BIG OIL AND WORLD ENERGY ISSUES
Oct 24 - 30, 2011
BIG OIL is the perceived embodiment of world's largest oil companies holding sway on world oil supplies and prices. Although the controlling power has swung from oil producing nations to oil corporate world and then from oil corporate world to the infamous band of traders and speculators known to have mastered the art of price and supply squeezes. The oil corporate world is still held in reverence by those who know how the oil majors influence the world supply and prices by under-investing in oil as well as by killing competition through mergers and acquisitions - these mergers and acquisitions often described in idiomatic terms as "big fish swallowing the smaller ones". The "dirty" oil business is often blamed for much of the economic, social and environmental woes of the world, particularly the Third World. Tom Bower writes in the preface to his book OIL:
"Oil provokes irreconcilable emotions. Moralizing sermons about oil have never stopped, but since Sampson's and Yergin's books, some issues have been changed. Destitution in the Niger Delta, the contamination of Alaska's pristine wilderness, the destruction of Canada's forests and spreading corruption across Africa are all blamed on oil companies...The riddle is whether, in pursuing their priority of caring for their shareholders and their customers, the oil majors should refrain from interfering in the internal affairs of Third World countries, or accept a duty to prevent the "institutionalized pillage" of impoverished populations and to oversee the fate of their nations' oil wealth."
The mere mention of Big Oil may bring to some minds the hugeness of oil reserves the top oil companies are holding to influence supply and prices. The fact is just contrary to that; the big reserve-holders are the national oil companies of petro-states. A September 2010 Forbes article by Christopher Helman reveals: "What springs to mind when you think of the World's Biggest Oil Companies? BP probably, because these days you couldn't get BP out of your head if you tried. Exxon Mobil, definitely, because for so many years before the Deepwater Horizon blowout Exxon was (rightly or wrongly) the embodiment of Big Oil. Yet you might be surprised that in a list of the top 10 oil producers, none of the other usual suspects made the cut. Publicly traded giants like Royal Dutch Shell, Chevron, Conoco Phillips and Total may be Big Oil, but they are not Biggest Oil. The moniker goes to the state-owned national oil companies. NOCs for short, that sit on 77 per cent of the world's oil-accumulations so big they make even Exxon's 12 billion barrels of proven oil reserves look meager."
How these so-called oil juggernauts manage to influence world oil markets holding just a fraction of world reserves. The answer lies in the intricacies of financial systems and effectiveness of collective corporate power. Oil prices on trading exchanges are manipulated through the dealer-operations - Exxon, BP, Shell and others are known to have separate company divisions whose job it is to enter into dealer operations with the help of insider information ranging from own and rival companies' inventory position and storage capacity to the infrastructural edge and location advantage. Tom Bower, in the wake of BP takeover of Amoco, writes: "BP's senior trader understood the company's remarkable inheritance from Amoco better than others. BP had become the dominant owner of oil storage tanks in Cushing, the epicenter of pricing WTI oil on the New York Mercantile Exchange. In theory, with 20 percent of the storage, BP's power to influence Nymex's prices by choking or flooding the market had become overwhelming...By owning the physical infrastructure at Cushing, and producing crude oil and oil products, while trading crudes and derivatives on Nymex and OTCs, BP's rivals suspected the corporation of manipulation of WTI's prices."
OIL & GAS RESERVES TOP 10 PETRO-STATES & TOP FIVE OIL MAJORS
RANK BY 2007 OIL EQUIVALENT RESERVES COMPANY WORLDWIDE LIQUID RESERVES
WORLDWIDE GAS RESERVES
BILLION CUBIC FEET
TOTAL RESERVES IN OIL
EQUIVALENT MILLION BARRELS
1 Saudi Arabian Oil Co 259,900 253,800 303,285 2 National Iranian Oil Co 138,400 948,200 300,485 3 Qatar General Petroleum Corp. 15,207 905,300 169,959 4 Iraq National Oil Co 115,000 119,940 134,135 5 Petroleos de Venezuela 99,377 170,920 128,594 6 Abu Dhabi national Oil Co 92,200 198,500 126,132 7 Kuwait Petroleum Corporation 101,500 55,515 110,990 8 Nigerian National Petroleum Corp 36,220 183,990 67,671 9 National Oil Co (Libya) 41,464 50,100 50,028 10 Sonatrach (Algeria) 12,200 159,000 39,379 17 Exxon Mobil Corp (US) 7,744 32,610 13,318 19 BP Corporation (UK) 5,492 41,130 12,523 21 Chevron Corporation (US) 7,087 22,140 10,870 22 Royal Dutch Shell (Netherlands) 3,776 40,895 10,767 23 Conoco Phillips (US) 6,320 25,438 10,668
So, in the energy-wealth-accumulation list, Big Oil is allowed entry after the top 16 positions that are occupied by the national companies of the world petro states. It is the corporate dominance and the modern day financial engineering that has presented us with the blow-up of Big Oil. On the world corporate scene, Royal Dutch Shell, Exxon Mobil, and British Petroleum (BP) occupy second, third and fourth positions in the Fortune Global 5oo, June 2010, Top 10 list. Fortune Global 500 judges the companies on the basis of revenues. The number-one slot in the list goes to Wall-Mart, a US company with a worldwide chain of department stores and warehouse stores. In the FT Global 500, June 2010, Top 10 list, Big Oil is singly represented by Exxon Mobil at number-two slot with the top position going to Petro China, the Chinese national oil company. Ft Global 500 ranking is based on market capitalization. In the Forbes Global 2000, April 2010, Top 10 list, Exxon Mobil ranks 4th with Royal Dutch Shell and BP occupying 9th and 10th spots respectively. The top three positions have gone to JP Morgan Chase, General Electric and Bank of America, in the same order. Forbes Global 2000 judges the companies on the basis of four variables: sales, profit, assets and market value.
In the modern day corporate structure, the actions of the CEOs are biased more in favor of increasing their shareholders' wealth - and by that measure their personal wealth too - than anything else. They can go to any length to achieve this objective. Their actions may include savage cost cuttings resulting in huge lay-offs, putting on hold investment plans to manage rich dividend payouts, and indulging in activities that do not fall within the ambit of their core business, for example: Big Oil involvement in dealer operations, ill-planned and uncalled-for mergers and acquisitions etc. The world energy situation is disturbing, if not outright alarming. This investment-strapped sector needs loads of fresh investment funds to ensure future survival - $1.5 trillion every year up till 2035, according to IEA. Both petro states and Big Oil need to invest more in exploration to jack up the existing energy reserves. The IEA chief economist Fatih Birol recently warned a gathering of energy ministers and industry bosses, in Paris: "If we don't find that money, the production will not grow as much as it needs to grow, with the result (that) one can see much higher prices than one can see today." Ironically the warning, instead of panicking, might well have pleased a section of the audience as prospects of 'higher oil prices' is what they relish most!