Market specialists have voiced significant caution regarding bullish claims that US oil giants will rapidly pump billions of dollars to fix the country's broken oil infrastructure.
The Need for Iron-Clad Guarantees
Without an “iron-clad guarantee” of financial backing from the US federal government, specialists predict global energy giants to act with great care.
“It seems hasty to comment on any potential investments,” an official said recently.
The ambitious schedule of under a year and a half has been publicly proposed. Yet, industry projections indicate a longer timeline.
A Likely Timeline
“Chances are going to take three years for any meaningful output increase,” noted an industry expert.
The analysis indicates oil companies would likely spend:
- Initial phase: Sorting through new government and security contracts.
- Following phase: Investing in rebuilding of equipment.
- The third year: Starting to meaningfully increase production.
This suggests an boost of around 500,000 barrels per day possibly by the end of the decade.
Desire Versus Readiness for Risk
There is a important separation between multinationals’ interest and their willingness to spend substantially.
“I believe their attention is an eight, on a scale of ten. But their appetite is a much lower, because there is no clarity yet.”
Experienced observers in the region reinforce this view. The expectation is that companies will politically talk up the opportunity while in practice moving with great care.
The Enormous Price Tag
The financial outlay would be vast. University analysis suggest that adding between half a million and a million bpd would require over $10 billion in capital spending over two to three years.
Yet, rebuilding 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 Pending Issue of Government Backing
The idea of oil giants being compensated by the government has been often floated. But, formal assurances on such a mechanism have so far not been forthcoming.
The absence of a solid plan is the main impediment behind the sector's reluctance. Firms seek guarantees against political risk and the risk that a different government could renege on any deal.
“You need to be insured against nationalization, that we’ve experienced in Venezuela previously.”
In summary, while political promises runs strong, the financial risks suggest a path of extreme caution for potential large-scale investment in the country's energy industry.
