$100 Billion Venezuela Oil Deal Puts U.S. at Center of Future Supply

• Venezuela’s oil deal targets $100 billion in investment to boost production.
• More Venezuelan oil will increase global supply and put downward pressure on prices.
• The U.S. gains priority access to future Venezuelan crude production.

The White House has unveiled details of a major U.S.-backed agreement to develop Venezuela’s oil reserves. The deal puts North American Blue Energy Partners (NABEP) at the center of a plan that reshapes oil flows between Venezuela, the United States and global markets.

According to the White House, NABEP has received 100-year concessions to develop 17 Venezuelan oil fields holding about 65 billion barrels of proven reserves. The company plans to invest up to $100 billion in new infrastructure as it expands production.

The size of the investment makes this more than a short-term oil market story. It is a long-term plan to bring more Venezuelan crude into the global market.

$100 Billion Plan Targets Venezuelan Production

Years of underinvestment and poor infrastructure have left many Venezuelan oil fields producing well below their potential. NABEP plans to spend up to $100 billion to repair and modernize the country’s oil industry.

If the plan moves forward as outlined, Venezuela will eventually send more oil to international markets. Higher Venezuelan production would increase global supply and put downward pressure on oil prices over time.

But 65 billion barrels of reserves will not suddenly become 65 billion barrels of new supply. Developing oil fields, repairing pipelines, upgrading infrastructure, and expanding refining capacity will take years.

That means the deal will not have the same immediate effect as an OPEC production increase or a sudden supply disruption. The market impact will build as new production comes online.

U.S. Energy Companies Stand to Benefit

American energy companies are also positioned to benefit from the investment. Venezuelan crude is expected to move through U.S. refineries, while American drilling equipment, oilfield services and infrastructure will support the expansion. The White House says the program will generate billions of dollars in U.S. investment and support thousands of jobs.

Oilfield-service companies, drilling contractors, pipeline operators and engineering firms are among the businesses that stand to gain from higher spending.

U.S. refiners are another important part of the deal. Venezuelan crude is generally heavy and requires specialized equipment to process. Refineries already designed to handle heavy crude will be well placed to benefit if Venezuelan oil exports increase.

U.S. Gets Priority Access

The agreement also gives Washington preferential access to future Venezuelan production.

Under the plan, the U.S. government will have the right to buy 20% of NABEP’s production at production cost. Washington will also have first refusal on the remaining 80% in certain situations, according to the White House.

That gives the United States another source of crude for strategic and emergency needs.

Notably, the Trump administration has presented the deal as part of an effort to rebuild Venezuela’s energy industry to reduce Russian and Chinese influence in the country’s oil sector.

Long-Term Supply Story

For oil traders, timing is the key issue. The agreement creates a path for more Venezuelan oil, but the new barrels will take years to reach the market.

If the $100 billion investment succeeds, Venezuela’s production will rise and add meaningful supply to global markets. That would eventually put pressure on crude prices.

At the same time, oil producers, service companies, infrastructure firms and U.S. refiners stand to benefit from the investment.

The Venezuela deal is therefore less about tomorrow’s oil price and more about the supply of the next decade. The biggest signal for markets will be whether the planned investment turns Venezuela’s huge reserves into steady, large-scale production.

Related: Why Trump’s 65B Venezuela Oil Deal Matters for Bitcoin and Stocks