Market specialists have expressed considerable caution regarding optimistic predictions that American large firms will rapidly pump tens of billions of dollars to rebuild Venezuela's broken energy sector.
Demand for Solid Protections
Lacking an “iron-clad guarantee” of full reimbursement from the American government, specialists predict multinational oil companies to move with significant hesitation.
“It seems too early to discuss any future business activities,” a representative said in response.
The optimistic timeframe of under 18 months has been boldly proposed. Yet, industry projections paint a different picture.
A More Realistic Schedule
“It is likely going to take three years for any kind of production bounce,” said an industry expert.
He suggested operators would likely spend:
- The first year: Securing new operating agreements.
- Following phase: Commencing overhaul of equipment.
- Final phase: Being able to boost yield.
This suggests an boost of around half a million bpd maybe by the end of the decade.
Appetite Compared to Readiness for Spending
Experts make a key distinction between firms' attention and their readiness to commit substantially.
“I believe their attention is an eight, on a range of ten. But their readiness is a four or five, because there is significant uncertainty yet.”
Veteran diplomats in the country reinforce this caution. The expectation is that majors will politically call it fantastic while privately proceeding with great care.
The Colossal Cost
The financial outlay would be colossal. Independent estimates suggest that adding between half a million and a million barrels per day would require more than $10 billion in investment over several years.
But, rebuilding output to peak levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over many more years.
The Pending Issue of Taxpayer Funding
The idea of energy companies being paid back by the US taxpayer has been repeatedly raised. But, formal assurances on this proposal have so far not been announced.
Without certainty is the key impediment for the sector's caution. Companies seek protection against sovereign risk and the possibility that a different government could cancel any deal.
“You need to be shielded from sovereign risk, that we’ve seen in Venezuela already.”
Ultimately, while rhetorical promises runs strong, the practical realities suggest a road of extreme caution for any major investment in the country's energy industry.
