Re: SC41

http://www.financialsense.com/series3/part2.html

The Politics of Energy

............The energy world of today is much different than the energy world that existed 40 years ago. The 1960s was the era of “Big Oil” where the international oil companies had access to 85% of the known oil reserves worldwide.

Today only 16% of the world’s oil reserves are accessible to international oil companies. The rest of the oil is either owned and controlled by state entities or is restricted or entirely cordoned off. According to T. Boone Pickens, “you don’t have an infinite number of prospects to drill anymore.” As oil was nationalized in the ‘60s and ‘70s, U.S. and British oil companies accounted for less of the world’s oil production, having fallen from 27.8% of the world’s oil production in 1979 to just 14% by 2004. Today the international oil companies don’t even make the top 10 list of largest producers. The majors are struggling to keep up with demand. They are also having difficulty replacing their existing reserves. Reserve replacement for the six major oil companies will fall short of replacement over the next five years according to John S. Herold, Inc.

Finding and producing oil is getting more problematic. There are technical difficulties, there is competition from national oil companies, and the oil terrain is becoming more hostile. Governments are demanding a bigger share of the profits. Even then there are no guarantees that original contracts will be honored after substantial investments have been made. Witness the struggles of ExxonMobil and Royal Dutch Shell regarding their Sakhalin Island investment. The Russian government has been using taxation and environmental regulations to insure the IOCs make little or no profit on their investments. Currently Gazprom and Rosneft are working themselves back into controlling positions at Sakhalin.

Who Fills The Gap?

With more of the world’s oil reserves off-limits to IOCs and their production in decline, who fills the gap? With much of the global oil patch off-limits, it shouldn’t matter as long as someone brings the oil to market. However, the problem becomes one of priorities. International oil companies are much more efficient at finding and extracting oil and gas. They are also better at innovating and developing technology. Western oil companies are motivated by profit and return on investment. National oil companies are driven by a different agenda. Their motivation is political rather than commercial. For many oil producing companies, the national oil company is a cash cow for social programs. This is most evident in Venezuela and Iran where oil production has fallen by 46% and 43% respectively. The result is that OPEC production has fallen from 38 million barrels a day in 1979 to roughly 32 million barrels today.

So where does all of this leave us? The world we know is a world that runs on oil. Energy is the ultimate resource—essential for life and the driver of every industrial economy. Imagine life without it. There would be no lighting, air conditioning and heating, indoor plumbing, ovens to cook food, mechanized transportation, medicines or computers. All of these creature comforts are part of our modern energy-intensive world. Yet, we assume that the energy will be there when we need it. It is a dangerous assumption to make at a time that the world’s energy producers are struggling to keep up with demand. Again, energy demand continues to grow globally while global oil production is struggling to keep pace.......

The trend is clear, the US, and its Big Oil companies are quickly losing thier once dominant position, regarding thier ability to aquire oil from the various worldwide oil reserve sources.