Industry experts have shown considerable caution regarding recent predictions that US energy majors will swiftly invest tens of billions of dollars to revive Venezuela's crumbling energy sector.
Requirement of Absolute Guarantees
Lacking an “iron-clad guarantee” of complete repayment from the Washington, specialists predict multinational oil companies to move with significant hesitation.
“It seems hasty to comment on any potential investments,” a representative said in response.
The ambitious schedule of less than a year and a half was boldly proposed. Yet, realistic assessments paint a longer timeline.
A Probable Schedule
“It is likely going to take three years for any significant output increase,” noted an industry expert.
Experts believe operators would likely spend:
- The first year: Navigating new government and security contracts.
- Following phase: Investing in overhaul of facilities.
- The third year: Being able to meaningfully increase output.
This suggests an rise of around half a million bpd maybe by the end of the decade.
Interest vs. Willingness for Spending
Analysts draw a critical difference between multinationals’ interest and their willingness to spend heavily.
“I think their attention is an high score, on a scale of one to 10. However, their willingness is a mid-range score, because there is no clarity yet.”
Experienced observers in the region share this sentiment. The expectation is that companies will politically talk up the opportunity while actually proceeding with great care.
The Enormous Cost
The required investment would be vast. University estimates suggest that increasing production by between half a million and a million barrels per day would require more than $10 billion in funding over several years.
Yet, rebuilding production to historical 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 idea of firms being reimbursed by the government has been often raised. Nevertheless, formal assurances on such a mechanism have not yet been announced.
Without clarity is the primary impediment behind the industry's reluctance. Firms seek protection against political risk and the risk that a subsequent president could renege on any agreement.
“They must be shielded from sovereign risk, that we’ve experienced in Venezuela before.”
Therefore, while rhetorical promises runs high, the financial challenges suggest a path of slow deliberation for any large-scale investment in the Venezuelan energy industry.
