Energy analysts have voiced considerable doubt regarding bullish statements that American oil giants will rapidly invest billions of dollars to fix the country's crumbling oil infrastructure.
Requirement of Absolute Guarantees
Absent an “iron-clad guarantee” of financial backing from the Washington, experts believe multinational oil companies to proceed with extreme caution.
“It would be too early to speculate on any potential investments,” a representative stated recently.
The optimistic timeframe of under 18 months has been boldly suggested. Nevertheless, industry projections paint a different picture.
A Likely Schedule
“It is likely going to take 36 months for any significant production bounce,” said an energy analyst.
The analysis indicates energy firms would likely spend:
- The first year: Sorting through new government and security contracts.
- The second year: Investing in reconstruction of infrastructure.
- Year three: Reaching a position to boost production.
The result could be an boost of around 500,000 bpd perhaps by the end of the decade.
Appetite Compared to Willingness for Investment
There is a key distinction between multinationals’ interest and their appetite to invest substantially.
“In my view their curiosity is an high score, on a scale of ten. I think their readiness is a mid-range score, because there is a lack of certainty yet.”
Veteran observers in the region echo this caution. The thinking is that majors will politically talk up the opportunity while in practice proceeding with deliberate slowness.
The Vast Investment Required
The monetary outlay would be vast. Research analysis suggest that adding between 500,000 and a million bpd would require in excess of $10 billion in investment over several years.
However, restoring output to previous levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over six or seven years.
The Unanswered Question of Government Backing
The prospect of oil giants being compensated by the government has been repeatedly mentioned. But, specific plans on such a mechanism have so far not been provided.
This lack of a solid plan is the key impediment for the industry's reluctance. Companies seek safeguards against sovereign risk and the chance that a future government could refuse any agreement.
“You need to be protected from nationalization, that we’ve experienced in Venezuela already.”
In summary, while political optimism runs high, the practical risks suggest a road of measured steps for potential large-scale venture in the country's oil sector.
