Market specialists have expressed considerable skepticism regarding bullish predictions that US energy majors will rapidly invest tens of billions of dollars to fix the country's dilapidated production facilities.
Requirement of Absolute Assurances
Lacking an absolute assurance of complete repayment from the American government, specialists predict international firms to proceed with extreme caution.
“It seems too early to speculate on any future business activities,” an official said recently.
The optimistic schedule of under a year and a half was publicly suggested. Nevertheless, realistic assessments indicate a longer timeline.
A Likely Timeline
“It is likely going to take multiple years for any meaningful output increase,” noted an energy analyst.
The analysis indicates oil companies would likely spend:
- The first year: Securing new regulatory frameworks.
- The second year: Investing in overhaul of facilities.
- The third year: Being able to meaningfully increase output.
The result could be an rise of around half a million barrels per day possibly by 2029.
Desire Versus Readiness for Investment
There is a important separation between companies' curiosity and their readiness to commit substantially.
“In my view their curiosity is an eight, on a scale of one to 10. But their willingness is a mid-range score, because there is no clarity yet.”
Seasoned diplomats in the sector share this caution. The thinking is that majors will politically talk up the opportunity while in practice moving with extreme caution.
The Vast Price Tag
The financial bill would be enormous. Research estimates suggest that increasing production by between half a million and a million bpd would require in excess of $10 billion in investment over several years.
However, rebuilding output to previous levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over many more years.
The Unanswered Issue of Government Backing
The suggestion of firms being paid back by the US taxpayer has been repeatedly raised. But, formal assurances on such a mechanism have so far not been forthcoming.
The absence of a solid plan is the key reason behind the industry's reluctance. Operators seek guarantees against political risk and the chance that a different government could refuse any deal.
“They must be protected from sovereign risk, that we’ve experienced in Venezuela before.”
Therefore, while political optimism runs strong, the financial risks suggest a path of slow deliberation for potential significant financial commitment in the country's oil sector.