State Monopolies Nudge out Big Oil; West's Expertise Losing Value

Article excerpt

Byline: Patrice Hill, THE WASHINGTON TIMES

Exxon Mobil, the world's largest corporation, is much criticized for raking in huge profits and polluting the environment, but could the epitome of Big Oil some day become an endangered species?

Oil experts say yes, the day of the freewheeling and powerful corporate enterprise that finds the oil, pumps it out and delivers it to customers around the world may be slowly coming to an end. The reason: Most of the world's oil fields are now owned by countries with state oil monopolies that either prohibit foreign investment or no longer require the expertise of big, integrated oil companies to bring their oil to market.

Exxon Mobil and all the rest of the Western world's private oil companies - including BP, Shell, ConocoPhillips, Chevron and Total - today control only about 7 percent of the world's oil reserves. The rest belongs to state behemoths like Saudi Aramco, which owns more than a fifth of the world's oil; Iran and Iraq's oil companies, which each control about 10 percent of the world's reserves; and Pemex, the Mexican oil company, with 1.3 percent of the world's reserves.

National ownership of oil reserves in some countries like Mexico and Saudi Arabia has been a longstanding tradition. Mexico's constitution since the 1930s has prohibited any foreign investment in the country's oil sector. Venezuela, Russia and Ecuador, by contrast, closely collaborated with Western firms through the 1990s but started seizing their assets through forced nationalizations this decade.

"The handwriting is on the wall" for oil companies like Exxon Mobil, which have barely been able to maintain their share of world production and reserves in recent years, said Amy Myers Jaffe, a professor of energy studies at Rice University.

"They may see a declining rate of production over time, and eventually that is bad news for both their shareholders and consumers," she said.

Consumers stung by high oil prices today will suffer even more as state monopolies cement their control over the world's remaining oil resources in coming years, analysts say.

National oil companies - particularly those participating in the OPEC oil cartel - already are blamed in large part for keeping a tight rein on supply and driving up prices to more than $130 a barrel for premium crude and $4 a gallon for diesel and gasoline.

Rather than make the investments needed to ensure supplies are adequate to meet burgeoning demand for oil around the world, nationalized oil companies in countries like Russia and Venezuela have been allowing production to fall while they use their treasure of oil revenues to fund social and political causes. Those include the salaries of Russia's millions of state workers as well as food, fuel and military aid in Latin America.

Peter J. Robertson, vice chairman of Chevron Corp., said if major oil companies had access to the vast resources of these countries, they would be using their ample profits to pump more oil at cheaper prices.

"There's plenty of gas in the world, and plenty of oil in the world, to keep prices well below where they are today. The question is, can we get access to it, will the investments be made? In many of the countries that have these resources, the investments just aren't being made," he recently told the Council on Foreign Relations.

"Investments aren't being made in Russia at the rate they need to be. They're not being made in Mexico at the rate they need to be. They're not being made in Venezuela at the rate they need to be. They're not being made in Kuwait at the rate they need to be. And Iraq. What happens in these places will define what the price of oil and gas is ten, fifteen years from now."

But the state monopolies are not focused on increasing production. Instead, in states like Russia, Mexico, Iraq, Iran and most other oil states, oil and gas revenues - which are the government's main source of income - are being used to fund growing budgets for defense and domestic development and welfare, among other expensive priorities. …