Energy analysts have voiced significant caution regarding optimistic predictions that US energy majors will rapidly invest tens of billions of dollars to revive the country's crumbling production facilities.
Requirement of Solid Protections
Without an absolute assurance of complete repayment from the American government, experts believe multinational oil companies to move with extreme caution.
“It would be premature to discuss any potential investments,” a spokesperson said recently.
The aggressive timeframe of less than 18 months was boldly proposed. Yet, industry projections suggest a more cautious outlook.
A More Realistic Outlook
“It’s probably going to take 36 months for any meaningful recovery in production,” commented an energy analyst.
He suggested energy firms would likely spend:
- Year one: Securing new regulatory frameworks.
- The second year: Commencing reconstruction of infrastructure.
- Year three: Starting to significantly ramp up production.
This suggests an increase of around half a million barrels per day possibly by the end of the decade.
Interest vs. Readiness for Risk
Experts make a key distinction between companies' curiosity and their appetite to invest heavily.
“In my view their curiosity is an eight, on a range of one to 10. I think their readiness is a much lower, because there is a lack of certainty yet.”
Veteran observers in the sector share this sentiment. They believe that firms will politically talk up the opportunity while actually acting with deliberate slowness.
The Colossal Investment Required
The required bill would be colossal. University 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 several years.
Yet, rebuilding output to historical levels of around 2.5 million barrels per day could require a massive $80 billion to $90 billion over six or seven years.
The Outstanding Issue of Federal Guarantees
The idea of energy companies being paid back by the federal government has been repeatedly raised. But, formal assurances on this proposal have so far not been forthcoming.
This lack of certainty is the key factor behind the sector's reluctance. Companies seek guarantees against sovereign risk and the possibility that a subsequent president could renege on any promise.
“They must be shielded from sovereign risk, that we’ve seen in Venezuela before.”
Ultimately, while rhetorical confidence runs high, the operational challenges suggest a road of extreme caution for any significant venture in the country's energy industry.
