Market specialists have shown deep skepticism regarding optimistic claims that US energy majors will quickly pump billions of dollars to revive Venezuela's dilapidated energy sector.
Requirement of Absolute Assurances
Lacking an “iron-clad guarantee” of complete repayment from the Washington, specialists predict global energy giants to move with extreme caution.
“It would be premature to comment on any future business activities,” a representative commented this weekend.
The aggressive schedule of less than 18 months has been boldly suggested. However, industry projections paint a different picture.
A More Realistic Schedule
“Chances are going to take 36 months for any significant output increase,” noted an energy analyst.
He suggested oil companies would likely spend:
- Year one: Sorting through new government and security contracts.
- Year two: Investing in reconstruction of facilities.
- Year three: Starting to significantly ramp up output.
This suggests an rise of around 500,000 barrels per day perhaps by the end of the decade.
Interest vs. Readiness for Investment
Analysts draw a key distinction between multinationals’ interest and their willingness to spend heavily.
“I believe their attention is an eight, on a scale of ten. I think their appetite is a much lower, because there is a lack of certainty yet.”
Experienced operators in the country share this view. They believe that companies will publicly talk up the opportunity while privately moving with extreme caution.
The Colossal Cost
The monetary bill would be enormous. Research estimates suggest that increasing production by between half a million and a million barrels per day would require over $10 billion in investment over two to three years.
But, returning output to historical levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over six or seven years.
The Unanswered Question of Government Backing
The prospect of oil giants being compensated by the US taxpayer has been often raised. Nevertheless, concrete details on such a mechanism have so far not been provided.
Without certainty is the primary factor behind the sector's hesitation. Firms seek guarantees against sovereign risk and the risk that a subsequent president could cancel any agreement.
“They must be shielded from nationalization, that we’ve witnessed in Venezuela previously.”
In summary, while political promises runs strong, the operational challenges suggest a journey of slow deliberation for potential significant investment in the country's oil sector.
