Energy analysts have shown significant skepticism regarding bullish claims that US large firms will quickly pump tens of billions of dollars to fix Venezuela's broken oil infrastructure.
The Need for Absolute Assurances
Lacking an absolute assurance of financial backing from the American government, experts believe multinational oil companies to proceed with great care.
“It would be premature to discuss any potential investments,” an official commented recently.
The ambitious timeframe of under a year and a half was publicly proposed. Yet, expert analyses paint a longer timeline.
A Probable Outlook
“It’s probably going to take three years for any meaningful production bounce,” said an chief investment officer.
He suggested energy firms would likely spend:
- Year one: Sorting through new government and security contracts.
- The second year: Beginning rebuilding of infrastructure.
- The third year: Being able to significantly ramp up production.
This would lead to an increase of around 500,000 bpd perhaps by the end of the decade.
Interest vs. Readiness for Spending
There is a key distinction between firms' attention and their appetite to invest significantly.
“I think their attention is an high score, on a scale of ten. I think their willingness is a four or five, because there is no clarity yet.”
Seasoned operators in the country share this view. The expectation is that majors will publicly call it fantastic while privately acting with extreme caution.
The Enormous Cost
The required outlay would be enormous. University analysis suggest that adding between 500,000 and a million bpd would require over $10 billion in funding over several years.
However, rebuilding output to peak levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over six or seven years.
The Outstanding Issue of Government Backing
The suggestion of energy companies being compensated by the US taxpayer has been repeatedly raised. Nevertheless, specific plans on any guarantee have so far not been provided.
This lack of certainty is the key impediment behind the sector's hesitation. Companies seek guarantees against sovereign risk and the chance that a subsequent president could cancel any deal.
“They must be shielded from sovereign risk, that we’ve seen in Venezuela already.”
Therefore, while political optimism runs high, the operational challenges suggest a journey of measured steps for potential significant investment in the country's energy industry.
