After a military operation ousted President Nicolás Maduro, the White House pivoted from drug enforcement to energy interests in Venezuela, with President Trump saying U.S. oil firms would move in to tap the country’s vast reserves.
“We’re going to have our very large United States oil companies, the biggest anywhere in the world, go in, spend billions of dollars, fix the badly broken infrastructure, the oil infrastructure, and start making money for the country,” he said.
Trump’s remarks made clear the real prize: getting U.S. energy firms into a nation sitting on massive oil deposits that have been off-limits for years.
Chevron stands alone as companies weigh risks
Still, convincing companies to rush back into Venezuela won’t be simple. Right now, Chevron stands alone as the single major American oil player operating there and holds the position of the biggest foreign investor in the country. Other executives will need to carefully measure whether conditions on the ground are stable enough to justify the risk in a nation where the oil business has crumbled after more than 20 years of poor management and crooked dealings.
Another hurdle stands in the way of Trump’s push to flood global markets with Venezuela’s thick crude: nobody really wants more oil right now. American oil sits under $60 per barrel, a price point that makes most U.S. producers think twice about new investments. Worldwide supplies keep climbing this year.
“One thing that works against it is the price of oil,” said Ali Moshiri, the former head of Chevron’s operations in Latin America and Africa. “In the environment we’re in, if you’re going to invest, do you put it in the Permian [Basin in the U.S.] or do you put it in Venezuela? That’s going to be a tough choice.”
The government hasn’t spelled out exactly how it plans to bring more American oil companies into Venezuela to ramp up production. People who study the industry say the process might let companies compete for oil and gas territories and wonder if European firms might also get a chance to bid their way into the country.
Chevron put out a statement Saturday saying its main concerns are keeping employees safe and protecting its property in the country. The company and the businesses it partners with have roughly 3,000 workers there.
Venezuela pumps around 900,000 barrels daily this year, with Chevron responsible for about one-third of that total. The crude Venezuela pulls from the ground is heavier and thicker than most oil traded worldwide, but refineries from the American Gulf Coast to China and India can squeeze better profits from it compared to other types, which makes fuel producers eager to get their hands on it.
The U.S. shale revolution created record-breaking oil output, but the light crude American drillers bring up doesn’t perform as well as the heavy stuff from Venezuela, Canada, and Mexico. Venezuela’s government puts its proven oil reserves above 300 billion barrels, which would give it the world’s largest supply if the numbers hold up.
Other large oil corporations potentially interested in going back to Venezuela will almost definitely wait and watch before making moves because the country has a history of seizing oil properties, which happened in the 1970s and again in the 2000s, according to analysts.
ConocoPhillips and Exxon Mobil left Venezuela in 2007 after President Hugo Chávez, at the time, took over their operations. Conoco went to court later seeking more than $20 billion from the Venezuelan government; Exxon asked for $12 billion. Both companies ended up getting small portions of what they lost after long legal fights.
Conoco and Exxon didn’t respond right away when asked for their thoughts.
Rebuilding requires massive effort
Orlando Ochoa, a Caracas-based economist and a visiting fellow at the Oxford Institute for Energy Studies, painted a picture of the enormous challenge ahead in restarting the broken energy sector, which has lost tens of thousands of skilled workers who left the country during Maduro’s rule.
He explained this includes writing a comprehensive economic recovery plan to pull in the money Venezuela desperately requires from international lenders to fix infrastructure and rusty oil equipment. Domestic laws must change to let private energy companies work without government interference, he said. The government also needs to reorganize about $160 billion in debt and settle ongoing legal disputes with foreign companies to persuade them to return.
“What the U.S. needs to do is to implement a form of a Marshall Plan,” said Ochoa, pointing to the economic program that rebuilt Europe after World War II. “This is about much more than coming into the oil and gas sector just to extract crude from the ground.”
One American oil executive who spent years working in Venezuela said the U.S. government might have finished the simple part by pushing Maduro out. But questions remain about whether a temporary government could provide the safety and stability foreign oil companies need before flooding back into Venezuela, the executive noted.
On Saturday, while questions kept coming about how Venezuela’s government would operate and what role America would play, Trump repeatedly returned to talking about the country’s oil.
The reasoning behind the military move showed how the president has consistently seen oil as both war treasure and a tough instrument for showing American strength. Trump has spent years saying the U.S. should have claimed other nations’ oil during military operations in Syria, Libya, and Iraq, either to cover military expenses or to counter rivals’ power.
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Source: https://www.cryptopolitan.com/why-venezuelas-oil-windfall-pipe-dream/
