Market specialists have shown significant skepticism regarding optimistic predictions that American oil giants will quickly invest billions of dollars to revive Venezuela's crumbling oil infrastructure.
Demand for Iron-Clad Assurances
Lacking an absolute assurance of complete repayment from the US federal government, experts believe multinational oil companies to act with extreme caution.
“It seems too early to speculate on any potential investments,” an official stated this weekend.
The ambitious timeframe of less than 18 months was boldly outlined. Nevertheless, industry projections indicate a longer timeline.
A Likely Schedule
“It is likely going to take three years for any significant recovery in production,” said an industry expert.
Experts believe oil companies would likely spend:
- The first year: Sorting through new regulatory frameworks.
- The second year: Investing in overhaul of equipment.
- Final phase: Starting to boost yield.
This would lead to an boost of around 500,000 barrels per day perhaps by the end of the decade.
Interest vs. Readiness for Risk
Analysts draw a important separation between companies' curiosity and their appetite to invest substantially.
“In my view their curiosity is an eight, on a range of ten. However, their appetite is a much lower, because there is no clarity yet.”
Veteran diplomats in the sector share this view. They believe that firms will publicly talk up the opportunity while actually proceeding with deliberate slowness.
The Colossal Investment Required
The required investment would be colossal. University projections suggest that adding between 500,000 and a million barrels per day would require over $10 billion in capital spending over two to three years.
However, returning output to previous levels of around 2.5 million barrels per day could require a massive $80 billion to $90 billion over many more years.
The Outstanding Question of Government Backing
The suggestion of oil giants being paid back by the federal government has been repeatedly floated. Nevertheless, formal assurances on this proposal have not yet been announced.
This lack of certainty is the key impediment for the sector's reluctance. Companies seek protection against sovereign risk and the possibility that a future president could renege on any agreement.
“You need to be shielded from political change, that we’ve witnessed in Venezuela before.”
Therefore, while political promises runs strong, the financial realities suggest a path of extreme caution for potential large-scale venture in the country's oil sector.
