Industry experts have voiced considerable caution regarding optimistic claims that American oil giants will swiftly commit tens of billions of dollars to revive Venezuela's crumbling energy sector.
Demand for Absolute Guarantees
Absent an “iron-clad guarantee” of financial backing from the Washington, analysts expect international firms to move with great care.
“It seems premature to discuss any upcoming plans,” an official said this weekend.
The ambitious timeline of under 18 months has been boldly outlined. Nevertheless, industry projections indicate a different picture.
A More Realistic Timeline
“It is likely going to take three years for any kind of recovery in production,” said an industry expert.
The analysis indicates energy firms would likely spend:
- The first year: Securing new government and security contracts.
- Year two: Investing in rebuilding of infrastructure.
- Year three: Being able to significantly ramp up yield.
This suggests an boost of around half a million bpd perhaps by the end of the decade.
Desire Versus Appetite for Risk
Analysts draw a key distinction between firms' attention and their readiness to commit substantially.
“I think their curiosity is an high score, on a scale of one to 10. But their readiness is a mid-range score, because there is significant uncertainty yet.”
Experienced operators in the country share this view. They believe that companies will publicly talk up the opportunity while actually proceeding with extreme caution.
The Enormous Cost
The required investment would be enormous. University estimates suggest that increasing production by between half a million and a million barrels per day would require in excess of $10 billion in capital spending over several years.
However, restoring output to previous levels of around 2.5 million barrels per day could require a massive $80 billion to $90 billion over many more years.
The Unanswered Issue of Taxpayer Funding
The idea of firms being reimbursed by the US taxpayer has been repeatedly raised. But, concrete details on such a mechanism have so far not been forthcoming.
This lack of clarity is the primary impediment behind the sector's caution. Companies seek protection against nationalization and the possibility that a different government could refuse any promise.
“You need to be shielded from sovereign risk, that we’ve seen in Venezuela previously.”
Therefore, while political optimism runs high, the practical risks suggest a road of extreme caution for any large-scale venture in the country's energy industry.
