US President Donald Trump has promised to “take back” Venezuela’s oil reserves and release them onto the world market after Venezuelan President Nicolas Maduro was abducted.
But developing the Latin American country’s vast reserves will face many major hurdles, experts say, from aging infrastructure and legal hurdles to uncertain leadership in Caracas and a glut of oil on the global market.
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Venezuela has the world’s largest known oil reserves (estimated at around 303 billion barrels), but currently produces only a fraction of the world’s output. Estimated production in November was 860,000 barrels per day (bpd), less than 1% of the world’s total, compared with 3.7 million barrels per day at peak production in 1970.
The oil sector’s decline has been blamed on the combined effects of U.S. sanctions and years of underinvestment, mismanagement and corruption under President Maduro and his leftist predecessor Hugo Chávez.
Energy analysts say lifting sanctions will allow the Trump administration to boost supply in the short term, but bringing Venezuela’s production back to near peak levels will require huge investments and will likely take years.
“Venezuela’s oil infrastructure is in poor condition.”
Crude oil prices remained modest in trading on Monday, with market expectations that production will remain largely unchanged for the time being.
Scott Montgomery, a global energy expert at the University of Washington, told Al Jazeera: “Venezuela’s oil infrastructure is in poor overall condition due to a lack of maintenance of both equipment and wells.”
“It is well known that the national oil company PDVSA suffers from corruption and a lack of expertise, with many well-trained personnel leaving the country to work abroad and unable to invest in the domestic oil sector,” Montgomery added.
Thomas O’Donnell, an energy and geopolitical analyst based in Berlin, Germany, estimated that under the “absolute best” circumstances, including a peaceful transfer of power, Venezuela could return to peak production within five to seven years.
“In the long term, once things are resolved, certainly Venezuela could become one of the world’s largest oil producers. As for how long it will take, it’s all about the transition and what will be done to manage it – both national security and investment management,” O’Donnell told Al Jazeera.
Various messages from the Trump administration
The Trump administration has offered conflicting messages regarding Washington’s exact plans for Venezuela and its oil reserves.
On Saturday, President Trump said the United States intends to “run” Venezuela and that U.S. oil companies are prepared to invest billions of dollars to build out Venezuela’s aging infrastructure and “get the oil flowing.”
US Secretary of State Marco Rubio sought to downplay Trump’s rhetoric about taking control of the country in an interview with US media on Sunday, saying the president was referring to plans for “implementing policy” and promoting private investment, “not securing oil fields.”
President Trump said late Sunday that Washington was “in charge” of the country and was “dealing with” members of his administration, without providing further details.
Under international law, the United States has no claim to Venezuela’s oil reserves. This is because sovereign states have the right to manage and use natural resources based on the United Nations-recognized principle of permanent sovereignty over natural resources.
However, foreign investors can claim compensation if authorities seize their assets.
ExxonMobil and ConocoPhillips were awarded $1.6 billion and $8.7 billion, respectively, in international arbitration following the 2007 nationalization of the oil sector by the Chávez government. Caracas did not pay in either case.
U.S. oil giants including Chevron, ExxonMobil and ConocoPhillips have not commented directly on President Trump’s claims about their plans to invest in Venezuela.
Chevron is the only major U.S. oil company currently operating in Venezuela as a result of a waiver from U.S. sanctions first granted by former President Joe Biden’s administration.
Rystad Energy, a consulting firm based in Oslo, Norway, estimates that Venezuela’s oil sector will need about $110 billion in capital investment to return to production levels of about 2 million barrels per day in the mid-2010s.
Patrick de Haan, an analyst at energy price tracker Gasbuddy, said companies could be reluctant to make large investments in the country as global oil prices hover around $60 a barrel due to oversupply.
“It’s going to take a lot longer than many people imagine. Oil companies in today’s low price environment will be wary of investing billions of dollars because oil prices are already low,” De Haan told Al Jazeera.
“Furthermore, if President Trump were to take control of Maduro’s government, his supporters could block efforts to increase production. A number of things would have to fall into place for the most optimistic schedule to materialize.”
U.S. companies are likely to carefully consider political developments in Venezuela following the experience of asset seizure by the Chávez government.
“Oil companies are unlikely to find themselves in a situation where states are in turmoil, lack security, and have no clear path to political stability,” said Montgomery, a professor at the University of Washington.
President Maduro to appear in court in New York
Interim President Delcy Rodríguez, who was Maduro’s deputy, now leads the country following a ruling by Venezuela’s Supreme Court.
President Maduro is expected to appear in a New York court on Monday to face charges related to drug trafficking and alleged collaboration with criminal organizations.
The Venezuelan government blamed the Trump administration for Saturday’s bombing and overthrow of President Maduro, calling his capture a “despicable kidnapping.”
Russia, China, Iran, Brazil and others have accused the US government of violating international law, while countries including Israel, Argentina and Greece have welcomed Maduro’s forced removal.
OPEC, which has placed production limits on 12 member countries including Venezuela, is another factor in the Latin American country’s oil production potential.
“Venezuela is an OPEC member and, like many countries, could be subject to more aggressive quotas if production increases,” de Haan said.
Phil Flynn, a market analyst at Price Futures Group, said a recovery in Venezuela’s oil production would face “significant challenges” but was more bullish than other analysts on the near-term outlook.
He said the market could receive hundreds of thousands of additional barrels per day in the coming months.
“Venezuela was not free. Sometimes the U.S. energy industry is capable of doing more than people give it credit for,” Flynn told Al Jazeera.
