How Our Oil Situation Could be Much Worse

Imagine if the DMV, or some other awful government agency, ran the world’s oil companies. Imagine the waste: too many unqualified employers draining payroll, with no incentive to do any real work, bureaucrats who just looks out for their own interests and don’t care at all about production, rampant corruption, and the government breathing down its neck, telling it exactly what to do. Imagine how little would get done, and how much the world would suffer.

But that’s how it really is. National Oil Companies (NOCs) control 90% of the world’s known oil and gas reserves. While not all of them are as bad as my hypothetical scenario, many are. Petróleos de Venezuela, (PDVSA) could be a poster-child of meddling government destroying a once-productive oil company. Long story short, after Hugo Chavez started meddling with the company, production fell dramatically (from about 2.6 million barrels/day to, at worst, 1.2 million b/d), and hasn’t recovered (now it’s at about 1.6 b/d, but falling).

PDVSA suffers from the corruption, incompetence, overstaffing, government interference I described, and a whole host of other woes because they’re state-controlled.

Albeit, not all NOCs are as bad as PVDSA, but many are. And even the good ones aren’t as open, as efficient, or as dedicated to finding new sources as the private oil companies. And because the thirteen largest oil and gas companies are all NOCs, these firms can do much more to help the consumer than the lowly likes of Exxon-Mobile. Besides all this, the places that private firms can drill are running dry much faster than NOC-controlled wells and reserves, so our dependence on NOCs is only going to increase.

The take-home message is that blaming “big oil” for skyrocketing oil prices is, at best, only partly correct. The US imports 58% of its oil, and much of it comes from these poorly-run NOCs, meaning they have more influence than our domestic firms. Even though both NOCs and “big oil” share the blame for high prices, “big oil” like Exxon-Mobile should take less of the blame. But one must remember, these firms spend billions on finding new reserves and increasing their output, and as such should the public should cut them some slack. Not enough for them to get truly lazy, but some. After all, as Venezuela shows, it could be much, much worse.


(Much of this information from Economist, Aug 10: Oil’s Dark Secret, which is subscriber-only.)