Energy analysts have expressed considerable caution regarding recent claims that US energy majors will quickly invest tens of billions of dollars to revive Venezuela's dilapidated energy sector.
Demand for Absolute Assurances
Without an absolute assurance of full reimbursement from the American government, analysts expect global energy giants to act with great care.
“It seems hasty to discuss any future business activities,” a spokesperson commented in response.
The aggressive timeline of less than a year and a half has been boldly proposed. However, realistic assessments suggest a more cautious outlook.
A Likely Outlook
“Chances are going to take three years for any kind of output increase,” said one chief investment officer.
Experts believe operators would likely spend:
- Initial phase: Securing new operating agreements.
- The second year: Commencing rebuilding of infrastructure.
- Year three: Being able to boost output.
This would lead to an boost of around 500,000 barrels per day possibly by the end of the decade.
Appetite Compared to Readiness for Risk
Experts make a critical difference between multinationals’ interest and their appetite to invest substantially.
“I think their interest is an eight, on a range of one to 10. However, their appetite is a four or five, because there is significant uncertainty yet.”
Experienced operators in the region echo this caution. The thinking is that majors will politically talk up the opportunity while actually acting with extreme caution.
The Vast Investment Required
The required investment would be vast. Independent projections suggest that increasing production by between 500,000 and a million barrels per day would require over $10 billion in funding over several years.
But, rebuilding output to historical levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over many more years.
The Unanswered Issue of Taxpayer Funding
The prospect of oil giants being reimbursed by the government has been often mentioned. But, formal assurances on any guarantee have so far not been provided.
Without a solid plan is the key reason behind the industry's caution. Operators seek guarantees against sovereign risk and the possibility that a subsequent president could refuse any agreement.
“It is essential to be shielded from sovereign risk, that we’ve witnessed in Venezuela before.”
Therefore, while political confidence runs high, the financial risks suggest a path of slow deliberation for any large-scale investment in the country's energy industry.
