Energy analysts have expressed deep doubt regarding recent claims that American energy majors will quickly commit tens of billions of dollars to fix the country's dilapidated oil infrastructure.
Demand for Absolute Guarantees
Without an absolute assurance of financial backing from the Washington, analysts expect multinational oil companies to proceed with extreme caution.
“It would be too early to discuss any future business activities,” a spokesperson commented this weekend.
The optimistic timeframe of under 18 months has been publicly proposed. Yet, expert analyses suggest a longer timeline.
A Likely Timeline
“It is likely going to take three years for any meaningful production bounce,” commented an industry expert.
The analysis indicates operators would likely spend:
- The first year: Navigating new government and security contracts.
- Year two: Commencing rebuilding of facilities.
- Final phase: Being able to significantly ramp up output.
This would lead to an boost of around 500,000 bpd possibly by the end of the decade.
Appetite Compared to Readiness for Spending
There is a critical difference between firms' attention and their appetite to invest significantly.
“In my view their curiosity is an high score, on a range of ten. But their appetite is a four or five, because there is significant uncertainty yet.”
Seasoned diplomats in the country share this view. The thinking is that companies will politically talk up the opportunity while actually acting with deliberate slowness.
The Vast Cost
The required outlay would be colossal. Research projections suggest that increasing production by between 500,000 and a million barrels per day would require over $10 billion in investment over several years.
However, rebuilding production 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 Pending Issue of Government Backing
The suggestion of oil giants being paid back by the federal government has been repeatedly raised. But, formal assurances on any guarantee have so far not been announced.
The absence of a solid plan is the key reason behind the sector's caution. Firms seek guarantees against nationalization and the risk that a subsequent government could renege on any agreement.
“It is essential to be protected from sovereign risk, that we’ve experienced in Venezuela previously.”
Therefore, while political promises runs high, the practical realities suggest a road of slow deliberation for potential large-scale venture in the country's energy industry.
