One of President Donald Trump’s promises after the removal of Venezuelan leader Nicolás Maduro by the United States is private American investment in the country’s unproductive oil fields.
“We will have our big American oil companies, the largest in the world, come in, spend billions of dollars, repair the oil infrastructure, which is badly damaged, and start generating revenue for the country,” said Trump on January 3 at a press conference at Mar-a-Lago.
He reiterated it on January 4 to journalists at the Air Force Onesaying: “We will have to have large investments from the oil companies to recover the infrastructure. The oil companies are ready to do it.”
Are they? It is less certain than Trump presents it.
When reporters asked for specific details about the investments, Trump refused to offer them. In statements to the program “This Week” de ABC On January 4, Secretary of State Marco Rubio agreed with Trump, saying he expects “great interest from Western companies,” without offering details.
Reached for comment, the White House told PolitiFact that the administration has held talks with several oil companies, without naming any. “All of our oil companies are ready and willing to make major investments in Venezuela that will rebuild their oil infrastructure,” said White House spokesman Taylor Rogers.
The American Petroleum Institute, the oil industry’s main trade association, told PolitiFact in a statement that the group is “closely monitoring” developments.
“Globally, energy companies make investment decisions based on stability, the rule of law, market forces and long-term operational considerations,” the statement said.
A ConocoPhillips spokesperson gave a similar response, according to information pressstating that the company “is monitoring developments” but that it would be “premature to speculate on future business activities or investments.”
Experts told PolitiFact that there are ample reasons to be cautious about a sudden increase in new private investments in Venezuelan oil infrastructure. Although Venezuela’s oil reserves are the most big in the worldobstacles include high upfront costs for building infrastructure, limited profit potential due to current low oil prices, and continued concerns about political stability.
“I don’t see a compelling business justification for any American company to invest billions of dollars over years or decades to try to profit from Venezuelan oil,” said Hugh Daigle, a professor in the department of petroleum and geosystems engineering at the University of Texas at Austin.
Patrick De Haan, head of oil analysis at GasBuddy, a gasoline price analysis app, said uncertainty about Venezuela’s government will likely worry oil companies.
“Oil companies are probably not eager to invest billions of dollars and take risks until there is clarity in the Venezuelan regime,” De Haan said. “I don’t think the impact of the situation will be more than negligible, possibly for years, and even then, only if things go very well.”
What would be the advantages of investing in the oil industry in Venezuela?
U.S. companies such as ExxonMobil and ConocoPhillips left Venezuela after Hugo Chavez, Maduro’s predecessor, nationalized the oil industry in 2007. Chevron is the only U.S. oil major that has consistently produced oil in Venezuela in recent years.
How nationalized, and in some cases internationally sanctioned, Venezuelan oil resources are opened will determine who benefits, said Kenneth Gillingham, a professor of environmental and energy economics at Yale University.
If the market were opened only to the largest American oil corporations, they would primarily benefit, but their gains would be more limited if the market was also opened to companies based outside the United States, Gillingham added. American drivers could benefit from increased production that puts downward pressure on prices, but these gains would depend largely on global market factors.
Some oil companies could be attracted to Venezuela because it would allow them to diversify their investments, said Skip York, a fellow at Rice University’s Center for Energy Studies.
Compared to crude oil from many countries, Venezuelan crude oil is relatively heavy. This means they take longer to extract, but once the wells are operational, they can continue producing for longer periods.
The United States does not generally produce heavy crude oil from its own deposits, but a portion of the U.S. refinery sector is specifically designed to process it. Therefore, having a constant supply of Venezuelan heavy crude oil could keep these refineries operational. Rubio mentioned this opportunity in “This Week”.
If Venezuela regains political and economic stability, York said, “a return of 15% to 20% could be expected, which could be competitive with other development opportunities.”
Obstacles remain for US oil companies
Oil experts cited several challenges to making big profits from Venezuelan reserves:
The initial cost of improving infrastructure will be significant. “The Venezuelan oil industry has been nationalized for many decades and has suffered from a lack of investment, both foreign and domestic,” Daigle said. New investment would be needed to keep facilities and operations up to date, with no guarantee of profitability.
The political situation in Venezuela remains unstable. “Not many companies will rush to invest in an environment where there is no stability,” he told New York Times Ali Moshiri, who ran Chevron’s operations in Venezuela until 2017 and now runs a private oil company with interests in the country.
At a minimum, Venezuela would need a new legal framework for the oil sector, York said. Even after all legal and financial issues are resolved, he added, it would take “years to rehabilitate the infrastructure and drill new wells.”
Oil prices are low. The high initial infrastructure costs and risks arising from political instability could be financially justified if oil prices were high enough. But the prices are relatively low. Since Trump took office, the price per barrel crude oil has fallen approximately 25%.
“With oil prices near multi-year lows, oil companies are likely to be slow to pour money into Venezuela, which could further erode oil prices,” De Haan said.
The reluctance to invest significantly to expand production can already be seen nationally in the industry’s declining efforts to drill new wells in the United States. A weekly platform count oil plants in use in the US shows a 16% decline from its most recent peak in April.
If companies are not willing to invest in drilling in the US, with its consolidated infrastructure and relative political stability, it is not clear that they will bet on Venezuela.
The long-term importance of oil depends on the future of electric vehicles. “If we continue to consume large amounts of oil and prices remain high, new companies investing in Venezuela are likely to recoup their investment over time,” Gillingham said. “However, if electric vehicles continue to fall in price and become more popular, both in the US and globally, this will limit the rise in oil prices and make it less likely that investment costs will be recovered.”
This article was translated by Telemundo 51 Miami.
Read more PolitiFact reports in Spanish.
