Energy analysts have voiced considerable doubt regarding bullish claims that American large firms will rapidly pump tens of billions of dollars to fix Venezuela's crumbling energy sector.
Requirement of Absolute Protections
Lacking an solid promise of complete repayment from the US federal government, experts believe global energy giants to act with great care.
“It is too early to comment on any upcoming plans,” an official said recently.
The ambitious timeframe of under 18 months was boldly proposed. However, expert analyses indicate a different picture.
A Likely Outlook
“Chances are going to take 36 months for any significant recovery in production,” commented one chief investment officer.
The analysis indicates operators would likely spend:
- Year one: Securing new regulatory frameworks.
- Following phase: Investing in rebuilding of facilities.
- Final phase: Being able to significantly ramp up output.
This suggests an boost of around 500,000 barrels per day possibly by the end of the decade.
Desire Versus Appetite for Risk
Experts make a key distinction between multinationals’ interest and their willingness to spend substantially.
“I believe their curiosity is an eight, on a scale of one to 10. I think their appetite is a mid-range score, because there is significant uncertainty yet.”
Seasoned operators in the region reinforce this caution. The thinking is that firms will publicly express enthusiasm while in practice proceeding with great care.
The Colossal Investment Required
The required investment would be enormous. Independent analysis suggest that adding between half a million and a million barrels per day would require in excess of $10 billion in capital spending over two to three years.
But, returning production to previous levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over six or seven years.
The Outstanding Issue of Government Backing
The idea of energy companies being reimbursed by the government has been repeatedly raised. However, specific plans on this proposal have so far not been forthcoming.
This lack of certainty is the main factor for the sector's reluctance. Companies seek protection against sovereign risk and the risk that a subsequent president could refuse any deal.
“You need to be insured against sovereign risk, that we’ve witnessed in Venezuela previously.”
Ultimately, while political promises runs high, the operational risks suggest a road of slow deliberation for any significant investment in the Venezuelan energy industry.
