Increase of State-Controlled Resources Threatens U.S. Consumers

By Irwin Greenstein

The increase of state-controlled resources is ultimately bad news for American consumers. Not only are state-run resource companies inefficient compared to private sector firms but also many of them are hostile to US interests.

Last week, Russia and Venezuela finalized their deal to bolster cooperation in the oil and gas markets. Russia’s state gas monopoly OAO Gazprom (OGZPF.PK) and Venezuela’s Petroleos de Venezuela SA have inked a memorandum of understanding that allows for greater cooperation between the companies.

To help seal the deal, Russia is granting Venezuela a $1 billion credit for the purchase of Russian weaponry. After all, you never know if ExxonMobil (XOM) and ConocoPhillips (COP) will get the Bush administration to invade in an effort to take back their investments in Venezuela.

And it could get worse for American companies as they inadvertently build out energy infrastructures that are appropriated by emerging nations that have petro-fascists sitting on the throne.

A recent article in The Economist questioned whether high oil prices will stimulate “resource nationalism.” In addition to Venezuela’s seizure, Bolivia and Ecuador forced international companies to make similar concessions.

At about the same time, TNK-BP, a Russian subsidiary of BP (BP), had to sell a major stake in its oil business to the national gas monopoly Gazprom. And in 2006, Royal Dutch Shell (RDS.A) was forced to sell a 50%-plus-one-share stake in the Sakhalin-2 oil field to Gazprom.

A consortium including ExxonMobil, Total (TOT), Shell and ConocoPhillips has already invested $17 billion in developing the Kashagan Field in Kazakhstan. But over the past two years, Kazakhstan has escalated its demands, forcing these international oil companies to reduce their stake in order to give state-owned KMG a larger share.

This trend is bad news for US consumers. Since most of these regimes are openly anti-American, they could push up the price of gas at the pump.

And politics aside, the management of energy facilities by these state-owned agencies is downright inefficient compared with the more experienced Western companies - in turn achieving the same effect as political price gouging.

As The Economist explains, most national appropriations took place in the 1970s, when oil hit historically high levels. Once the oil price came down in the 1980s and 1990s, the move to nationalize “virtually disappeared and re-emerged only in the last decade when oil prices climbed back to 1970s’ levels.”

We can only expect this trend to continue unless there is a collapse of oil prices. In the mean time, we find that the US oil companies find themselves as accidental Communists.

Disclosure: none

Comments

[woodsey:]

Accidental communists! Can't happen? I'm an old guy; I have seen it happen.

2008 Sep 29 04:33 PM

[AlexS:]

Our Congress is basically doing the same thing by keeping so much of our potential new oil fields off limits. They just do it sooner in the development stage and with less violence. Plus, Venezuela did it by demanding that oil leases be "renegotiated" to a losing point for XOM and COP, which is sort of what Congress is doing with Gulf of Mexico leases. Rulers all think alike, don't you think?

2008 Sep 29 05:43 PM

[ripskii:]

This is just another big reason to move our energy use to locally produced gas, oil and alternate energy sources and stop sending huge sums to the petroleum nationalists. Failure to develop our own resources is not only stupid, but very expensive.

2008 Sep 29 06:31 PM

[Alan von Al...:]

In the same way that Wall Street i-banks were overleveraged and sold hopeless crap advertised as AAA assets, the oil industry broadly speaking has overinvested in hopeless plays and overleveraged its booked reserves. I don't see any threat from Russia or Venezeula as such. They've cut their own throats by kicking out competent people.

If I had to guess, I'd say that war risk will rachet up. There's not enough oil to go around and military (ours and theirs) always has first dibs on supplies.

2008 Sep 29 07:44 PM

[Alamo:]

Could not agree more with this article.

To think (or not to think in their case) that "Big Oil" would drop everything and chase around the most dangerous and anti-American areas of the world ---especially after the disastrous 8 decades, 'er years, of Bush and Cheney-- to time and time again, sail off to those "forbidden" lands, develop their oil and gas and then promptly get told to "hit the road" (which they undoubtedly built) bogs the mind.

Take ExxonMobil, Shell and ConocoPhillips with offices in Dallas and Houston virtually ignoring the vast natural gas resources within a 200 mile radius of those cities to risk their share holders' money chasing after thug government resources in virtually inaccessible places 10,000 miles away. And if and when those resources are developed represent a prime nationalization project as soon as the oil and gas starts flowing. It's too absurd to even contemplate.

In fact though it just might not be coincidental that those "Big Oil" boys continue to perpetuate this world wide scheme. It gives them a ready explanation for high energy costs. They develop; the thugs expropriate and sell the crude by the boatload back to Big Oil's refineries who then pass the costs on to American consumers.

This absurdity can be ended. Demand that Congress push natural gas infrastructure build up. When Americans can either fill their cars in their own garages or up the street at the corner fuel station, that national debacle will be ended.

But relying on the Russians, the Venezuelans, OPEC and others with names we cannot even pronounce, much less spell to "provide" our transportation fuel will, and is, bankrupting this nation.

Natural gas is our way out of this trap and we need to take immediate advantage of it.

2008 Sep 30 11:17 AM

[jdb:]

Thanks Boone
You sound like you know (or don't know) what you're talking about.

2008 Sep 30 11:47 AM

[Bobcheesedo...:]

I don't like the fact that American companies put the money into developing other country's oil properties and then get ripped off. On the other hand, for years our oil companies were able to go to other countries and exploit their oil resources. I don't blame the other countries for wanting to be the ones to profit from and control their own resources. They ought to honor their agreements though.

2008 Sep 30 03:42 PM

[LaloPaloMalo:]

Instead of whining...invest in multi-nationals smarter than US-UK-French Norwegian & Swedish O & G multi-nationals....the principal is the same..
Putin wants a 50% owned [by OGZPY.PK] ,namely GAZPROM NEFT GZPFY.PK to be the largest O&NG provider in the world....sure the Russkies have their fingers in the honey jar...so what's new??? get a piece of the coming action at a bargain....live it up!!!!

2008 Sep 30 05:34 PM

[lance sjogren:]

Alex: You are absolutely right. The Bush/Pelosi regime has much in common with the Chavez regime.

2008 Oct 02 10:38 AM

[lance sjogren:]

loveoil: Alamo is right.

Yes natural gas is a more awkward transportation fuel than gasoline.

But having a big CNG tank in your trunk is not a bad tradeoff for getting fuel that is a lot cheaper and is not subject to the whims of dictators.

(or at least, the whims of dictators outside of our own country)


Besides, with the economic downturn, you can't afford to buy stuff to put in your trunk anyway.

2008 Oct 02 10:43 AM

[Amvet:]

Cut the BS. The US government has insulted, threatened, and harrassed Russia and Venezuela for years and so you call them "anti-american". Honest-up and tell the truth. We have caused countries to distrust us. Amvet

2008 Nov 09 10:11 AM