Trump’s Venezuela Oil Revival Plan Is a $100 Billion Gamble

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1:27IBM. Here today, roam tomorrow. Join now at Sonesta.com. Terms and conditions apply. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Businessweek with Carol Masser and Tim Stenevek on Bloomberg Radio. U.S. energy goals when it comes to Venezuela. As we mentioned, realizing President Donald Trump's plan for a U.S.-led revival of Venezuela's beleaguered oil industry could be a years-long and challenging process costing upwards, Carol, of$100 billion. Yeah, we want to welcome in a scholar on the politics and economics of energy and resource policy in Latin America specifically.

2:09He is Francisco Monaldi, a fellow in Latin American energy policy and director of the Latin American Energy Program at the Center for Energy Studies at Rice University's Baker Institute for Public Policy. He's really so much more. I highly recommend you Google him because when it comes to energy economics, energy management, this is someone who has consulted governments around the world, including Venezuela, the U.S., Saudi Arabia, and a bunch of companies as well, including Chevron and ExxonMobil. Dr. Minaldi, great to have you here with Tim and myself. Is this about a U.S. oil and energy grab, first of all, in your view?

2:44Does it make sense that the United States wants to make sure that those energy assets are up and running, or do you see it as something else?

2:53Francisco Monaldi:Well, I think it's a combination of things. It's one of the motivations. I mean, without a doubt, having more production in the Western Hemisphere is something that contributes to the energy security of the United States and potentially of the world. And today we have a surplus of oil. So it's not about the short term as much as about the future in which the role that Venezuela could play could be really important to supply the still increasing oil demand in the world. What does that future look like? I mean, help us take this out one, five, ten years from now. What does the demand curve look like and how does Venezuela fit into that?

3:38Francisco Monaldi:Well, you know, if you look at the scenarios like the recent one by the International Energy Agency or the Energy Formation Administration, basically there is a high probability that we will not see in the next 10 years decline of oil demand. And in those scenarios, we actually face the potential of oil scarcity by the end of this decade. And there are very few countries, perhaps Iran other than Venezuela, that can increase significantly production in the next decade. Venezuela could multiply by four or even five its production. At least that's technically possible. Politically is, of course, another question.

4:19Well, and I also do wonder, is some of this because of AI? We constantly talk about the power grab, the energy drawdown, the energy demand versus supply because of all of the investments in AI. Is that part of it? And this is the national security play, if you will, by the United States?

4:41Francisco Monaldi:Well, the case of AI is more about natural gas than it is about oil, because oil is typically not used to produce electricity. But without that, the fact that for the first time in a long time, we will see a significant increase in electricity demand in the United States will have effects over the whole energy system and does contribute to the need of more fossil fuels. So I'm wondering about companies making big investments in Venezuela moving forward. Our reporting at Bloomberg News says that ConocoPhillips is owed more than$8 billion by Venezuela. Exxon is still owed about a billion dollars stemming from the nationalization of assets.

5:22International arbitrators have ruled. What do these companies need to see from Venezuelan leadership or from U.S. leadership to say, I'm ready to go back in there and make significant tens of billions of dollar investments?

5:38Francisco Monaldi:Yes, there are lots of preconditions for them to be willing to do that. In the case of Conoco, because of the size of what they're owed, it is likely that they will be interested in going back to the country because otherwise it would be hard for them to recover that debt. But they will need, first of all, they don't at this point have even contracts. They don't have, you know, any particular fields. Those fields were expropriated from them. And they will need to have a clear regulatory contractual fiscal framework that is credible in the long run. And it does make sense for them to, you know, sink billions of dollars in investment before they can recover it.

6:24Francisco Monaldi:In the case of Exxon, it might be something they will be even more cautious because they are not owed that much money. And of course, they have a history of government reneging and difficulty operating in the country that they will not forget. How much of this also has to do with China, who has certainly been investing in South America for some time. And we know that and has a relationship with Venezuela as well. How much of it has to do with that? Well, you know, it's interesting that the remaining big players in Venezuela, about half of the production is done by the national company. 25 % by Chevron.

7:04Francisco Monaldi:And then the other two big players are the Chinese and the Russian national companies. Each produces about 10%, 11 % of Venezuela's oil production. In the case of the Chinese, they have been very hesitant in the last decade or so to invest more because they have had a tough experience in Venezuela. They are still owed upwards of$10 billion. And in the case of the Russians, they have a lot of reserves in Venezuela under their contracts, but they have not developed them. And of course, under the current circumstances, are very unlikely to develop it in the future. Francisco, I want to ask you, it's a charged question and it's not a simple one to answer.

7:44We have a couple of minutes left here. Was this a good idea by the United States and what you're seeing play out now? Was it a good idea for the oil industry, a good idea for national security?

7:56Francisco Monaldi:Well, it depends a lot, of course, on what happens from now moving forward. I mean, if this has a happy ending with a transition to democracy, rule of law, et cetera, I think it would be something very positive for the region and for the future of the oil market. If it doesn't, of course, it could go really, really wrong. And of course, we will have to see. All right, going to leave it there. I'm sure we'll be reaching out to you again. Dr. Francisco Monaldi, fellow in Latin American energy policy, director of the Latin American Energy Program at the Center for Energy Studies over at Rice University's Baker Institute for Public Policy.

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