Industry experts have voiced significant caution regarding recent predictions that US energy majors will quickly commit tens of billions of dollars to revive Venezuela's dilapidated energy sector.
Requirement of Solid Guarantees
Absent an “iron-clad guarantee” of complete repayment from the Washington, experts believe multinational oil companies to move with extreme caution.
“It seems too early to comment on any potential investments,” an official said recently.
The ambitious timeframe of less than 18 months was boldly outlined. Yet, industry projections indicate a more cautious outlook.
A Probable Outlook
“Chances are going to take three years for any meaningful output increase,” commented one energy analyst.
Experts believe energy firms would likely spend:
- Initial phase: Navigating new operating agreements.
- The second year: Beginning overhaul of facilities.
- Year three: Reaching a position to significantly ramp up output.
The result could be an boost of around half a million barrels per day perhaps by 2029.
Interest vs. Willingness for Risk
Experts make a critical difference between companies' curiosity and their appetite to invest substantially.
“I think their interest is an eight, on a range of ten. I think their willingness is a much lower, because there is significant uncertainty yet.”
Veteran diplomats in the sector share this view. The thinking is that companies will publicly express enthusiasm while actually moving with deliberate slowness.
The Vast Investment Required
The financial outlay would be vast. Independent projections suggest that increasing production by between half a million and a million bpd would require in excess of $10 billion in funding over two to three years.
However, returning output to peak levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over six or seven years.
The Outstanding Issue of Federal Guarantees
The idea of oil giants being paid back by the US taxpayer has been repeatedly mentioned. But, formal assurances on this proposal have not yet been forthcoming.
The absence of certainty is the key reason behind the industry's reluctance. Companies seek safeguards against sovereign risk and the possibility that a future government could refuse any agreement.
“It is essential to be shielded from sovereign risk, that we’ve witnessed in Venezuela previously.”
Ultimately, while rhetorical promises runs strong, the practical challenges suggest a road of slow deliberation for potential major investment in the Venezuelan oil sector.
