abduction<\/a> of Venezuelan President Nicolas Maduro by US special forces, President Donald Trump has promised US investment in the country\u2019s underproductive oil fields.<\/p>\n\u201cWe\u2019re 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,\u201d Trump said in a Mar-a-Lago news conference on January 3.<\/p>\n
He reiterated this on January 4 to reporters on Air Force One, saying, \u201cWe\u2019re going to have big investments by the oil companies to bring back the infrastructure. The oil companies are ready to go.\u201d<\/p>\n
But are they? It is less certain than Trump makes it sound.<\/p>\n
When reporters sought concrete details about the investments, Trump declined to offer them. Speaking on ABC\u2019s This Week on January 4, Secretary of State Marco Rubio echoed Trump, saying he expects \u201cdramatic interest from Western companies\u201d, without offering specifics.<\/p>\n
When contacted for comment, the White House told PolitiFact that the administration has had conversations with multiple oil companies, without naming any of them.<\/p>\n
\u201cAll of our oil companies are ready and willing to make big investments in Venezuela that will rebuild their oil infrastructure,\u201d White House spokesperson Taylor Rogers said.<\/p>\n
The American Petroleum Institute, the oil industry\u2019s leading trade association in the US, said in a statement to PolitiFact that the group is \u201cclosely watching\u201d the developments.<\/p>\n
\u201cGlobally, energy companies make investment decisions based on stability, the rule of law, market forces, and long-term operational considerations,\u201d the statement said.<\/p>\n
A ConocoPhillips spokesperson gave a similar response, according to media reports, saying the company \u201cis monitoring developments\u201d, but that it would be \u201cpremature to speculate on any future business activities or investments.\u201d<\/p>\n
Experts told PolitiFact that there is ample reason for caution about a surge of new private investment in Venezuelan oil infrastructure. While Venezuela\u2019s oil reserves are the world\u2019s largest, obstacles include the high up-front costs for building infrastructure, limited profit potential amid today\u2019s low oil prices and continuing concerns about political stability.<\/p>\n
\u201cI do not see a compelling business case for any US-based company to invest billions of dollars over years to decades to try to turn a profit in Venezuelan oil,\u201d said Hugh Daigle, a professor with the University of Texas at Austin\u2019s petroleum and geo-systems engineering department.<\/p>\n
Patrick De Haan, the head of petroleum analysis with GasBuddy, a gasoline price app, said the uncertainty over Venezuela\u2019s governance is likely to worry oil companies.<\/p>\n
\u201cOil companies probably aren\u2019t chomping at the bit to invest billions of dollars and take their chances until there\u2019s clarity in the Venezuelan regime,\u201d De Haan said. \u201cI don\u2019t believe there will be, beyond a negligible impact from the situation, potentially for years, and even then, only if things go very right.\u201d<\/p>\n
What would be the upsides of oil industry investment in Venezuela?<\/strong><\/h2>\nUS companies such as ExxonMobil and ConocoPhillips exited Venezuela after Hugo Chavez, Maduro\u2019s predecessor, moved to nationalise the oil industry in 2007. Chevron is the only major US oil company that has been consistently producing oil in Venezuela in recent years.<\/p>\n
How Venezuela\u2019s nationalised, and in some cases internationally sanctioned, oil resources are opened will determine who benefits, said Kenneth Gillingham, a Yale University professor of environmental and energy economics.<\/p>\n
If the market were opened only to the biggest US oil corporations, those companies would mainly benefit, but their gains would be more limited if the market also were opened to companies based outside the US, Gillingham said. US motorists could benefit from increased production pushing prices lower, but those gains would depend heavily on global market factors.<\/p>\n
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\u2019s Centre for Energy Studies.<\/p>\n
Compared with crude oil in many countries, Venezuelan crude is relatively heavy. That means it takes longer to extract, but once the wells are in place, they can keep producing for longer periods of time.<\/p>\n
The US generally doesn\u2019t produce heavy crude from its own deposits, but a portion of the US refinery sector is specifically built to handle it. So having a steady supply of heavy Venezuelan crude could keep these refineries operational. Rubio cited this opportunity on This Week.<\/p>\n
If Venezuela returns to political and economic stability, York said, \u201cone could expect returns of 15 percent to 20 percent, which could be competitive with other development opportunities.\u201d<\/p>\n
Obstacles remain for US oil companies\u00a0<\/strong><\/h2>\nOil experts cited several challenges to achieving large profits from Venezuelan reserves:<\/p>\n
The up-front cost of improving infrastructure will be significant.<\/strong> \u201cThe Venezuelan oil industry has been nationalised for many decades now and has suffered from a lack of investment, both foreign and domestic,\u201d Daigle said. New investment would be needed to keep facilities and operations up to date, with no certainty of payback.<\/p>\nVenezuela\u2019s political situation remains unsettled.<\/strong>\u00a0\u201cNot many companies are going to rush to go into an environment where there\u2019s not stability,\u201d Ali Moshiri, who headed Chevron\u2019s operations in Venezuela until 2017 and now runs a private oil company with interests there, told\u00a0The New York Times.<\/p>\nAt a minimum, Venezuela would need a new petroleum law framework, York said. Even after all the legal and financial issues have been resolved, he said, it would take \u201cyears to refurbish infrastructure and drill new wells\u201d.<\/p>\n
Oil prices are low.<\/strong>\u00a0High up-front infrastructure costs and risks from political instability could be justified financially if oil prices were high enough. But prices are relatively low. Since Trump became president, crude oil\u2019s\u00a0price per barrel\u00a0has fallen by about one-quarter.<\/p>\n\u201cWith oil (prices) near multi-year lows, oil companies likely won\u2019t be running to spend money in Venezuela that could further erode oil prices,\u201d De Haan said.<\/p>\n
The reluctance to spend significantly to expand production can already be seen domestically in declining industry efforts to drill new US wells. A weekly count of oil rigs in use in the US shows a 16 percent decline since their most recent peak in April. If companies aren\u2019t eager to spend on drilling in the US, with its established infrastructure and relative political stability, it\u2019s not clear that they would go all in on Venezuela.<\/p>\n
The long-term importance of oil depends on the future of electric vehicles.\u00a0<\/strong>\u201cIf we continue using lots of oil and oil prices stay high, then it is likely that new entrants in Venezuela would recoup their investments over time,\u201d Gillingham said. \u201cHowever, if electric vehicles continue to come down in price and really take off, in the US and globally, this will keep a lid on oil prices and make it less likely that the investment costs will be recouped.\u201d<\/p>\n<\/div>\n
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