Industry experts have expressed deep doubt regarding recent predictions that US energy majors will rapidly pump billions of dollars to fix the country's dilapidated energy sector.
The Need for Solid Guarantees
Lacking an “iron-clad guarantee” of full reimbursement from the Washington, analysts expect global energy giants to act with significant hesitation.
“It would be hasty to discuss any potential investments,” a spokesperson said in response.
The ambitious timeline of less than 18 months was boldly outlined. However, realistic assessments suggest a different picture.
A More Realistic Timeline
“Chances are going to take three years for any kind of production bounce,” said one chief investment officer.
He suggested oil companies would likely spend:
- Year one: Sorting through new regulatory frameworks.
- Following phase: Investing in reconstruction of infrastructure.
- Final phase: Reaching a position to meaningfully increase production.
The result could be an boost of around half a million bpd perhaps by the end of the decade.
Desire Versus Willingness for Investment
Analysts draw a critical difference between firms' attention and their readiness to commit significantly.
“In my view their curiosity is an eight, on a scale of one to 10. I think their appetite is a four or five, because there is no clarity yet.”
Veteran diplomats in the region reinforce this view. They believe that companies will politically talk up the opportunity while actually proceeding with great care.
The Enormous Cost
The monetary bill would be enormous. Research analysis suggest that increasing production by between 500,000 and a million barrels per day would require in excess of $10 billion in capital spending over two to three years.
Yet, rebuilding output to historical levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over six or seven years.
The Pending Question of Government Backing
The idea of energy companies being compensated by the government has been repeatedly raised. However, formal assurances on this proposal have not yet been forthcoming.
Without a solid plan is the primary reason behind the industry's reluctance. Firms seek guarantees against sovereign risk and the possibility that a future president could renege on any promise.
“They must be insured against sovereign risk, that we’ve seen in Venezuela already.”
In summary, while political optimism runs high, the practical realities suggest a path of slow deliberation for potential major investment in the country's energy industry.