November 23, 2007

Big Oil Being Squeezed?

Tom Barnett makes this interesting observation:

NOCs, or national oil companies, directly control less than 40% of global reserves currently, but by 2030, according to the IEA, they’ll directly account for 75% of all production, meaning “big oil” companies are being slowly squeezed out of the picture, with investors increasingly looking at the NOCs and bypassing the remnants of the so-called seven sisters.

If the IEA has gotten this right (and I have my doubts about them as an organization due to their oil price predictions) it's in the fiduciary duty for Big Oil to do two things, muscle out the NOCS by eliminating as many national oil monopolies as possible (allowing Big Oil entry into more fields) and seriously adding alternative sources of energy to their portfolio so that their shareholders can escape the effects of the NOCs squeezing them out of oil market influence.

Big Oil has long been exhibit A in the amoral tendency of big companies to enter into corrupt bargains with national governments to limit competition. They have been implicit villains for quite some time. We're now entering the predictable long-term end game with Big Oil itself so excluded that it's losing influence in its core market. There's always somebody's cousin who's going to be able to out corrupt the foreigner. If Big Oil has finally figured this out, that turns them into a long-term friend of capitalism. If they haven't, isn't it time some shareholders taught them?

The 2nd implication is also interesting. It provides a very real motivation why Big Oil is really going whole hog on alternative fuels. They want to expand the energy pie so that they can control enough of the market no matter how many NOCS there are and how many oil fields they are excluded from. This provides stock price stability and a safe long-term path to corporate growth isolated from political risk. That's a rationale that will make sense in the boardroom but not one that has penetrated into the general public's consciousness.

Posted by TMLutas at November 23, 2007 10:20 AM