Industry experts have voiced significant doubt regarding optimistic statements that American energy majors will quickly commit vast sums of dollars to revive the country's dilapidated energy sector.
Requirement of Absolute Guarantees
Without an absolute assurance of full reimbursement from the Washington, analysts expect multinational oil companies to move with extreme caution.
“It would be premature to speculate on any future business activities,” a spokesperson commented recently.
The optimistic timeframe of less than 18 months was publicly outlined. Yet, expert analyses suggest a longer timeline.
A Probable Outlook
“It’s probably going to take three years for any significant recovery in production,” noted one energy analyst.
He suggested energy firms would likely spend:
- The first year: Sorting through new operating agreements.
- The second year: Investing in overhaul of facilities.
- Year three: Starting to meaningfully increase production.
This suggests an increase of around half a million barrels per day possibly by the end of the decade.
Desire Versus Willingness for Risk
There is a critical difference between multinationals’ interest and their readiness to commit significantly.
“In my view their attention is an high score, on a range of ten. But their appetite is a mid-range score, because there is no clarity yet.”
Seasoned diplomats in the sector share this view. They believe that companies will publicly talk up the opportunity while actually proceeding with deliberate slowness.
The Enormous Investment Required
The monetary outlay would be enormous. University estimates suggest that increasing production by between 500,000 and a million barrels per day would require more than $10 billion in investment over several years.
But, returning production to previous levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over six or seven years.
The Pending Issue of Taxpayer Funding
The prospect of firms being compensated by the federal government has been repeatedly floated. But, formal assurances on such a mechanism have so far not been forthcoming.
The absence of certainty is the main factor behind the sector's hesitation. Firms seek protection against sovereign risk and the risk that a different president could cancel any deal.
“It is essential to be protected from sovereign risk, that we’ve witnessed in Venezuela before.”
Therefore, while political optimism runs high, the financial challenges suggest a path of slow deliberation for any large-scale investment in the country's energy industry.
