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President Donald Trump says big U.S. oil companies “really want to get a foothold” in Venezuela. and spend billions of dollarsBut the reality is that U.S. oil producers are hesitant, and it will take many years and tens of billions of dollars to rebuild Venezuela’s decimated oil sector after the United States removed and forcibly arrested leader Nicolás Maduro in a series of attacks on January 3.
It would likely need to more than double Venezuela’s current oil production by 2030 and cost about $110 billion, research firm Rystad Energy said, arguing that returning Venezuela, home to the world’s largest known oil reserves, to its previous peaks would take even longer. Venezuela’s current oil flows of around 900,000 barrels per day are about a third of its turn-of-the-century volumes, due to mismanagement, strikes, sanctions and financial difficulties.
“We’re not waving a magic wand here and all of a sudden more oil starts coming out of Venezuela,” said Dan Pickering, founder and chief investment officer of consulting and research firm Pickering Energy Partners.
“You are not going to intimidate Exxon [Mobil] And Chevron to spend a lot of money in a risky place,” Pickering said. “Trump said, ‘Drill, baby, drill,’ and the industry didn’t listen. They’re not going to blindly deploy capital because the U.S. government says they should.”
Oil prices remain low – they rose less than 2% on January 5 – because the world is flush with oil, making it harder to justify new costly and risky foreign investments. “All the excitement and hype surrounding Venezuela’s future really deserves a reality check. The hype and reality are very far apart,” said Matt Reed, vice president at geopolitical and energy consultancy Foreign Reports.
“If you talk about building Venezuela, you talk about introducing [oil] businesses that need real certainty. They need the situation to stabilize. They need to be sure that the situation will remain stable if they want to assume the risk and invest. At this point, no one is going to rush,” Reed said.
“Who will lead Venezuela next year or the year after?” » asked Reed. “The Trump administration is saying, ‘Well, we’ll deal with that later.’ In the meantime, oil companies are not going to assume that the best case scenario is going to happen and commit to anything.”
While the United States focused in the fall on boat bombings from Venezuela — killing more than 100 people so far — the Trump administration talked about narcoterrorism and curbing immigration issues. When the United States began seizing tankers In December and launched a pseudo-oil blockade, Trump began talking more and more about oil and the Venezuelan expropriation of U.S. companies’ oil assets in 2007 to justify the January 3 attacks and arrests. All American companies except Chevron have left Venezuela. Chevron operates under special license and produces almost 20% of Venezuela’s oil.
“The oil companies are going to step in and rebuild their system,” Trump said on January 4. “They’re going to spend billions of dollars, they’re going to extract oil from the ground, and we’re going to take back what they stole. Remember, they stole our property. It was the greatest theft in American history.”
Ironically, Trump is essentially using oil to argue that Venezuela is not like the 2003 invasion of Iraq under George W. Bush, which critics claimed was about oil, Reed said. “When Trump talks about oil, he talks about money. He argues that any reconstruction will pay for itself…and that the United States can avoid the endless, complicated, and costly wars of regime change that have defined the war on terror.”
“Many Americans find it distasteful that the United States fights wars over oil. This is not a winning argument for politicians,” Reed added.
What comes next?
Wood Mackenzie and other energy research firms estimate that, within a year, Venezuela could increase its oil volumes from less than a million barrels per day to about 1.2 million barrels with cooperation from the United States and with state oil company PDVSA and Chevron going after the so-called low-hanging fruit.
Everything else is much more complicated to rebuild much of the production, pipeline and processing infrastructure to extract much more oil from the ground and ship it to countries around the world, primarily China and the United States.
Still, Chevron’s stock jumped 5% on Jan. 5, while Exxon Mobile And ConocoPhillips increased by more than 2%. Two of the largest oilfield services players best positioned to work in Venezuela again, Halliburton shares rose nearly 8% and SLB shares rose nearly 9%.
Oil companies are reluctant to make public comments, wanting to avoid antagonizing either the Trump administration or the remaining Maduro regime, currently led by Maduro’s vice president, Delcy Rodríguez, who is taking a more conciliatory tone with the United States after his initially provocative rhetoric that Maduro was illegally kidnapped and should be returned to power.
Exxon, Halliburtonand SLB declined to comment at this time. ConocoPhillips said it was monitoring the situation and that it was “premature” to speculate on future investments.
Chevron said it was focused on the safety of its employees in Venezuela and the integrity of its oil assets, declining comment on the future.
At a conference in Washington, D.C. in November, Chevron Chairman and CEO Mike Wirth said the geopolitical circumstances were difficult, but Venezuela’s potential was worth it. “The kinds of fluctuations you see in places like Venezuela are difficult. But we’re playing a long game. Venezuela is fortunate to have a lot of geological resources and wealth. And we are committed to the people of the country and would like to be there as part of rebuilding Venezuela’s economy in time when circumstances change.”
Most oil refineries around the world are not set up to process the very heavy grades of crude from Venezuela, but China has many refineries that can and therefore receives about 80% of Venezuela’s oil exports. Energy analysts have said control of Venezuelan oil could give the United States more leverage in negotiations with China over the country’s dominated rare earth processing industry.
Most of the rest of oil exports are headed to the U.S. Gulf Coast, where several refineries are hungry for larger volumes and must increasingly rely on heavy barrels from Canadian tar sands.
And, in the short term, Venezuela’s oil production could fall further before rebounding or rebuilding.
“What currently matters for the oil market is [naval] blockade. And the blockade is going to stay in place for as long as it takes to get results,” Reed said, saying Venezuelan leaders will have to comply with U.S. demands. “It could take months. That’s a lot of oil that the Venezuelans won’t be able to export until Trump is happy with it.”
This story was originally featured on Fortune.com
