Tuesday, September 12, 2006

"Big Oil," eh?

It seems World Controlling Satan Incarnate the big oil companies are the biggest and most controlling entities after all: they're owned by national governments.
Believe it or not, "Big Oil" is actually "Big Socialism." The Economist recently looked at the largest oil companies in the world, and found that the thirteen largest oil companies in the world are all state-owned, where all profits go to national governments. These thirteen companies control 90 percent of the world's oil. [emphasis mine]
Go figure. Next time someone makes complaints of "Big Oil" somehow destroying America or manipulating world markets for their own nefarious ends, you might want to mention Exxon barely being in the top 15 of oil companies and that National Oil Companies are often far more wasteful and corrupt than companies that live or die by competing in an open market. For example:
In Venezuela, the Ministry of Energy and Oil has only just released the 2003 edition of its annual statistical compendium on the company's performance. Its finances are certainly getting murkier: it now transfers much of its earnings directly to a development fund controlled by Mr Chávez, rather than sending them all to the central bank as it used to. [emphasis mine]
Earlier this year a report in Petroleum Intelligence Weekly suggested that Kuwait's state-run Kuwait Petroleum Corporation (KPC) was not providing a full picture of how much oil it had. Even members of Kuwait's parliament complain that they do not know the true level of the country's reserves.
And yet more:
Indonesia has become a net importer of oil, despite big reserves, thanks to the failure of state-run Pertamina to develop new fields.
And what of actual profits?
The current expansion of Russia's NOCs is proving equally ill fated: costs have risen and output has grown more slowly at Yuganskneftegaz, the former production arm of Yukos, a Russian oil company, since its takeover by state-controlled Rosneft, according to Andrei Illarionov, a former adviser to the Russian government. Over the past 20 years, he points out, income per head has grown in countries with private oil industries, but has shrunk in those with nationalised ones. [emphasis mine]
The list goes on. For the other side of the coin, what happens when the NOCs have competition?
The governments of Brazil and Malaysia, among others, allow other firms to bid against their respective NOCs, Petróleo Brasileiro (Petrobras) and Petroliam Nasional (Petronas), for exploration and production rights. Since the two have better knowledge of local conditions and geology, they can still hold their own against multinationals. But the competition forces them to keep costs down and methods up to date. The presence of multinationals also helps to develop a country's pool of skilled labour and, when they operate in joint ventures, to disseminate new technology and ideas. [emphasis mine]
What is worrisome is this:
The NOCs will gradually become even more dominant as oil production dwindles in areas which are open to all comers, such as the North Sea and the Gulf of Mexico. New oil is most likely to be found in the NOCs' territory, precisely because it is largely out of bounds to multinationals such as Exxon and BP, and so has not yet been thoroughly raked over.
Which means that unless the NOCs privatize (an event for which I'm not holding my breath), the multinationals will be hurt if they don't look for new ways to profit. . . just like any other industry faced with a threatening business situation. In the short term this may mean doing things like opening the ANWR, but that's only a stopgap measure. In terms of longterm energy production, I hope they invest serious R&D money into alternative, renewable resources (such as biodiesel and ethanol-producing crops); for American oil companies, preferably alternatives of the domestically-produced variety. Not only that, but with the combination of the NOCs increasing, and already impressive, market share and the aforementioned NOC mismanagement, the possibility exists that we will face an oil industry situation that's far worse than what we have today.

All in all, it appears that Big Oil is yet another example of a free market trumping closed, state-run systems. Does the widespread ineptitude of the NOCs mean that multinationals are immune from corruption, mismanagement, and wasteful behavior? Good God, no, but in a free market, if a corporation is to survive, it must be profitable and otherwise successful even under the weight of bureaucratic momentum and board-room politics, no matter the industry. Do multinational oil companies need regulation? Yes, of course. Do multinationals, especially domestic multinationals, do all they can to skirt those regulations? Well, duh, of course they do, which means that it is our duty as voters, taxpayers, and constituents to embrace our vested interest in how our elected officials interact with not only oil companies, but with all industries and to pressure those officials incessantly to put our interests first. Regulation is needed, as is regulation reform. Let the oil companies compete, but force them to do so fairly.

After all, the "Big Oil" so many leftists and free market haters often rail against only exists with a minority market share among world oil companies, and the government-controlled entities those leftists seem to want already exist. . . and they are failing.
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