analyse
The USA wants to secure long-term access to Venezuelan oil. President Trump has now pressured the heads of oil companies to invest. But it is still questionable whether they want to get into the business.
A week after Maduro was captured, US President Donald Trump hosted representatives from several oil companies. He advocated that they enter Venezuela quickly and on a large scale. But there is no gold rush atmosphere in the industry. There are solid economic reasons for this that Trump doesn’t seem to have on his radar.
The US government promises that it will control the oil sector in Venezuela until further notice; However, whether this alone makes major investments there worthwhile for the American oil multinationals is another question.
Companies will be careful
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Industry expert Bob McNally told CNN: “The oil companies are attracted by this. They are used to dangerous locations. And these are the largest reserves in the world. But they will be very, very careful.”
Venezuela is said to have 300 billion barrels of crude oil. But this was never proven. Some estimate the deposits to be less than a third of that. The fact that Venezuela has “heavy crude oil” also causes skepticism. Refineries must be specially equipped to process it.
“The number of refineries in the US and elsewhere that want this oil is decreasing,” Mukesh Shadev of the consulting firm XAnalysts told Bloomberg TV. “This is not the type of crude oil that the world needs in the future because we will continue to move towards less gasoline and less diesel.”
Not sure if it’s worth it
Currently, around 105 million barrels of oil are produced in the world every day. That’s about two million barrels above demand. So there is no shortage. And: Crude oil is cheap, says expert Peter Boockvar to CNBC. “Today a barrel costs 60 dollars, a little less. 20 years ago it also cost 60 dollars in nominal terms. Adjusted for inflation, those 60 dollars back then are now 100 dollars. But getting the oil out of the ground is much more expensive today.”
It is therefore questionable whether it is worthwhile to ramp up production in Venezuela at such a low price. Because the facilities there are old and run down. The consulting firm Rystad Energy estimates that if you want to bring daily production in Venezuela back to the level it was in the 1990s – around three million barrels a day, three times today’s production – then investments of around 180 billion dollars would be needed by 2040.
Security and political stability are lacking
A huge investment for a tiny part of the total annual production worldwide – it would probably not be noticeable at the gas stations. Oil expert Bob McNally expects: “Small companies can go into Venezuela pretty quickly and fix things to boost production in the coming years. But the big companies that have the know-how to really ramp up production will be more cautious before committing to that kind of spending.”
And no matter whether small or large: every US company in Venezuela needs security for its local employees and political stability. Both are currently missing.
Subsidies from tax money?
President Donald Trump may be doing the math without the innkeeper. He dreams of bubbling black gold from Venezuela, which also brings a lot of money to the USA. Whether that will ever happen – and if so, when – is questionable.
As if he suspected it, Trump has been thinking aloud in recent days about whether American taxpayers might be able to subsidize oil companies so that their interest in Venezuelan crude oil increases.
