Industry experts have voiced considerable skepticism regarding bullish statements that US oil giants will rapidly invest tens of billions of dollars to fix Venezuela's crumbling energy sector.
Requirement of Solid Assurances
Without an “iron-clad guarantee” of complete repayment from the Washington, analysts expect international firms to move with significant hesitation.
“It would be too early to discuss any potential investments,” a spokesperson stated recently.
The aggressive schedule of under 18 months was publicly outlined. However, expert analyses paint a different picture.
A Probable Outlook
“It is likely going to take multiple years for any kind of output increase,” noted an industry expert.
He suggested energy firms would likely spend:
- Year one: Sorting through new operating agreements.
- The second year: Investing in overhaul of equipment.
- The third year: Reaching a position to boost yield.
This would lead to an boost of around half a million bpd possibly by the end of the decade.
Interest vs. Willingness for Risk
There is a critical difference between multinationals’ interest and their willingness to spend heavily.
“In my view their interest is an eight, on a range of ten. However, their willingness is a four or five, because there is significant uncertainty yet.”
Veteran diplomats in the country share this caution. The thinking is that companies will politically express enthusiasm while in practice acting with deliberate slowness.
The Vast Cost
The financial investment would be vast. Research estimates suggest that adding between half a million and a million bpd would require more than $10 billion in funding over several years.
Yet, restoring production to peak levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over six or seven years.
The Pending Issue of Government Backing
The suggestion of oil giants being paid back by the government has been repeatedly raised. However, specific plans on this proposal have not yet been provided.
Without a solid plan is the key reason for the industry's hesitation. Companies seek protection against nationalization and the possibility that a future government could cancel any deal.
“You need to be insured against political change, that we’ve witnessed in Venezuela already.”
Therefore, while rhetorical optimism runs strong, the financial risks suggest a path of slow deliberation for potential large-scale venture in the Venezuelan energy industry.
