Venezuela still trying to lure FDI into offshore gas | fDi Intelligence – Your source for foreign direct investment information

This summer, Venezuelan president Nicolás Maduro made a series of bold claims in a speech to the Ministry of Petroleum and Arthur Eze, a Nigerian billionaire and CEO of energy company Atlas Oranto. “Very soon, we will be exporting gas to Africa,” he said. “With investors, we have no problem. To investors from Europe and the US, I say, ‘hurry up’. Here are the opportunities, but if they let themselves be disturbed by the political noise, well, we welcome the countries of the Brics.”

These statements came in August 2024, when the Venezuelan government declared the latest of a spate of new offshore gas development deals with the privately owned Nigerian company Veneoranto Petroleum, a subsidiary of the energy company Atlas Oranto. The deal with Atlas Oranto to develop two natural gas prospects in Barracuda (in the Gulf of Venezuela), and Boca de Serpiente (in Trinidad and Tobago), follows a set of development deals in 2024 with Shell, BP and the state-owned National Gas Company (NGC) of Trinidad and Tobago. 

The most recent Atlas Oranto deal includes development rights to the large Barracuda prospect, containing reserves of 20 trillion cubic feet (TCF) of natural gas and around two trillion barrels of condensate. According to S&P Global, the Maduro government is looking for up to 25 private investors for future offshore gas development opportunities.

Indeed, they are trying to reinvigorate the country’s fossil fuel sector, after oil production plummeted over the past few years from a high of 2940 barrels per day (BBL/D) in April 2014 to 392 BBL/D in July 2020. There was a slight recovery after the Biden administration eased US sanctions on Caracas in 2023, before clamping down again in 2024. Oil production, as of August 2024, was up to 927 BBL/D. “Production was hit by Covid-19 and then secondary sanctions through the Russian Rosneft which was marketing Petróleos de Venezuela (PDVSA) oil,” says Francisco Monaldi an energy economist and fellow at the Baker Institute for Public Policy, a US-based think tank. 

Since 1999, Venezuela has had bifurcated energy regulation laws, allowing for full private ownership in the offshore gas sector, while requiring majority government and national (i.e. PDVSA) ownership of oil developments. This law preceded a wider spate of nationalisations led by the late president Hugo Chávez in the early 2000s.

It now seems that a poor set of macroeconomic indicators across the board, including, but not limited to, energy production and shortfalls in PDVSA output, are pushing Maduro towards new private deals and foreign direct investment (FDI) in the gas sector. 

At the mercy of sanctions? 

These oil deals are subject to US Treasury primary and secondary sanctions aimed at the Venezuelan state and the Maduro government. These penalise US firms that trade with the Maduro government, foreign firms reliant on the US dollar in business with Caracas, and even downstream third-party partners connected in the second- or third-degree to Venezuelan contracts. 

Up to 50 international oil companies and other energy firms are seeking individual licences from the US government after a general authorisation lapsed in 2023. There is also no guarantee that shorter-term US licences granted for gas exploration will be transformed into medium-term development or longer-term commercial licences.

These sanctions may well affect the Oranto gas development and further deals. As Ayodele Oni, a partner at Bloomfield LP, a law firm heavily involved with Nigerian issues, argues: “The US sanctions will limit the ability of Atlas Oranto to execute contracts with the PDVSA, while the secondary sanctions pose risks to Atlas Oranto’s foreign partners and suppliers. [They] may hesitate to collaborate with Atlas Oranto for fear of repercussions from the US government. Consequently, these sanctions significantly undermine the feasibility of the gas development deal, complicating financial arrangements.” 

However, Atlas Oranto might be willing and able to wait out the current set of sanctions against Venezuela, prompted by the recent contested presidential election. “The Venezuela–Atlas Oranto agreement initially considers certifying only the existing gas reserves, later undertaking a technical feasibility study,” says Einstein Millan Arcia, managing director for energy and carbon at Fractal. “This could take more than 18 months, enough time to clear up the political entropy ongoing in Venezuela after the presidential elections.”

Without major changes in Caracas, it is difficult to foresee a meaningful rapprochement between the two countries. “In the short term, the relationship between the US and Venezuela is unlikely to change as long as Maduro remains in power,” says José De Bastos, an intelligence analyst at Crisis24. 

However, “if [Kamala Harris comes becomes president, her administration will] likely give extended licences to those joint Venezuelan projects with Trinidad’s NGC and private companies,” says Mr Monaldi. “[Especially] at a time when it’s not too politically visible, because they think these projects will be good for Trinidad’s NGC and won’t generate too much revenue for Maduro if he stays in power.”

Questionable return on investment

It remains unclear how attractive Venezuelan offshore gas developments are for private investors and companies considering the extensive sanctions and political risks. It is also unclear whether the government in Caracas is offering very favourable terms under economic duress to attract FDI. Either way, the Atlas Oranto and Trinidad’s NGC, plus Shell’s and BP’s deals are evidence of increased collaboration between Maduro and private players. 

“It is very likely that the Maduro administration will continue to open the economy to private investment, as it has done since late 2020,” Mr De Bastos says. “This is also likely to include the oil and gas sectors.

“The government [is beginning] a new term surrounded by controversies and low popular support, and it needs a growing economy to impose a degree of stability. Contrary to the Chávez administration, private business leaders have increasingly become close allies of the government.” 

However, Mr Monaldi contends that Venezuela’s desire for growth and FDI players’ need for a return on investment will be hindered — firstly by the country’s underdeveloped key infrastructure, and secondly by the presence of US-friendly neighbours, like Trinidad and Tobago, to which energy can be friend-shored before exportation. “I don’t think the [Nigerian deal] will happen,” he explains. “These projects are in areas where nobody’s going to build floating liquified natural gas infrastructure [because of the political and economic risk]. 

“The only reason the [Venezuelan] projects with Shell in the Dragon gas field — plus Trinidad’s NGC and BP in the Manakin gas field — have any chance of going forward is because they’ll use infrastructure based in Trinidad. Shell’s investments on the Venezuelan side are significant (with access to 10TCF of gas), but the gas will go through to Trinidad.”

Ultimately, while the Atlas Oranto, Shell and BP offshore deals signify a further development in Maduro’s gas field privatisation policies — and courtship of key Western and emerging market players like Chevron, Shell, BP, Trinidad and Tobago and Nigeria — they remained hindered by stringent US Treasury sanctions and an unclear American presidential election frontrunner. 

The prospect of contested governance and either further volatile elections in Caracas or a crackdown on dissent, only adds to the difficulty Maduro will have finding sustainable FDI to prop up an economy in freefall.

Samuel McIlhagga is a freelance journalist based in London.

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This article first appeared in the October/November 2024 print edition of fDi Intelligence