Energy analysts have voiced significant caution regarding bullish statements that American energy majors will rapidly invest tens of billions of dollars to revive the country's broken energy sector.
The Need for Absolute Assurances
Lacking an solid promise of full reimbursement from the US federal government, experts believe global energy giants to act with significant hesitation.
“It seems premature to discuss any future business activities,” an official said this weekend.
The ambitious timeframe of under 18 months was publicly outlined. However, realistic assessments suggest a more cautious outlook.
A Likely Timeline
“It’s probably going to take 36 months for any meaningful output increase,” commented an energy analyst.
He suggested oil companies would likely spend:
- The first year: Securing new operating agreements.
- The second year: Commencing overhaul of infrastructure.
- Final phase: Reaching a position to meaningfully increase production.
This suggests an rise of around 500,000 barrels per day possibly by the end of the decade.
Appetite Compared to Willingness for Risk
There is a key distinction between firms' attention and their willingness to spend significantly.
“I believe their attention is an eight, on a range of one to 10. But their willingness is a much lower, because there is no clarity yet.”
Seasoned diplomats in the sector reinforce this view. The thinking is that majors will publicly talk up the opportunity while in practice acting with great care.
The Enormous Cost
The monetary investment would be enormous. University estimates suggest that increasing production by between half a million and a million barrels per day would require in excess of $10 billion in capital spending over two to three years.
Yet, returning output to previous levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over six or seven years.
The Pending Question of Government Backing
The prospect of firms being reimbursed by the US taxpayer has been repeatedly raised. Nevertheless, formal assurances on this proposal have not yet been announced.
The absence of clarity is the key factor for the sector's reluctance. Operators seek protection against political risk and the chance that a subsequent president could refuse any promise.
“It is essential to be insured against sovereign risk, that we’ve seen in Venezuela before.”
In summary, while rhetorical confidence runs strong, the practical realities suggest a journey of measured steps for potential significant investment in the country's oil sector.
