Oil prices need to reach $80 to avoid losses! Trump's Venezuela oil plan faces "cost challenges"

Trump's Venezuelan oil plan hits a wall; high costs and political risks make U.S. oil companies hesitant. Last week, U.S. President Trump announced that Venezuela's interim authorities would hand over up to 50 million barrels of oil to the U.S., then claimed his government would have "indefinite" control over Venezuelan oil sales. He also stated he would invite major U.S. oil companies to enter Venezuela, investing billions of dollars to repair the severely aged local oil infrastructure. However, this plan faces severe challenges both economically and politically. The breakeven cost of Venezuela’s ultra-heavy crude now exceeds $80 per barrel, far above the previous international oil price of $60 per barrel, meaning oil extraction is simply unprofitable. (WTI crude prices are currently rising to around $77) Meanwhile, past precedents of oil field asset confiscation make major oil companies highly cautious about returning to Venezuela. Huge reserves, but costly extraction Venezuela is one of OPEC’s founding members and possesses the world’s largest proven oil reserves. According to estimates, its proven reserves are about 303 billion barrels, accounting for about 17% of the global total, more than five times the U.S.’s 55 billion barrels, and exceeding Saudi Arabia, Iraq, UAE, and Iran, the major Gulf exporters. Most of these reserves are concentrated in the Orinoco Belt, a vast area in eastern Venezuela stretching about 600 kilometers east-west, 70 kilometers north-south, with a total area of about 55,000 square kilometers. The area is divided into four exploration and development blocks: Boyacá, Junín, Ayacucho, and Carabobo, primarily operated by Venezuela’s state oil company (PDVSA). However, large reserves do not equate to accessible wealth. Venezuela’s oil is ultra-heavy crude, highly viscous and dense, far more difficult to extract than conventional oil, requiring advanced technologies like steam injection and blending with light crude. Due to high density and sulfur content, ultra-heavy crude is usually sold at a discount in the market. According to consultancy Wood Mackenzie, the average breakeven cost for major crude types in the Orinoco Belt exceeds $80 per barrel, much higher than Canadian heavy oil’s breakeven cost of about $55 per barrel. This means Venezuelan oil extraction is economically unviable in current price conditions. In addition, Venezuela’s reserve data is self-reported and may be overestimated. Reuters reported that in 2011, when international oil prices exceeded $100 per barrel, OPEC listed Venezuela as the country with the world's largest oil reserves. In the oil industry, “proven reserves” is not just a geological concept—it’s also an economic one. Simply put, only when extracting that barrel of oil is profitable does it count as a "proven reserve." If oil prices are too low and extraction becomes loss-making, that barrel disappears from the books. Consultancy Rystad Energy believes that after excluding price factors, Venezuela’s oil reserves are estimated at about 60 billion barrels. Restoring capacity requires $100 billion The decline of Venezuela’s oil industry is striking. This once oil giant, which used to export 3.5 million barrels a day, now produces just about 1 million barrels daily due to aging infrastructure, chronic underinvestment, chaotic management, and sanctions. To restore production to peak levels seen in the 1970s would require enormous investment. According to Francisco Monaldi, Latin American Energy Policy Director at the Rice University Baker Institute for Public Policy, major U.S. oil companies would need to invest $10 billion annually for the next ten years, totaling $100 billion. Even just to maintain current production levels, Rystad Energy estimates that $53 billion is needed over the next 15 years. To increase daily output to above 1.4 million barrels, an additional $120 billion is required by 2040. The Trump administration says it is willing to provide security guarantees but clearly states it will not fund oil projects, further raising the threshold for private capital entry. Political risk soars, oil companies lack confidence Beyond economics, political risk is another insurmountable obstacle for oil companies. Former President Hugo Chavez greatly strengthened state control over the oil industry during his tenure. In 2007, the government introduced new contract terms requiring Venezuela’s national oil company to hold a majority stake in joint ventures. ExxonMobil and ConocoPhillips refused. As a result, the Chavez government forced the two companies out. To this day, ConocoPhillips still has about $10 billion in pending compensation. Currently, only Chevron is authorized to operate in Venezuela and export crude oil to the U.S. Last Friday, it was reported that Trump met with oil company executives. ExxonMobil CEO Darren Woods said: "Our assets there have been expropriated twice, so you can imagine that a third return would require fairly significant changes." Reportedly, before Venezuela sees a new government that can win the trust of international investors and banks, oil companies will not make any major commitments. Risk Warning and Disclaimer The market has risks; investment needs caution. This article does not constitute personal investment advice and does not take into account the unique investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article meet their particular circumstances. Investing accordingly is at your own risk.