Industry experts have expressed considerable doubt regarding bullish predictions that US large firms will rapidly pump billions of dollars to rebuild the country's crumbling oil infrastructure.
The Need for Solid Guarantees
Absent an “iron-clad guarantee” of financial backing from the US federal government, analysts expect international firms to proceed with extreme caution.
“It is hasty to discuss any upcoming plans,” a spokesperson stated this weekend.
The optimistic timeframe of less than 18 months has been boldly proposed. Nevertheless, expert analyses indicate a different picture.
A Likely Outlook
“Chances are going to take multiple years for any meaningful recovery in production,” noted one chief investment officer.
He suggested energy firms would likely spend:
- The first year: Securing new government and security contracts.
- Following phase: Commencing overhaul of infrastructure.
- Year three: Starting to meaningfully increase yield.
This suggests an increase of around half a million barrels per day possibly by the end of the decade.
Interest vs. Willingness for Spending
Experts make a important separation between companies' curiosity and their appetite to invest heavily.
“I think their interest is an eight, on a scale of ten. I think their appetite is a much lower, because there is significant uncertainty yet.”
Experienced observers in the region reinforce this caution. The expectation is that majors will publicly talk up the opportunity while in practice acting with great care.
The Enormous Cost
The financial outlay would be colossal. Independent projections suggest that adding between 500,000 and a million bpd would require over $10 billion in capital spending over several years.
However, rebuilding output to historical levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over six or seven years.
The Unanswered Question of Government Backing
The prospect of energy companies being compensated by the government has been often raised. However, concrete details on any guarantee have not yet been provided.
The absence of clarity is the primary reason for the sector's reluctance. Firms seek guarantees against political risk and the possibility that a subsequent government could cancel any agreement.
“It is essential to be insured against political change, that we’ve witnessed in Venezuela previously.”
Ultimately, while political confidence runs high, the operational realities suggest a path of slow deliberation for any large-scale investment in the country's energy industry.
