Market specialists have shown considerable skepticism regarding optimistic statements that US energy majors will quickly commit vast sums of dollars to rebuild the country's dilapidated oil infrastructure.
Requirement of Iron-Clad Assurances
Lacking an absolute assurance of financial backing from the Washington, specialists predict international firms to act with great care.
“It would be hasty to comment on any upcoming plans,” an official stated this weekend.
The aggressive timeline of less than 18 months was boldly outlined. However, realistic assessments indicate a more cautious outlook.
A More Realistic Outlook
“Chances are going to take three years for any kind of output increase,” commented an energy analyst.
Experts believe energy firms would likely spend:
- Initial phase: Securing new regulatory frameworks.
- Following phase: Investing in reconstruction of equipment.
- The third year: Being able to meaningfully increase production.
This suggests an increase of around half a million bpd perhaps by the end of the decade.
Desire Versus Appetite for Spending
There is a important separation between companies' curiosity and their willingness to spend heavily.
“I believe their attention is an high score, on a scale of one to 10. I think their readiness is a four or five, because there is no clarity yet.”
Seasoned diplomats in the sector share this caution. The expectation is that majors will politically call it fantastic while actually moving with great care.
The Colossal Cost
The required investment would be vast. Independent estimates suggest that increasing production by between 500,000 and a million barrels per day would require in excess of $10 billion in investment over several years.
Yet, rebuilding output to previous levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over six or seven years.
The Pending Question of Federal Guarantees
The suggestion of energy companies being paid back by the government has been often mentioned. But, formal assurances on any guarantee have so far not been announced.
Without certainty is the key impediment for the industry's reluctance. Companies seek safeguards against political risk and the possibility that a different government could cancel any deal.
“You need to be protected from sovereign risk, that we’ve experienced in Venezuela previously.”
Therefore, while rhetorical promises runs strong, the practical realities suggest a path of extreme caution for potential major financial commitment in the country's oil sector.
