Energy analysts have voiced considerable skepticism regarding optimistic predictions that American large firms will rapidly commit billions of dollars to revive Venezuela's crumbling production facilities.
Requirement of Absolute Guarantees
Absent an solid promise of financial backing from the Washington, analysts expect global energy giants to move with extreme caution.
“It would be premature to speculate on any future business activities,” an official said this weekend.
The ambitious timeline of less than 18 months has been publicly outlined. However, industry projections indicate a more cautious outlook.
A Probable Schedule
“It’s probably going to take multiple years for any kind of output increase,” noted an energy analyst.
He suggested energy firms would likely spend:
- Initial phase: Sorting through new operating agreements.
- The second year: Beginning reconstruction of infrastructure.
- Final phase: Being able to significantly ramp up output.
This suggests an increase of around 500,000 barrels per day perhaps by 2029.
Appetite Compared to Readiness for Spending
There is a critical difference between firms' attention and their willingness to spend heavily.
“In my view their curiosity is an eight, on a range of one to 10. But their readiness is a mid-range score, because there is no clarity yet.”
Experienced observers in the country share this caution. The thinking is that firms will publicly talk up the opportunity while privately proceeding with extreme caution.
The Enormous Price Tag
The monetary outlay would be enormous. Independent estimates suggest that increasing production by between half a million and a million barrels per day would require over $10 billion in funding over two to three years.
However, returning production to previous levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over six or seven years.
The Outstanding Question of Federal Guarantees
The idea of oil giants being paid back by the government has been repeatedly floated. But, specific plans on any guarantee have not yet been provided.
Without certainty is the main impediment for the sector's hesitation. Companies seek guarantees against sovereign risk and the chance that a different president could refuse any promise.
“They must be insured against political change, that we’ve witnessed in Venezuela before.”
Therefore, while political confidence runs high, the practical challenges suggest a road of measured steps for any major investment in the Venezuelan energy industry.
