Posts tagged ‘Big Oil’

Bigger Oil

Roger Pielke, Jr. (hat tip to a reader) points to an interesting FT Lex column that should offer some interesting insights to America's progressives:


"Big" and "oil" are mentioned so often in the same breath that it is easy to lose perspective. Motorists and environmentalists never tire of berating the dominant supermajors whose petrol stations and share listings make them the public face of the industry, their favourite target being America's ExxonMobil. If market value were the sole magnet for opprobrium then Exxon's executives could breathe a bit easier because PetroChina recently overtook it as the world's most valuable listed energy company.

But there is "Big Oil" "“ last year, Royal Dutch Shell earned more than $1bn a month "“ and then there is bigger oil. No oil major is able to affect energy prices on its own and even Exxon is far smaller than the world's largest energy company. It is not even close. Saudi Aramco's estimated hydrocarbon reserves of 300,000 million barrels of oil equivalent make it 15 times Exxon's size. Exxon comes in about 17th place, with the top 10 being entirely state-owned.

US oil company executives routinely get pulled in front of Congress to defend themselves against charges they are manipulating world oil prices.   Huh? It would be as rational to accuse Grinnell College of manipulating national tuition rates.  Americans can take comfort in the fact that by limiting their ability to seek new oil in the US, we have made sure that oil markets are not controlled by evil publicly traded companies like Exxon and Shell but instead are controlled by entirely more trustworthy entities like the governments of Iran, Saudi Ariabia, Venezuela, Russia, Nigeria, and China.

This chart also supports the one good argument I think there is for peak oil -- that most of the world's oil reserves are controlled by patently incompetent institutions (e.g. governments) that have very bad incentives that make them highly unlikely to invest well.  The only reason these countries are able to produce at all is because western companies are stupid enough to keep walking into this cycle:

1.  US companies invest huge amounts of capital and know-how to build oil industry
2.  Once things are producing, local government steals it all (they call it "nationalization")
3.  Oil fields go into extended decline due to short-term focused and incompetent government management
4.  US companies invited back int to invest huge amounts of know-how and capital
5. repeat

Mandating the Impossible (Not to Mention the Stupid)

Here is a snippet from the energy bill that just passed the House:

On Thursday, just over a year after winning the majority, Democrats in
the House of Representatives voted through an energy bill that
represents a stark departure from the administration's approach. It
would raise vehicle fuel efficiency (Cafe) standards for the first time
in over 30 years, by 40%, to 35 miles per gallon for both cars and
light trucks and SUVs. A renewable energy standard mandates that
utilities generate 15% of their power from renewables by 2020. It would
set a renewable fuel standard aiming to generate 36 billion gallons of
ethanol a year by 2022. A tax package would roll back some $13.5bn in
oil industry subsidies and tax breaks to help pay for $21bn worth of
investments in clean energy development, mainly in the form of
investment tax credits for wind and solar, along with the development
and purchase of plug-in hybrid vehicles. And it would raise efficiency
standards for appliances and buildings.

Let's look at a couple of pieces very quickly.  Recognize that this is based on 10 whole minutes of research, far more than a busy Congressman could possibly be expected to muster.

  1. They want 15% of power generation from renewables by 2020.  I am not sure if this includes hydro.  If it does, then a bunch of Pacific Northwest utilities already have this in the bag.  But even if "renewable" includes hydro, hydro power will do nothing to meet this goal by 2020.  I am not sure, given environmental concerns, if any major new hydro project will ever be permitted in the US again, and certainly not in a 10 year time frame.  In fact, speaking of permitting, there is absolutely no way utilities could finance, permit, and construct 15% of the US electricity capacity by 2020 even if they started today.  No.  Way.   By the way, as a sense of scale, after 35 years of subsidies and mandates, renewables (other than hydro) make up ... about .27% of US generation.
  2. The Congress is demanding 36 billion gallons of ethanol.  Presumably, this is all from domestic sources because Congress has refused to drop the enormous tariffs on ethanol imports.  But the entire corn harvest in 2004 of 11.8 billion bushels would make only 30 billion gallons of ethanol.  So Congress wants us to put ALL of our food supply into our cars?  Maybe we can tear down the Amazon rain forest to grow more.
  3. By the way, I am all for cutting all subsidies to any industry for any reason, but when they say "industry subsidies and tax breaks" for the oil industry, what they mostly mean is this:

These were leases for drilling rights in the Gulf of
Mexico signed between oil companies and the Clinton Administration's
Interior Department in 1998-99. At that time the world oil price had
fallen to as low as $10 a barrel and the contracts were signed without
a requirement of royalty payments if the price of oil rose above $35 a

Interior's Inspector General investigated and found
that this standard royalty clause was omitted not because of any
conspiracy by big oil, but rather because of bureaucratic bungling in
the Clinton Administration. The same report found that a year after
these contracts were signed Chevron and other oil companies alerted
Interior to the absence of royalty fees, and that Interior replied that
the contracts should go forward nonetheless.

The companies have since invested billions of dollars
in the Gulf on the basis of those lease agreements, and only when the
price of oil surged to $70 a barrel did anyone start expressing outrage
that Big Oil was "cheating" taxpayers out of royalties. Some oil
companies have voluntarily offered to renegotiate these contracts. The
Democrats are now demanding that all these firms do so -- even though
the government signed binding contracts.

Update:  More thoughts hereMy climate skeptic video is here.

Trading Big Oil for... Big Corn?

Via QandO, Nancy Pelosi said this:

"It is important to our children's health and their global competitiveness to rid this nation of our dependence on foreign oil and Big Oil interests"

So Nancy Pelosi wishes to rid the nation of American oil companies.  Hoping that this country has come too far to consider something so insane as nationalization, this presumably means replacing oil with some other substitute.  But since energy consumption still will be huge in the future, presumably we are just replacing big oil with big ... something else.  I would never say that oil companies are completely free of rent-seeking impulses, but they are paragons of free market reason compared to companies like ADM, aka big Ethanol, whom Pelosi is likely to favor.