President Donald Trump on Saturday said the United States would take over control of Venezuela’s oil fields, the largest proven oil reserve on the planet. Here is what it means.
Venezuela has roughly 303 million barrels of crude, approximately one-fifth of the world’s global reserves, per the U.S. Energy Information Administration (EIA).
“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,” Trump said a press conference at Mar-a-Lago on Saturday.
American development of Venezuelan oil fields could help lower oil prices; however, it could take years to fully develop the country’s oil production:
A US-led revamp could eventually make Venezuela a much bigger supplier of oil and could create opportunities for Western oil companies and could serve as a new source of production. It could also keep broader prices in check, although lower prices might disincentivize some US companies from producing oil.
Even if international access were fully restored tomorrow, it could take years and incredible expense to bring Venezuelan oil production fully back online. Venezuelan state-owned oil and natural gas company PDVSA says its pipelines haven’t been updated in 50 years, and the cost to update the infrastructure to return to peak production levels would cost $58 billion.
Phil Flynn, senior market analyst at the Price Futures Group, said, “For oil, this has the potential for a historic event. The Maduro regime and (former Venezuelan President) Hugo Chavez basically ransacked the Venezuelan oil industry.”
Despite the country’s massive oil reserves, it only produces one million barrels of oil per day, amounting to a paltry 0.8 percent of global crude oil production. This amounts to less than half of production before Maduro took control of the country in 2013.
Venezuela largely has what is known as heavy, sour crude, which requires special equipment and technical prowess to produce. Heavy, sour crude is particuarly useful for products such as diesel, asphalt, and fuel for factories and heavy equipment. Using Venezuelan oil could help the United States, as many American refineries were constructed with using Venezuelan heavy in mind.
“If indeed this continues to go smoothly — and it looks like a masterful operation so far — and US companies are allowed to go back and rebuild the Venezuelan oil industry, it could be a game-changer for the global oil market,” Flynn explained.
The president said that American energy companies could help develop the country’s infrastructure.
“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 remarked.