RESOLVING THE LEDGER
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See the full story · 11 sourcesDrivers in the U.S. won't see lower gas prices from President Donald Trump's massive oil deal with Venezuela because it will take years to significantly boost the country's production, experts say.
Trump announced Friday that the U.S. secured majority control over 65 billion barrels of Venezuela's proven oil reserves , around 20% of the 303 billion barrels that the South American nation is thought to possess.
But huge investments are needed to extract those reserves. The legality and long-term viability of the agreement with Caracas are also uncertain as the terms have not been disclosed by the Trump administration, experts say.
"Nothing has been published, so we're really still operating on Tweets and rumors," said David Goldwyn, who served as a State Department special envoy for international energy affairs under President Barack Obama.
Trump promised Friday the deal would "substantially lower gas prices for all Americans, long into the future." U.S. drivers were paying $4.08 per gallon on average nationwide Monday, nearly 30% higher than this time last year, according to AAA data.
Prices are rising due to Ukraine's attacks on Russian refineries and the supply disruption in the Middle East triggered by the Iran war. It is basically a foregone conclusion that gas prices will set a new all-time high for Labor Day, said Patrick De Haan, head of petroleum analysis at GasBuddy. The previous Labor Day record was $3.83 per gallon in 2012, De Haan said.
"Unless we get some sort of magical 20 cent drop, which is next to impossible, it'll be a record setting Labor Day in terms of the national average," De Haan said. "Gas prices have never been this high this late into the year unfortunately."
Venezuelan oil exports won't provide any near term relief to U.S. drivers. Its oil infrastructure is in a state of disrepair after years of mismanagement by its socialist government. The country is currently producing around 1.2 million barrels a day, down from a peak of 3.5 million bpd in the late 1990s.
Rystad Energy estimated in January that it would require about $180 billion of investment through 2040 to return Venezuela to its peak production. Secretary of State Marco Rubio said Friday that Trump's deal will bring nearly $100 billion of private sector investment to the country.
"This will have absolutely no impact on gasoline prices or Venezuelan production for that matter for years to come," Goldwyn said of the deal.
It is unclear which oil companies will invest in Venezuela to extract its reserves and how those deals will be structured, said Andy Lipow, president of Lipow Oil Associates. Chevron is the only major U.S. oil company currently active in the country through joint ventures with state-owned PDVSA.
Chevron's production in Venezuela has increased 15% to 280,000 bpd this year, chief financial officer Eimear Bonner said on the company's July 31 earnings call. The oil major expects to grow production up to 50% through 2028, Bonner said. This would put Chevron's Venezuela output at around 400,000 bpd in around two years.
But production growth in Venezuela will be constrained by limits at its export terminals, Lipow said. Tankers are waiting up to 30 days to load crude oil cargoes from Venezuela due to challenges with aging infrastructure and power outages that impacted its ports, the analyst said.
The terminals "would have to be expanded in order to handle more production," Goldwyn said. "It's unclear who's taking on that project," he said.
Venezuela's interim President Delcy Rodriguez said Saturday the 25-year deal will develop 17 oilfields and initially boost production to 1.5 million bpd. The oil reserves are mostly located in eight blocks in the Orinoco Belt with the rest in the Lake Maracaibo region, according to a list shared with Reuters .
The fields in the Orinoco Belt have little or no access to infrastructure, Goldwyn said. "Those fields will take five to seven years, at best, to deliver increased production for the market," he said.
And there's a lot of uncertainty about whether the deal will be viable over the long term. It faces significant political risk in Washington and Caracas, said Bob McNally, president of Rapidan Energy.
A Democratic president in 2029 would likely reconsider or terminate the deal, McNally said. Even if a Republican wins the next presidential election, a future Venezuelan government could tear up the agreement as Caracas has done before, he said.
Venezuelan oil could add large and much needed supplies if all goes well in the coming decades, McNally said. But it is "not a major factor near term in terms of pump prices," he said.
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