President Donald Trump has promised US investment in Venezuela’s underutilized oil fields following the abduction of Venezuelan President Nicolas Maduro by US special forces.
In a Mar-a-Lago news conference on January 3, Trump declared, “We’re going to have our very large United States oil companies, the largest anywhere in the world, go in, spend billions of dollars, fix the badly damaged infrastructure, the oil infrastructure, and start making money for the country,” going into the Mar-a-Lago.
He asserted to reporters on Air Force One on January 4 that “we’re going to have significant investments by the oil companies to restore the infrastructure.” The oil companies are prepared to leave.
Are they, though? Trump’s assertions about it sound less accurate.
Trump declined to provide the specifics when reporters requested them. Secretary of State Marco Rubio echoed Trump when he spoke on ABC’s This Week on January 4 and didn’t provide any details.
The White House disclosed to PolitiFact that it had spoken with several oil companies when it was contacted for comment, but declined to name any of them.
According to White House spokesman Taylor Rogers, “all of our oil companies are ready and willing to make significant investments in Venezuela to rebuild their oil infrastructure.”
The top trade organization in the US for the oil industry, the American Petroleum Institute, stated in a statement to PolitiFact that it is “closely monitoring” the developments.
Energy companies make investment decisions based on stability, the rule of law, market forces, and long-term operational considerations, according to the statement.
According to media reports, a ConocoPhillips spokesman responded in a similar way, saying the business was “watching developments” but that it was premature to speculate on any potential business ventures or investments.
According to experts, Venezuela’s oil infrastructure is experiencing significant growth, which raises questions for caution. Venezuela has the largest oil reserves in the world, but challenges arise from low oil prices, high upfront costs for infrastructure construction, and persistent concerns about political stability.
According to Hugh Daigle, a professor with the University of Texas at Austin’s petroleum and geo-systems engineering department, “I do not see a compelling business case for any US-based company to invest billions of dollars over years to decades to try to turn a profit in Venezuelan oil.”
Oil companies are likely to be concerned by the uncertainty surrounding Venezuela’s governance, according to Patrick De Haan, head of petroleum analysis for GasBuddy, a gas price app.
De Haan argued that oil companies aren’t “chomping at the bit” to invest billions of dollars and risk taking themselves until the Venezuelan regime is understood. Beyond a seemingly negligible impact, and even then, I don’t think there will be, even if things do not go so well, for years.
What benefits would Venezuela’s oil industry investment have?
After Hugo Chavez, Maduro’s successor, made the decision to nationalize the oil industry in 2007, US companies ExxonMobil and ConocoPhillips left Venezuela. The only major US oil company that has consistently produced oil in Venezuela in recent years is Chevron, which is the only major US oil company.
Who benefits from Venezuela’s nationalization and, in some cases, international sanctioned oil resources, according to Yale University professor of environmental and energy economics Kenneth Gillingham.
The biggest US oil corporations would primarily profit if the market were restricted to the biggest US oil companies, according to Gillingham, but those companies’ gains would be less significant if they were also allowed to enter the market from countries other than the US, Gillingham said. Increased production and lower prices could have a significant impact on US drivers, but these changes would depend heavily on global market conditions.
According to Skip York, a fellow at Rice University’s Center for Energy Studies, some oil companies might be drawn to Venezuela because it would allow them to diversify their investments.
Venezuelan crude is comparatively heavy in comparison to crude oil in many nations. That implies that the wells are longer to be extracted but can continue to produce for longer periods of time once they are established.
Although the US refinery sector is designed to handle heavy crude, the country generally doesn’t produce it from its own deposits. Therefore, these refineries could remain operational if they had a steady supply of heavy Venezuelan crude. This Week featured Rubio citing this opportunity.
According to York, “one could anticipate returns of 15 to 20%, which could be in line with other development opportunities,” if Venezuela recovers its political and economic stability.
US oil companies  still face challenges.
Oil experts cited a number of obstacles to obtaining significant profits from Venezuelan reserves:
The upfront cost of upgrading infrastructure will be significant. According to Daigle, “the Venezuelan oil industry has been nationalized for many decades and has suffered from a lack of domestic and foreign investment.” Without a guarantee of payback, new investment would be required to maintain facilities and operations.
Venezuela’s political climate is still unresolved. According to Ali Moshiri, who led Chevron’s operations in Venezuela until 2017 and currently runs a private oil company with interests there, “Not many companies are going to rush into an environment where there’s no stability.”
According to York, Venezuela would need a new petroleum law framework at the very least. He claimed that it would take “years to refurbish infrastructure and drill new wells” even after all the legal and financial issues had been resolved.
Low oil prices are observed. If oil prices were high enough, risks from political instability and high upfront infrastructure costs could be financially justified. However, prices are still reasonable. Since Trump’s election as president, crude oil’s price per barrel has dropped by about a quarter.
Oil companies are unlikely to run to Venezuela to spend money because oil (prices) are close to multi-year lows, according to De Haan.
Domestically, declining industry efforts to drill new US wells have already demonstrated the industry’s reluctance to spend significant amounts of money to increase production. Oil rigs in use in the US have decreased by 16% since their most recent all-time high of April. With its established infrastructure and relative political stability, it’s not clear if companies aren’t eager to invest in drilling in the US.
Source: Aljazeera
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