By David Goldman
President Donald Trump has spoken in unequivocal terms: US oil companies are headed back to Venezuela, they’ll spend the tens of billions of dollars required to restore the country’s energy infrastructure, and they’ll reap the potentially enormous rewards.
“We’re going to keep the oil,” Trump said in an extraordinary statement to MS NOW’s Joe Scarborough Tuesday.
But for Trump to get his wish, Venezuela and the United States need to sharply reduce the substantial risk for US oil companies in a market with a tortured past, a tumultuous present and a deeply uncertain future.
Rule of law
Venezuela’s military has taken an active role in state-run oil company Petróleos de Venezuela, SA, better known as PDVSA. The country’s energy infrastructure has been subject to rampant theft.
If US oil companies are going to return they need to know they’re going to be safe.
“As a first step, US oil companies would need some type of security guarantees and reassurances and be confident that their personnel and equipment would be safe on the ground,” said Tai Liu, BloombergNEF’s upstream oil analyst.
That responsibility could initially fall to the US military, which may need to secure the infrastructure. Long-term, Venezuela would need to ensure security.
“It’s hard to produce oil when pipelines blow up,” said Dan Pickering, founder and chief investment officer at Pickering Energy Partners. “Oil companies aren’t going to be bullied into spending money in a risky country or with risky terms.”
Political stability
To fully restore Venezuela’s crumbled infrastructure and return its production to pre-socialism levels, the oil industry would need to lay pipelines, set up drilling rigs, build port infrastructure and install reliable electricity, among other projects. That would cost more than $10 billion a year and take more than a decade to pay off, according to a consensus from industry experts.
The United States could be on its 49th president by then, and Venezuela would need to remake its government as a democracy and resist potential uprisings.
Oil companies will want to ensure the new Venezuelan and US governments don’t change the rules on them years down the line.
“The word of this administration is nowhere near enough. This takes a very strong political consensus, and we’re very far from that,” said Ryan Kellogg, deputy dean of the University of Chicago’s Harris School of Public Policy.