Ever since Venezuelan President Nicolas Maduro was abducted by U.S. special forces, President Donald Trump has promised U.S. investment in the country’s low-producing oil fields.
“We’re going to get a very large American oil company, the largest in the world, to come in and spend billions of dollars to fix our badly broken infrastructure, our oil infrastructure, and start making money for our country,” Trump said at a Mar-a-Lago press conference on January 3.
He reiterated this to reporters on Air Force One on January 4, saying: “There will be major investment by oil companies to take back our infrastructure. Oil companies are ready.”
But is it? It’s not as certain as President Trump says.
When reporters asked for specific details about the investment, President Trump declined to provide them. Secretary of State Marco Rubio appeared on ABC’s “This Week” on Jan. 4 and echoed Trump, saying he expected “dramatic interest from Western companies,” but gave no details.
Asked for comment, the White House told PolitiFact that the administration has been in discussions with multiple oil companies, but declined to name the companies.
“All of our oil companies are ready and willing to make significant investments in Venezuela to rebuild our oil infrastructure,” White House Press Secretary Taylor Rogers said.
The American Petroleum Institute, the main trade group for the U.S. oil industry, said in a statement to PolitiFact that it is “watching the developments closely.”
“Globally, energy companies base their investment decisions on stability, the rule of law, market forces and long-term operational considerations,” the statement said.
According to media reports, a ConocoPhillips spokesperson gave a similar response, saying the company was “monitoring developments” but that it was “premature to speculate on future business activities or investments.”
Experts told PolitiFact there is good reason to be alarmed by the surge in new private investment in Venezuela’s oil infrastructure. While Venezuela has the world’s largest oil reserves, obstacles include high initial costs for infrastructure construction, limited revenue potential due to today’s low oil prices, and continued concerns about political stability.
“I don’t see a compelling business case for a U.S.-based company to invest billions of dollars over years or decades to profit from Venezuelan oil,” said Hugh Daigle, a professor at the University of Texas at Austin’s School of Petroleum and Geosystems Engineering.
Patrick de Haan, head of oil analysis at gas price app GasBuddy, said uncertainty around Venezuela’s governance is likely to worry oil companies.
“Oil companies are probably not willing to invest billions of dollars and take a chance until there is clarity in the Venezuelan system,” de Haan said. “We don’t think the impact of this situation will be negligible and probably not for many years, but only then if things go very well.”
What are the benefits of investing in the oil industry in Venezuela?
After Maduro’s predecessor, Hugo Chávez, moved to nationalize the oil industry in 2007, US companies including ExxonMobil and ConocoPhillips withdrew from Venezuela. Chevron is the only major U.S. oil company to consistently produce oil in Venezuela in recent years.
Kenneth Gillingham, a professor of environmental and energy economics at Yale University, said who will benefit will depend on how Venezuela frees up its nationalized and, in some cases, internationally sanctioned oil resources.
Gillingham said if the market were open only to the largest U.S. oil companies, those companies would primarily benefit, but if the market was open to companies based outside the U.S., their benefits would be more limited. U.S. motorists could benefit from lower prices due to increased production, but the benefits will depend largely on global market factors.
Skip York, a researcher at Rice University’s Energy Research Center, said some oil companies may be attracted to Venezuela because it allows them to diversify their investments.
Compared to many countries’ crude oils, Venezuelan crude oil is relatively heavy. This means extraction takes time, but once the well is installed, it can continue to produce for a long time.
Although the United States does not typically produce heavy crude oil from its own mineral deposits, some of the United States’ refinery sectors are built specifically to process heavy crude oil. Therefore, a steady supply of Venezuelan heavy crude oil could keep these refineries operating. Rubio mentioned the occasion on this week’s show.
Once Venezuela regains political and economic stability, York said, “we could expect a return of 15% to 20% and be able to compete with other development opportunities.”
Obstacles remain for U.S. oil companies
Oil experts cite several challenges to reaping significant profits from Venezuela’s reserves.
Infrastructure improvements require significant upfront costs. “Venezuela’s oil industry has been nationalized for decades and suffers from a lack of domestic and foreign investment,” Daigle said. Keeping facilities and operations up to date requires new investments, but returns are not guaranteed.
The political situation in Venezuela remains unstable. “Not many companies would jump into an environment that is unstable,” Ali Moshiri, who led Chevron’s operations in Venezuela until 2017 and now runs a private oil company with interests in the country, told the New York Times.
York said Venezuela would at least need a new oil legal framework. Even if all legal and financial issues were resolved, “it would take years to renovate the infrastructure and drill new wells,” he said.
Oil prices are low. If oil prices are high enough, the high upfront costs of infrastructure and the risks of political instability can be financially justified. However, the price is relatively low. Since President Trump took office, the price of oil per barrel has fallen by about a quarter.
“With oil (prices) near multi-year lows, oil companies will not be willing to spend money in Venezuela, which could cause oil prices to fall further,” de Haan said.
A reluctance to spend big to boost production is already being seen domestically in the decline in industry efforts to drill new oil wells in the United States. The weekly number of oil rigs in use in the U.S. is down 16% from its most recent peak in April. If companies are not willing to spend money on drilling in the United States, where the infrastructure is established and the country is relatively stable, it is unclear whether they will go all-in on Venezuela.
The long-term importance of oil depends on the future of electric vehicles. “If we continue to use a lot of oil and oil prices remain high, new entrants to Venezuela are likely to recoup their investments over time,” Gillingham said. “However, if electric vehicle prices continue to fall and take off in earnest, not just in the U.S. but around the world, oil prices will be subdued and investment costs will be less likely to be recovered.”
