Energy analysts have expressed deep caution regarding recent statements that US oil giants will swiftly commit billions of dollars to fix the country's crumbling oil infrastructure.
Requirement of Solid Protections
Absent an absolute assurance of financial backing from the Washington, experts believe global energy giants to move with significant hesitation.
“It is premature to speculate on any potential investments,” a spokesperson commented recently.
The aggressive timeframe of less than 18 months was publicly proposed. Yet, expert analyses suggest a longer timeline.
A Likely Timeline
“Chances are going to take 36 months for any significant production bounce,” noted one chief investment officer.
Experts believe energy firms would likely spend:
- Year one: Securing new government and security contracts.
- Year two: Commencing rebuilding of infrastructure.
- The third year: Being able to meaningfully increase output.
The result could be an boost of around half a million bpd maybe by the end of the decade.
Interest vs. Appetite for Spending
Experts make a important separation between companies' curiosity and their willingness to spend substantially.
“I believe their interest is an high score, on a range of one to 10. I think their appetite is a much lower, because there is no clarity yet.”
Experienced operators in the country echo this caution. They believe that majors will politically call it fantastic while privately moving with deliberate slowness.
The Colossal Investment Required
The monetary investment would be enormous. Research projections suggest that increasing production by between half a million and a million barrels per day would require more than $10 billion in capital spending over two to three years.
But, rebuilding production to peak levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over many more years.
The Pending Question of Federal Guarantees
The idea of oil giants being compensated by the government has been often floated. However, concrete details on any guarantee have so far not been forthcoming.
This lack of certainty is the main factor behind the sector's hesitation. Companies seek guarantees against sovereign risk and the possibility that a different president could renege on any agreement.
“They must be insured against nationalization, that we’ve witnessed in Venezuela previously.”
Therefore, while rhetorical promises runs high, the practical risks suggest a road of measured steps for any significant investment in the country's energy industry.
