Saturday, June 26, 2010

The Problem with the US Oil Policy

Since the Tea-party and Libertarians on Twitter have been talking about "Barak Petroleum Company", I thought I would look into what that would mean.

For-Profit Major Oil Companies vs National Oil Companies

The major private oil companies control only 10% of the world’s existing oil and gas resource base according to the Baker Institute Energy Forum (

Also, according to the Baker study, current producing countries are getting more favorable financial arrangements from national oil companies that look not to profit, but to future geopolitical and strategic aims factored into investments. Thus it is more likely that Asian and Russia national oil companies will be more successful in resource development in the Middle East, and that India’s ONGC and IOC; China’s Sinopec, CNPC, and Malaysia’s Petronas will continue to be more successful in Iran and Africa.

Perhaps it is time for the US to be thinking about a national oil company?

For-Profit Strategy

As an example of holding on to resources rather than developing them, major oil companies including Exxon held on to leases in Alaska at Point Thomson (believed to hold 25% of the known gas reserves in the state) for 31 years and when Alaska sought to reclaim the leases, Exxon sued. BP had attempted to cap Deepwater Horizon rather than putting it online as a producing well. Cementing problems were associated with 18 of 39 blowouts between 1992 and 2006, and 18 of 70 from 1971 to 1991. Oil companies seem to be having trouble with cementing and Deepwater Horizon is the most current and most horrific example of what can go wrong, going wrong.

Why would an oil company sit on an oil reserve rather than developing it? The reason behind any decision made by any international corporation is profit. Clearly it makes sense to hold on to some abundant resources until the price of oil goes up. This is simple supply and demand economics. If oil companies produce all that they can now, the supply will increase more than the demand and the price (and profit) will fall. If oil companies produce just enough now to hold the prices steady enough to keep the world addicted to oil, they will extend demand into the future. If on the other hand, oil companies reduce the supply, causing world prices to increase, the last big consuming countries will find it more economical to finance the research and the changeover to the next source of energy, whether it is solar, wind, thermal or hydrogen.

According to Forbes, of the top four producing reserves in the world today Iraq holds 3. The first on the Forbes list is Ghawar in Saudi Arabia and produces 4.5 million barrels per day. And these Middle Eastern sources are easy to reach without requiring the danger of deep water drilling or the costliness and dirtiness of cleaning Canadian oil sands. Clearly, higher profits are to be had from these easy to produce oil fields. And, these oil fields can produce at a lower cost, thus keeping the cost of oil from these regions low. This is why the "for-profit" oil companies would rather buy from these areas than pump their own oil from US or Canadian oil fields.

The National Policy of the US

Does the US have a national policy? A (secret) policy was developed by Dick Cheney and (secret) associates during the Bush presidency. But, no matter who was there, as long as private international corporations control our oil production we don't have an oil policy controlled by national interests. If, for any reason, the US needs extra oil, there is no way to control the flow. The private oil companies have no reason to do the bidding of either a Democratic President, or a Republican one. The price of oil climbed during the George Bush and Dick Cheney Presidency. (

The only way to have a national oil policy that takes national defense, the natural environment and national growth into consideration is to have a national oil company. (BP has the current contract with the US Pentagon to supply our troops.) The only way to insure safety and thoughtful production is to have and enforce a national oil policy.

“Quality is never an accident; it is always the result of high intention, sincere efforts, intelligent direction and skillful execution. Such was the case with the World National Oil Companies Congress”

H.E. Nematzadeh, Ex-Deputy Minister of Petroleum, IRAN and President, NIORDC

BP's liabilities are likely to exceed $20 billion – factoring in the Justice Department's criminal probe , which could bring heavy fines, as well as a gusher of class-action lawsuits. Some estimates have reached as high as $40 billion, and are based on assumptions that the leak continues through the end of the summer, possibly worsened by hurricanes. Oil experts agree that BP may only survive if it takes on a partner; possibly a Chinese partner.

Even if BP makes a sincere effort to restore the Gulf, it cannot restore the livelihood of the fishermen and the seafood restaurants and the charter boats and it cannot replace the lost fish, amphibians, reptiles, mammals and birds. These creatures will have lost habitat and breeding grounds and breeding stock that will affect the environment for years and years to come from the Gulf, up the eastern coast and across the Atlantic to Ireland and England where the Gulf stream tempers the climate that would otherwise be harsh and damp.

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