Trump's Venezuela oil plan hits a wall, high costs and political risks deter U.S. oil companies.
Last week, U.S. President Trump announced that the interim authorities in Venezuela would transfer up to 50 million barrels of oil to the U.S., and subsequently claimed that his government would &#34;indefinitely&#34; control the sale of Venezuelan oil.
He also stated that he would invite major U.S. oil companies to enter Venezuela and invest billions of dollars to repair the severely aging oil infrastructure.
However, this plan faces severe challenges on both economic and political dimensions. The breakeven cost for Venezuela's extra-heavy crude oil has exceeded $80 per barrel, far above the previous international oil price of $60, which means that oil extraction is simply unprofitable.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f5d2fac1-d28d-4811-900d-2eccd2486e55.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f5d2fac1-d28d-4811-900d-2eccd2486e55.png"/> (WTI crude oil prices have currently risen to around $77)
At the same time, the historical precedent of oil field assets being expropriated has made major oil companies highly cautious about returning to Venezuela.
<h2>Huge reserves, but high extraction costs</h2>
Venezuela is one of the founding members of OPEC and has the largest proven oil reserves in the world.
It is estimated that its proven reserves are about 303 billion barrels, accounting for approximately 17% of the global total, which is more than five times the U.S. reserves of 55 billion barrels, exceeding those of major Gulf exporters such as Saudi Arabia, Iraq, the UAE, and Iran.
These reserves are mostly concentrated in the Orinoco Heavy Oil Belt, a vast area located in eastern Venezuela, stretching about 600 kilometers east to west and about 70 kilometers north to south, covering a total area of approximately 55,000 square kilometers. This area is divided into four exploration and development blocks: Boyaca, Junin, Ayacucho, and Carabobo, primarily operated by Petróleos de Venezuela, S.A. (PDVSA).
However, the enormous reserves do not equate to easily accessible wealth. Venezuela's oil is extra-heavy crude, which has high viscosity and density, making extraction much more difficult than conventional crude oil, requiring advanced technologies such as steam-assisted gravity drainage and blending with light crude oil. Due to its high density and sulfur content, extra-heavy crude oil is typically sold at a discount in the market.
According to consulting firm Wood Mackenzie, the breakeven cost for the main oil types in the Orinoco Belt has averaged over $80 per barrel, significantly higher than the breakeven cost of about $55 for Canadian heavy crude oil. This means that under the current price environment, oil extraction in Venezuela is not economically viable.
In addition, Venezuela's reserve data is self-reported, posing a risk of overestimation. According to Reuters, when international oil prices exceeded $100 per barrel in 2011, OPEC classified Venezuela as the country with the largest reserves in the world.
The concept of &#34;proven reserves&#34; in the oil industry is not just a geological concept but also an economic one. Simply put, only when extracting a barrel of oil is profitable will it be counted as &#34;proven reserves.&#34; If the oil price is too low and extraction results in a loss, then that barrel of oil effectively does not exist on the books.
Consulting firm Rystad Energy believes that excluding price factors, Venezuela's oil reserves are estimated to be around 60 billion barrels.
<h2>Restoring Production Capacity Requires Hundreds of Billions in Investment</h2>
The decline of Venezuela's oil industry is alarming.
This once oil-rich country, which exported 3.5 million barrels of crude oil daily, has seen its current production drop to about 1 million barrels due to aging infrastructure, long-term underinvestment, mismanagement, and sanctions pressure.
To restore production capacity to the peak levels of the 1970s, the required investment is enormous. According to Francisco Monaldi, Director of Latin American Energy Policy at Rice University's Baker Institute for Public Policy, major U.S. oil companies need to invest $10 billion annually over the next decade, totaling $100 billion.
Even to maintain current production levels, Rystad Energy estimates that $53 billion in investment will be needed over the next 15 years. If production is to be increased to over 1.4 million barrels per day, an additional approximately $120 billion will be required by 2040.
The Trump administration has expressed a willingness to provide security guarantees but has made it clear that it will not provide funding support for oil projects, further raising the barriers for private capital entry.
<h2>High Political Risks Make Oil Companies Hesitant</h2>
Beyond economic considerations, political risk is also an insurmountable obstacle for oil companies.
Former President Hugo Chávez significantly strengthened state control over the oil industry during his tenure. In 2007, the government proposed new contract terms requiring Petróleos de Venezuela, S.A. (PDVSA) to hold a majority stake in joint ventures.
However, ExxonMobil and ConocoPhillips refused to accept these conditions, leading the Chávez government to forcibly expel the two companies. To this day, ConocoPhillips still has about $10 billion in compensation claims pending. Currently, only Chevron has been 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, and ExxonMobil CEO Darren Woods candidly stated:
<blockquote>
Our assets there have been seized twice, so one can imagine that a third return will require quite significant changes.
</blockquote>
It has been reported that oil companies will be unwilling to make any significant commitments until a new government emerges in Venezuela that can win the trust of international investors and banks.

According to estimates by Wood Mackenzie, the breakeven cost for major oil types in Venezuela's Orinoco Belt exceeds $80 per barrel, significantly higher than the approximately $55 level for Canadian heavy oil, raising doubts about economic viability. Additionally, restoring Venezuela's peak production capacity will require large U.S. oil companies to invest $10 billion annually over the next decade, totaling $100 billion. Coupled with historical precedents of oilfield assets being expropriated, major oil companies generally adopt a cautious attitude towards returning to Venezuela

- The article discusses the challenges faced by the U.S. in engaging with Venezuela's oil sector, primarily due to high production costs and political risks.  
- President Trump's plan for U.S. companies to invest billions in restoring Venezuela's aging oil infrastructure encounters obstacles, as the breakeven cost for Venezuelan heavy crude exceeds $80 per barrel, rendering extraction unprofitable under current price conditions.  
- Additionally, historical precedents of asset confiscation create significant hesitance among oil companies, affecting their willingness to invest despite Venezuela's vast oil reserves.

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