US President Donald Trump's plan to take control of Venezuela's oil industry and ask American companies to revive it after the operation to capture Venezuelan President Nicolas Maduro is unlikely to have an immediate impact on oil prices, the Associated Press wrote in its analysis, BTA reported.
Venezuela's oil industry is in poor shape after years of lack of investment and international sanctions. It could take years and significant investment before production increases dramatically.
However, some analysts are optimistic that Venezuela could quickly double or even triple its current oil production levels, which are now around 1.1 million barrels of oil per day.
“While many report that Venezuela's oil infrastructure has not been damaged by the US military action, it has been in decline for many years and will take time to recover,“ explained Patrick De Haan, chief oil analyst at Gasbuddy.
For US oil companies, it will need to stabilize power in Caracas before they are willing to invest seriously in Venezuela, and the political picture remains unclear. President Trump has said the United States will run Venezuela, while Maduro's current vice president, Delcy Rodriguez, has argued that Maduro should be restored to power.
If the United States succeeds in its bid to run the country, many would argue that U.S. energy companies could step in and revive Venezuela's oil industry fairly quickly, said Phil Flynn, senior market analyst at Price Futures Group.
If Venezuela were to become a major oil producer, Flynn said, "it could cement lower (oil) prices in the long run" and put more pressure on Russia.
President Trump has even suggested that the United States could subsidize oil companies to allow them to rebuild Venezuela's energy infrastructure. In an interview with NBC, broadcast last night, he explained that a new one could take less than 18 months.
No significant change in oil prices is expected, as there is currently a surplus of oil on the world market and Venezuela is a member of OPEC.
Oil prices continued to fall in Asian trade today, with Brent crude from the North Sea losing 0.23 percent to $61.62 a barrel and US West Texas Intermediate crude losing 0.31 percent to $58.14 a barrel.
Proven oil reserves
Venezuela has the largest proven crude oil reserves in the world, amounting to approximately 303 billion barrels, according to the US Energy Information Administration (EIA). This represents about 17 percent of all world oil reserves. After Venezuela, the largest proven reserves are Saudi Arabia (267 billion barrels) and Iran (209 billion barrels), while the United States is lower in the ranking with 74 billion barrels.
This determines the interest of international oil companies in Venezuela's deposits. The spokesman for the American oil giant “ConocoPhillips“ (ConocoPhillips) Dennis Nuss indicated that the company “is monitoring the development of events in Venezuela and their potential consequences for global energy supply and stability. It would be premature to speculate about future business activities or investments“, he added.
“ExxonMobil“ (Exxon Mobil) did not respond to the AP's request for comment on the topic.
“Chevron“ (Chevron) is the only U.S. company with significant operations in Venezuela, where it produces about 250,000 barrels per day. Chevron, which first invested in Venezuela in the 1920s, operates in the country through joint ventures with state-owned Petroleos de Venezuela (PDVSA).
“Chevron“ remains focused on the safety and well-being of its employees and the integrity of its assets. We continue to operate in full compliance with all applicable laws and regulations,“ said company spokesman Bill Touraine.
Even with these vast reserves, Venezuela produces less than 1 percent of the world's crude oil. Corruption, mismanagement, and U.S. economic sanctions have led to a steady decline in Venezuelan production, which stood at 3.5 million barrels per day in 1999.
The problem is not finding oil. It is the political environment and whether companies can rely on the government to honor their contracts. In 2007, then-President Hugo Chavez nationalized much of Venezuela's oil production, forcing major companies like ExxonMobil and ConocoPhillips to leave.
"The problem is not just the poor state of infrastructure, but rather how to get foreign companies to start investing before they have a clear idea of political stability, the contractual situation and other factors," said Francisco Monaldi, director of the Latin American Energy Program at Rice University in Texas.
"According to projections, to increase production from 1 million barrels per day - what it produces today -– "To reach four million barrels, Venezuela will need about a decade and about $100 billion in investment," Monaldi added.
Strong demand
Venezuela produces heavy crude, which is needed to make diesel, asphalt and other fuels for heavy industry. Diesel is in short supply worldwide because of sanctions on Venezuelan and Russian oil and because lighter crude from the United States cannot easily replace it.
Years ago, U.S. refineries on the Gulf Coast were optimized to process heavy crude, while U.S. oil production was declining and supplies from Venezuela and Mexico were plentiful. Therefore, American refiners would like greater access to Venezuelan crude oil, because it would help them operate more efficiently, and its price is also slightly lower.
Increasing production in Venezuela would also ease pressure on Russia, because Europe and the rest of the world could get more of their diesel and heavy oil needs from Venezuela, which could reduce their purchases from Russia.
„Russia would benefit greatly from the collapse of the Venezuelan oil industry. The reason is that the two countries were competitors in global markets,“ Flynn explained.
A Complex Legal Picture
According to Matthew Waxman, a Columbia University law professor who was a national security official in the administration of President George W. Bush, seizing control of Venezuela's resources opens up additional legal questions.
“For example, a big issue would be who actually owns Venezuela's oil,“ said Waxman, who said “An occupying military force cannot enrich itself by taking another country's resources, but the Trump administration will likely argue that the Venezuelan government never legally owned them“.
“We see the administration speaking very dismissively about international law when it comes to Venezuela,“ he pointed out.