Market specialists have voiced considerable caution regarding recent claims that American oil giants will quickly pump billions of dollars to revive the country's crumbling energy sector.
Requirement of Absolute Protections
Lacking an absolute assurance of complete repayment from the Washington, experts believe global energy giants to act with great care.
“It is too early to comment on any upcoming plans,” an official said this weekend.
The aggressive timeline of under a year and a half has been boldly outlined. Nevertheless, industry projections suggest a different picture.
A Likely Schedule
“It is likely going to take multiple years for any kind of output increase,” commented an energy analyst.
Experts believe energy firms would likely spend:
- Initial phase: Sorting through new government and security contracts.
- Year two: Commencing overhaul of equipment.
- Year three: Being able to meaningfully increase output.
This would lead to an boost of around half a million bpd maybe by the end of the decade.
Interest vs. Readiness for Investment
There is a important separation between firms' attention and their readiness to commit substantially.
“In my view their attention is an high score, on a scale of one to 10. I think their appetite is a much lower, because there is no clarity yet.”
Seasoned operators in the country reinforce this view. The thinking is that companies will politically talk up the opportunity while privately acting with extreme caution.
The Colossal Cost
The financial bill would be colossal. Independent projections suggest that increasing production by between half a million and a million barrels per day would require more than $10 billion in investment over two to three years.
However, returning production to peak levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over six or seven years.
The Outstanding Issue of Government Backing
The suggestion of oil giants being compensated by the government has been often floated. But, specific plans on such a mechanism have not yet been provided.
This lack of certainty is the main reason behind the industry's caution. Companies seek protection against sovereign risk and the risk that a future administration could refuse any agreement.
“They must be shielded from political change, that we’ve experienced in Venezuela already.”
Therefore, while rhetorical confidence runs strong, the operational risks suggest a journey of measured steps for potential significant venture in the Venezuelan energy industry.
