Market specialists have shown considerable doubt regarding bullish claims that US energy majors will quickly invest tens of billions of dollars to revive the country's broken oil infrastructure.
Requirement of Absolute Assurances
Lacking an solid promise of financial backing from the Washington, analysts expect global energy giants to move with great care.
“It seems premature to discuss any potential investments,” an official stated recently.
The ambitious timeframe of under a year and a half has been publicly suggested. However, realistic assessments indicate a longer timeline.
A More Realistic Outlook
“It is likely going to take 36 months for any significant output increase,” said an industry expert.
Experts believe operators would likely spend:
- Year one: Navigating new government and security contracts.
- Following phase: Investing in reconstruction of equipment.
- The third year: Being able to significantly ramp up production.
The result could be an increase of around half a million bpd possibly by the end of the decade.
Desire Versus Readiness for Spending
Experts make a critical difference between multinationals’ interest and their willingness to spend heavily.
“I think their curiosity is an eight, on a scale of one to 10. However, their willingness is a much lower, because there is no clarity yet.”
Experienced operators in the country share this sentiment. The expectation is that majors will publicly call it fantastic while privately acting with extreme caution.
The Enormous Investment Required
The required investment would be vast. Independent analysis suggest that increasing production by between half a million and a million bpd would require in excess of $10 billion in capital spending over two to three years.
Yet, returning production to previous levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over many more years.
The Unanswered Issue of Government Backing
The idea of energy companies being compensated by the government has been repeatedly mentioned. But, concrete details on such a mechanism have not yet been forthcoming.
This lack of a solid plan is the main factor for the sector's hesitation. Operators seek guarantees against sovereign risk and the risk that a subsequent government could renege on any deal.
“You need to be shielded from nationalization, that we’ve witnessed in Venezuela already.”
Ultimately, while political promises runs strong, the operational risks suggest a journey of slow deliberation for any major financial commitment in the Venezuelan energy industry.
