Industry experts have expressed deep skepticism regarding bullish predictions that US large firms will quickly commit tens of billions of dollars to fix Venezuela's dilapidated energy sector.
Requirement of Solid Assurances
Absent an absolute assurance of financial backing from the US federal government, analysts expect international firms to act with extreme caution.
“It is premature to discuss any potential investments,” a spokesperson said this weekend.
The aggressive timeframe of under a year and a half has been publicly outlined. However, industry projections indicate a different picture.
A More Realistic Outlook
“It’s probably going to take three years for any kind of output increase,” said one energy analyst.
Experts believe operators would likely spend:
- The first year: Securing new operating agreements.
- Following phase: Investing in rebuilding of infrastructure.
- The third year: Being able to meaningfully increase output.
The result could be an increase of around half a million bpd possibly by the end of the decade.
Desire Versus Willingness for Risk
Analysts draw a key distinction between multinationals’ interest and their appetite to invest significantly.
“I believe their attention is an high score, on a range of ten. I think their willingness is a mid-range score, because there is significant uncertainty yet.”
Experienced diplomats in the sector echo this caution. They believe that firms will publicly call it fantastic while actually acting with great care.
The Colossal Cost
The required bill would be enormous. Independent projections suggest that adding between half a million and a million barrels per day would require over $10 billion in investment over two to three years.
But, rebuilding production 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 Issue of Government Backing
The idea of firms being paid back by the federal government has been often raised. Nevertheless, specific plans on this proposal have so far not been announced.
This lack of a solid plan is the main factor for the sector's caution. Companies seek protection against sovereign risk and the possibility that a different president could renege on any promise.
“It is essential to be protected from sovereign risk, that we’ve seen in Venezuela previously.”
In summary, while political promises runs high, the operational challenges suggest a journey of measured steps for potential large-scale investment in the country's oil sector.
