00:00Right now we are listening to President Donald Trump at the White House convening the meeting of oil and gas executives.
00:07Romain Bostic here alongside Katie Greifeld. This is the close.
00:10We just heard from the vice chair of Chevron, Mark Nelson. They're doing round robins around the table.
00:15We heard from Marco Rubio, of course, Secretary of State.
00:18His comments are probably some of the more illuminating, saying that this isn't just about the infrastructure build of Venezuela's oil industry,
00:25that basically anything that Venezuela buys, at least in this interim period, is going to be American products.
00:31That includes equipment, food, medicine, etc.
00:34But, of course, the real prize here is what happens to the oil and gas infrastructure there
00:38and whether those men, and they are, at least for right now, all men sitting around that table,
00:43going to be able to do to get that infrastructure back up to something profitable.
00:47Yeah, I thought those comments by Rubio were particularly interesting to get more clarity on, you know,
00:51what the administration meant when they said that Venezuela was going to be buying U.S. products.
00:56As you mentioned, he went through a laundry list there.
00:58A lot of interesting comments, though, from the president and others on the future of the Venezuelan oil industry,
01:04what they would like the future to be, talking about, you know, these big numbers that the oil executives in America have to invest.
01:12But, of course, we haven't seen any firm commitments yet.
01:15And I'll bring back in Ed Morse now.
01:17And, Ed, you've been listening along with us to this press conference so far.
01:21And, again, you think about the ambitions here.
01:24You heard it from the president.
01:25I wonder how close you think that is to reality and what that timeline, if possible, could look like.
01:31So we haven't heard what's going to incentivize these companies to come back in.
01:35There's a lot at risk.
01:36The basic factor at risk is what is the future of the Venezuelan government?
01:40Who's going to be there to govern?
01:42We have little limited control over that.
01:45The next is what happens to guarantee that the $100 billion that the president was talking about is going to be forthcoming.
01:54Who is going to confront that risk?
01:57And we don't know the answer to how the government is going to assuage that.
02:02What are the guarantees going to be?
02:04What are the incentives going to be?
02:06So we have a long way to go.
02:08And, in any event, it will take a long time.
02:09It may take a shorter amount of time to get the production up by a couple hundred thousand barrels a day.
02:16A couple hundred thousand barrels a day don't matter in terms of global balances.
02:20What really matters is the longer-term plan, that longer-term plan, which won't be implemented until after President Trump's four-year time horizon is over.
02:30So we have to wait and see what the government is going to offer.
02:32Well, it was interesting to hear President Trump say that the U.S. oil companies will deal with the U.S. directly, not with Caracas.
02:40But to your point that we've heard assurances recently, just now from the president, when it comes to securities, we haven't heard about incentives of coming in and investing.
02:50But let's say that, you know, the U.S. is able to increase Venezuela's oil output.
02:56What would be the potential opportunity cost of not getting involved?
02:59So there would be a potential cost, and that has to do with what you expect Venezuelan oil production could be in a world that is producing 104 million barrels a day, basically, in terms of the product that comes out of the crude.
03:13So Venezuela is currently at a million a day.
03:17The objective is to get back to that 3.5, 3.7.
03:21That's a significant increase.
03:24It would more than likely, if there was the investment flow, be at the expense of other developments in the oil sector around the world, whether it's the very same companies, ConocoPhillips, Chevron, and Exxon, that the government is talking to right now.
03:40It also includes potentially the smaller companies.
03:45The president did go out of his way to talk about Harold Hamm and Continental Resources.
03:49I doubt they're likely to go into Venezuela, in part because they don't have the experience of dealing with heavy oil.
03:56They don't have any refining capacity.
03:58They have very limited incentive to do so.
04:02So, you know, the world of the oil market is a complicated world.
04:05And as I kind of said earlier before the president started speaking, we have to look at the cost of developing Venezuelan oil.
04:13It is the most abundant in the world, but it's among the most costly in the world.
04:17And these companies, when they make a decision to invest, are going to be looking in a comparative basis of where they can increase their production and what will be the cost differential between that and Venezuela, where they may be getting some government guarantees.
