Industry experts have shown considerable caution regarding recent claims that American large firms will rapidly invest vast sums of dollars to fix Venezuela's broken energy sector.
Requirement of Solid Protections
Absent an solid promise of complete repayment from the American government, experts believe global energy giants to move with significant hesitation.
“It is too early to speculate on any future business activities,” a representative commented recently.
The ambitious schedule of less than a year and a half has been publicly proposed. However, industry projections paint a longer timeline.
A More Realistic Timeline
“Chances are going to take 36 months for any significant recovery in production,” noted an industry expert.
He suggested operators would likely spend:
- The first year: Sorting through new regulatory frameworks.
- The second year: Investing in reconstruction of infrastructure.
- Final phase: Being able to meaningfully increase output.
This suggests an increase of around half a million bpd maybe by the end of the decade.
Desire Versus Willingness for Spending
Analysts draw a key distinction between multinationals’ interest and their readiness to commit substantially.
“In my view their curiosity is an high score, on a range of ten. However, their readiness is a much lower, because there is a lack of certainty yet.”
Veteran diplomats in the region share this sentiment. They believe that companies will publicly talk up the opportunity while actually acting with extreme caution.
The Colossal Cost
The financial bill would be vast. University analysis suggest that increasing production by between 500,000 and a million barrels per day would require more than $10 billion in investment over several years.
But, restoring output to peak levels of around 2.5 million barrels per day could require a massive $80 billion to $90 billion over many more years.
The Pending Question of Government Backing
The idea of oil giants being paid back by the federal government has been often floated. However, formal assurances on any guarantee have not yet been provided.
The absence of clarity is the key impediment for the industry's hesitation. Operators seek protection against sovereign risk and the possibility that a different government could cancel any promise.
“You need to be protected from sovereign risk, that we’ve witnessed in Venezuela previously.”
Therefore, while political promises runs high, the operational risks suggest a road of slow deliberation for potential significant financial commitment in the Venezuelan oil sector.
