Declining Oil Supplies: When You’re Part of the Problem…

Many people don’t like big oil, but we’re paying the price…

Oil production has begun falling at all of the major Western oil companies, and they are finding it harder than ever to find new prospects even though they are awash in profits and eager to expand.

Part of the reason is political. From the Caspian Sea to South America, Western oil companies are being squeezed out of resource-rich provinces. They are being forced to renegotiate contracts on less-favorable terms and are fighting losing battles with assertive state-owned oil companies.

We’ll, I guess I’ve been part of the problem.  As I note here, in the history of my family business and offshore oil:

But Vulcan also had a wide variety of customers outside of the U.S. These included some of the major platform contractors, such as Heerema, ETPM, Micoperi (whose assets were purchaed by Saipem,) Uglands, Jardine and Nippon Steel. But these also included state owned (full or partial) oil companies which were doing their own platform installation: Aramco (Saudi Arabia), NPCC (UAE), ENAP (Chile), PDVSA (Venezuela), CMM (PEMEX), Brunei Shell, and CNOOC (China). These latter were interesting because they demonstrated two things:

  • Commercial enterprise is possible with the combination of expertise, financing and desire. Although some of these were from major producing countries, others were from countries whose goal was to reduce their dependence on imported oil. Some of the inspiration of this site–to disseminate information that make good foundations possible–has come from the experience of interacting with these customers.
  • International business is possible without many of the treaties that we seem to be told we “have to have” for it to be a reality. For many years Vulcan routinely exported a third of its output for one reason: it had a product that people and organisations found essential to fulfil their own purposes.

Although the NYT article assures us that these state-owned companies aren’t as good as the majors in exploiting oil, there’s one more factor to consider: many countries deliberately slow down the development of their oil and gas resources in order to a) stretch out the benefit to the country longer and b) not flood the country with large instantaneous cash flows that would end up being wasted.  The countries surrounding the North Sea adopted this strategy from the start, and others are too.

An “oil major” looks at things from a purely economic standpoint: the sooner they can get the oil out, the sooner they can get their money out.

The biggest downside for everyone in this is that oil, up to now generally available on an open global market, will be sold more on a “country to country” basis.  This will create more conflicts over oil as those cut out of deals attempt to redress their loss.  The current crisis in Georgia is in part fuelled by that, but there are more to come.

For the United States, given that we are blessed with abundant energy resources within our borders, it makes sense to develop those and insulate ourselves from future shortfalls.  The alternative is to constantly engage in foreign adventures (military and otherwise) to secure our supply, and we’ve already seen that this is no fun.

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