04:31Do we have any sense, though, is this, as Trump's words say, basically, we're going to have to rip out all the equipment?
04:37Is this basically rip everything out, like basically a gut rehab of a house?
04:41Or can you take the existing infrastructure there and just retrofit it for whatever the ultimate aim is?
04:45So the answer is yes and yes.
04:47And it depends on what the infrastructure is and how much it has deteriorated.
04:51So a lot of the infrastructure can be rehabilitated in a relatively short period of time.
04:57But it's absolutely the case that to get back to three and a half million barrels a day is going to be replacing a lot of that infrastructure.
05:05And that's where all of the complications come into play, not just the cost, but how do you get the service companies there?
05:13How do you get whoever is going to be rebuilding those pipelines to be there?
05:17These companies are not going to build those pipelines themselves.
05:20I am curious, though, too.
05:21I mean, obviously, you're an expert in the commodity space.
05:24But in the work that you've done, you've obviously had to deal with the issues of geopolitics and obviously the potential violence that comes along with that.
05:30Do we have any sense that, for that matter, whether it's the Venezuelan militias or maybe some of the neighboring countries out there are just going to sit by idly?
05:37I mean, what assurance is can you give a Chevron, Exxon, or whoever is going in there that if they send their folks in there for however many months or years that they're going to be protected?
05:46Well, they can't give any assurance about what Russian production is going to be.
05:50And they're the second largest producer in the OPEC plus group, the third largest producer in the world.
05:55There is no way to really estimate what Saudi Arabia and the UAE are going to do.
06:01At the moment, the U.S. has provided them protection, has provided some guarantees, not quite a NATO-like guarantee, but guarantees not approved by U.S. Congress.
06:11And, you know, they have a tolerance for lower prices along with that guarantee.
06:17But if we get below $50 a barrel, we don't know what the Saudi is going to do.
06:21They can do two things.
06:22They can shut in production and help put a floor under prices, or they can do what they did earlier in this decade, and that is to open up the taps to try to protect their own production and to go after cheaper production.
06:35That cheaper production, although more expensive than theirs, happens to be located in the United States.
06:42So if we get below $50 a barrel for any length of time, U.S. production is going to suffer.
06:47And it's not clear there's going to be the support long term for other oil-producing countries to really help support U.S. production base.
06:57I know it's been only about a week since Maduro was seized, but China's been relatively quiet in all this.
07:03Should we be a little concerned about that, that maybe, given their economic might and, of course, their demand for natural resources, that they might actually assert themselves in some way or another in this situation?
07:13Well, I think the Chinese have not been silent on this.
07:16They've talked about what is owed to them by Venezuela, and what is owed to them is similar to what's owed to the oil companies.
07:26They have an agreement with Venezuela that's twofold.
07:30One is to get the debt repayment.
07:32So we don't know exactly what the amount is, and it depends on part of what the price of oil is.
07:37But somewhere between 60,000 and 70,000 barrels a day of Venezuelan crude is going to China to repay what is the remaining about $10 billion worth of debt.
07:47Yeah.
07:47As price goes down, that number goes up, or the length of time of repayment is going up.
07:53It appears that Trump has agreed to allow that debt repayment to take place.
08:00China's also been buying more than the 60,000 or 70,000 barrels a day.
08:05They're buying several hundred thousand barrels a day, up to 400 at times.
08:08And that's to do what China alone can do, namely buy oil to build their strategic stockpile.
08:17So one of the things that are in the U.S. producer's interest is to have a floor put under prices.
08:24China has been the buyer of last resort in the world, and that buying of last resort could be shifted to the U.S.
08:34if Trump has a way to do that.
08:37China has not really voiced its opinion on it, but we know that China is now talking and thinking about their own situation, how to protect themselves.
08:46We don't know the degree to which they want to really dramatically increase their strategic stockpile.
08:51They've been building oil resources as a reserve at about 400,000 to 500,000 barrels a day.
08:57They have been at 1.1, 1.2 million barrels a day.
09:00I think their infrastructure allows them to go to a 1.1, 1.2 million barrel a day build.
09:05Will they do that?
09:07And that can help rebalance the market to the satisfaction of the Saudis and the UAE.
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