule of less than 18 months has been publicly proposed. Yet, industry projections indicate a more cautious outlook.
A Likely Outlook
“It’s probably going to take 36 months for any meaningful recovery in production,” said an chief investment officer.
The analysis indicates oil companies would likely spend:
- Year one: Sorting through new regulatory frameworks.
- Year two: Investing in overhaul of infrastructure.
- Final phase: Being able to boost production.
This would lead to an increase of around 500,000 bpd perhaps by the end of the decade.
Interest vs. Readiness for Risk
Experts make a critical difference between firms' attention and their readiness to commit heavily.
“I think their interest is an eight, on a scale of ten. But their appetite is a four or five, because there is a lack of certainty yet.”
Seasoned diplomats in the region reinforce this sentiment. The expectation is that companies will politically talk up the opportunity while privately acting with great care.
The Colossal Investment Required
The required outlay would be vast. Independent projections suggest that increasing production by between half a million and a million barrels per day would require over $10 billion in capital spending over several years.
Yet, returning output to previous levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over six or seven years.
The Pending Issue of Taxpayer Funding
The idea of oil giants being paid back by the federal government has been repeatedly raised. Nevertheless, formal assurances on such a mechanism have so far not been forthcoming.
Without a solid plan is the main reason for the industry's caution. Companies seek guarantees against sovereign risk and the risk that a different government could refuse any promise.
“They must be insured against political change, that we’ve seen in Venezuela before.”
Ultimately, while political optimism runs strong, the operational realities suggest a journey of extreme caution for any major investment in the Venezuelan energy industry.
