Market specialists have shown considerable caution regarding recent predictions that US energy majors will rapidly pump billions of dollars to rebuild the country's crumbling oil infrastructure.
The Need for Solid Assurances
Absent an “iron-clad guarantee” of complete repayment from the American government, specialists predict international firms to act with significant hesitation.
“It seems too early to speculate on any future business activities,” a representative commented recently.
The aggressive schedule of less than a year and a half was boldly proposed. However, realistic assessments paint a different picture.
A Likely Outlook
“It’s probably going to take three years for any meaningful output increase,” said an energy analyst.
He suggested energy firms would likely spend:
- The first year: Sorting through new government and security contracts.
- The second year: Commencing rebuilding of infrastructure.
- Final phase: Being able to boost output.
This suggests an boost of around half a million bpd possibly by the end of the decade.
Interest vs. Appetite for Investment
Experts make a critical difference between firms' attention and their willingness to spend heavily.
“In my view their interest is an eight, on a scale of ten. I think their appetite is a four or five, because there is a lack of certainty yet.”
Veteran operators in the region share this view. They believe that majors will publicly express enthusiasm while privately moving with extreme caution.
The Colossal Cost
The financial bill would be enormous. Independent analysis suggest that increasing production by between half a million and a million barrels per day would require over $10 billion in investment over two to three years.
However, rebuilding output to peak levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over many more years.
The Outstanding Issue of Government Backing
The prospect of oil giants being compensated by the federal government has been often floated. But, formal assurances on any guarantee have not yet been forthcoming.
The absence of clarity is the primary impediment behind the industry's caution. Firms seek safeguards against sovereign risk and the risk that a different president could renege on any promise.
“It is essential to be insured against sovereign risk, that we’ve experienced in Venezuela already.”
In summary, while rhetorical optimism runs high, the practical challenges suggest a journey of slow deliberation for any major investment in the Venezuelan energy industry.
