The administration of US President Joe Biden made a significant change in its policy towards Venezuela when it allowed Chevron to pump oil into the South American country again. This decision, however, will lead to a slight increase in world production of the good in the short term.

The company will face a host of technical challenges in Venezuela’s former oil fields and a complex network of U.S. sanctions-remained reserves that need to be changed to ensure more of the country’s oil reaches the global market.

This Saturday, the 26th, the Treasury Department issued Chevron a new license to operate in Venezuela following a meeting in Mexico City between the government of Nicolás Maduro and opposition groups, where participants agreed that Venezuela would spend billions of frozen funds on humanitarian aid. and infrastructure into a program to be managed by the United Nations.

The policy change comes two years after the Donald Trump administration cracked down on the activities of Chevron and other oil companies in Venezuela as part of a “maximum pressure” campaign aimed at overthrowing the regime led by Maduro. This policy included not recognizing Maduro and supporting Congress leader Juan Guaidó as the legitimate president of Venezuela.

Officials have presented the return of Chevron to Venezuela as an excuse for the parties to begin negotiations on the timing and scope of free elections. The move could also open the door to other oil companies that have previously operated in Venezuela, although the finance ministry has not indicated how they can re-engage with the country.

Analysts say Chevron’s first tasks include repairing broken equipment, ending power outages and fixing pipeline problems, rehiring hundreds of workers despite a drain on talent from the Venezuelan oil industry, and addressing physical security threats, including gasoline theft.

“The amount of money needed to invest in Venezuela to restore lost production is huge,” said José Chalhoub, an oil and political risk analyst in Venezuela who previously worked in the country’s oil industry.

Chalub estimated that the investment needed to restore Venezuela’s lost oil production could reach $50 billion. Chevron could increase production by about 20,000 to 30,000 barrels a day in the next six months, he said, which is too little to make a difference in the global market.

Before Chevron wants to make new investments in Venezuela, such as new fields, it wants more than $4 billion in debt from Venezuela’s national oil company PdVSA.

Collecting this debt could take two to three years, as PdVSA owes Chevron and other joint venture partners more than two years of oil proceeds from the 2020 US crisis. The Venezuelan company must pay its partners.

The license will allow Chevron to receive its share of dividends from its joint ventures such as Petropiar, in which Chevron owns 30%.

In the first 25 days of September, PdVSA, which operates joint ventures with Chevron, produced about 45,000 boe in the first 25 days of September, according to consulting firm IPD Latin America.

Expectation and reality

Although Venezuela has the world’s largest oil reserves, it could take at least a year for Chevron to reach 200,000 bpd of oil from its four joint ventures with PdVSA, analysts said.

This is a drop in the bucket compared to the amount of oil that could be affected by Western sanctions on Russian oil. Some analysts estimate that some 1.5 million barrels per day could be affected by these sanctions next year. Venezuelan oil production is down by about 700,000 barrels a day this year, compared to more than 3 million barrels a day in the 1990s.

Analysts say Chevron’s initial move into Venezuela is unlikely to help lower oil prices anytime soon. “This is not something that will happen overnight. Over time, this will add barrels to the global supply, but it will take months, if not more than a year,” said Robert Yauger, an analyst at Mizuho.

According to Yauger, the development of Venezuela in the near future was estimated at about $1 per barrel of oil. Much will also depend on upcoming talks between the Venezuelan government and opposition parties, which could derail Chevron if both sides fail to reach an agreement. Source: Dow Jones News Feeds,