WASHINGTON.– The president’s plan Donald Trump of take control of Venezuela’s oil industry and ask American companies to revitalize it after capturing President Nicolás Maduro likely to have no significant immediate impact on oil prices.
The Venezuelan oil industry is in poor condition after years of neglect and international sanctionshence It could take years and significant investments for production to increase dramatically. However, some analysts are optimistic and believe that Venezuela could double or triple its current production of approximately 1.1 million barrels of oil per day to return to historical levels relatively quickly.
“While many report that Venezuela’s oil infrastructure was not damaged by US military actions, it has been deteriorating for many years and will take time to rebuild,” said Patrick De Haan, who is the lead oil analyst at gasoline price tracker GasBuddy.
American oil companies will want a stable regime in the country before being willing to make large investmentsand the political landscape remained uncertain on Saturday with Trump saying the United States is in charge, while the current Venezuelan vice president argued, before Venezuela’s high court ordered her to assume the role of interim president, that Maduro should be restored to power.
“But if it looks like the United States is successful in governing the country over the next 24 hours, I would say there will be a lot of optimism that American energy companies could come in and revitalize the Venezuelan oil industry fairly quickly,” said Phil Flynn, senior market analyst at Price Futures Group.
Y if Venezuela manages to become an oil producing powersaid Flynn, “that could consolidate lower prices in the long term” y put more pressure on Russia.
Oil did not trade over the weekend, so there was no immediate impact on prices. However, no significant change in prices expected when market reopens. Venezuela is a member of OPEC, so its production is already accounted for there. Currently, there is a surplus of oil on the world market.
It is known that Venezuela has the largest proven crude oil reserves in the worldwith approximately 303 billion barrelsaccording to the United States Energy Information Administration. This represents approximately 17% of all world oil reserves.
So international oil companies have reason to be interested in Venezuela. Exxon Mobil did not immediately respond to a request for comment on Saturday. ConocoPhillips spokesperson Dennis Nuss stated by email that the company is monitoring developments in Venezuela and their potential implications for global energy supply and stability. It would be premature to speculate on future business activities or investments.
Chevron is the only company with significant operations in Venezuelawhere it produces around 250,000 barrels per day. Chevron, which first invested in Venezuela in the 1920s, operates in the country through joint ventures with the state-owned company Petróleos de Venezuela SA, commonly known as PDVSA.
“Chevron continues to prioritize the safety and well-being of its employees, as well as the integrity of its assets. We continue to operate in full compliance with all applicable laws and regulations,” said Chevron spokesperson Bill Turenne.
But even with those enormous reserves, Venezuela was producing less than 1% of the world’s crude oil supply. The corruptionmismanagement and US economic sanctions caused a constant decline in production, from the 3.5 million barrels per day extracted in 1999 to current levels.
The problem is not finding the oil. It is a question of the political environment and whether the Companies can trust the government to honor their contracts. In 2007, then-President Hugo Chávez nationalized much of oil production and forced large companies such as ExxonMobil and ConocoPhillips to withdraw.
“The problem is not just that the infrastructure is in poor condition, but above all how to get foreign companies to start investing money before they have a clear perspective on political stability, the contract situation and the like,” said Francisco Monaldi, director of the Latin American energy program at Rice University.
But the infrastructure needs significant investment.
“The estimate is that for Venezuela to go from one million barrels a day – that is what it produces today – to four million barrels, It will take about a decade and about one hundred billion dollars of investment”, said Monaldi.
Venezuela produces the type of heavy crude oil needed for diesel, asphalt and other fuels for heavy machinery.. The diesel scarce around the world because of oil sanctions from Venezuela and Russia, and because lighter American crude cannot easily replace it.
Years ago, U.S. refineries on the Gulf Coast were optimized to handle that type of heavy crude at a time when U.S. oil production was declining and Venezuelan and Mexican crude was plentiful. Therefore, refiners would love to have more access to Venezuelan crude, as it would help them operate more efficiently and is usually a little cheaper.
Increasing Venezuelan production could also ease pressure on Russia because Europe and the rest of the world could get more diesel and heavy oil. They need Venezuela and stop buying from Russia.
“The collapse of the Venezuelan oil industry has been very beneficial for Russia. And the reason is because they were a global competitor in that oil market,” Flynn said.
But Matthew Waxman, a Columbia University law professor who was a national security official in the George W. Bush administration, said taking control of Venezuela’s resources opens up additional legal problems.
“For example, a big problem will be Who really owns Venezuela’s oil?” Waxman wrote in an email. “An occupying military power cannot enrich itself by appropriating another state’s resources, but the Trump administration will likely argue that the Venezuelan government never legitimately possessed them.”
But Waxman, who served in the State and Defense departments and on the National Security Council under the Bush administration, noted that “we have seen the administration speak very disparagingly about international law when it comes to Venezuela.”
