Energy analysts have voiced considerable doubt regarding recent predictions that US oil giants will quickly invest vast sums of dollars to rebuild Venezuela's dilapidated energy sector.
Demand for Solid Assurances
Without an “iron-clad guarantee” of complete repayment from the American government, analysts expect global energy giants to act with great care.
“It is hasty to comment on any potential investments,” an official commented this weekend.
The ambitious timeframe of less than 18 months has been publicly outlined. Yet, industry projections paint a different picture.
A More Realistic Timeline
“Chances are going to take multiple years for any kind of output increase,” noted one industry expert.
The analysis indicates oil companies would likely spend:
- Year one: Securing new government and security contracts.
- Year two: Commencing overhaul of equipment.
- Year three: Starting to meaningfully increase output.
The result could be an increase of around 500,000 bpd maybe by 2029.
Interest vs. Readiness for Spending
Experts make a key distinction between multinationals’ interest and their readiness to commit significantly.
“I believe their attention is an high score, on a range of one to 10. But their appetite is a mid-range score, because there is a lack of certainty yet.”
Experienced diplomats in the region echo this view. The thinking is that firms will publicly call it fantastic while in practice moving with deliberate slowness.
The Vast Price Tag
The monetary outlay would be vast. Independent analysis suggest that adding between 500,000 and a million bpd would require in excess of $10 billion in investment over several years.
Yet, rebuilding 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 Federal Guarantees
The suggestion of firms being paid back by the federal government has been often floated. But, specific plans on any guarantee have not yet been forthcoming.
This lack of clarity is the key reason for the sector's caution. Firms seek protection against sovereign risk and the possibility that a different president could renege on any deal.
“You need to be insured against political change, that we’ve experienced in Venezuela before.”
Therefore, while political confidence runs strong, the operational realities suggest a journey of slow deliberation for potential major venture in the country's energy industry.
