Is oil to be totally dominated by state-controlled agencies? Is oil to become of secondary importance as the western world switches to nuclear power, hydrogen and alternative liquid fuels?
Why, you might ask, has The Slug started to think about these very deep questions? The answer lies in a few interesting facts that have surfaced over the past few days.
First came a rather silly little spat in the US state of Wisconsin where the governor wants to impose a special tax on oil company profits.
This was followed by the latest research from John S Herold, which noted that last year the world’s top six oil companies spent a whopping $US98 billion on share buybacks and dividends, and capped by a report in the latest edition of Time magazine that only 7% of the world’s oil and gas reserves are actually in countries that allow the majors a free rein.
On their own and each item is interesting. Taken collectively, a pattern can be seen emerging, especially when you overlay two other facts – BP’s joint venture with Rio Tinto to produce hydrogen for power generation from coal, and the failure of US west coast states to embrace the need to import supplies of liquefied natural gas.
The super-tax argument in Wisconsin is, arguably, the weakest piece of evidence but it does touch on a key issue, the fact that the profits of companies such as ExxonMobil, BP and Shell, have never been better – though governments believe they should be getting a bigger share of the pie.
That pie, meanwhile, is being carved up in a way that we have never seen before – possibly because the oil companies have run out of ideas as to how they can grow their business. Share buybacks are a classic example of management not knowing what to do with the loot.
And then we have those remarkable figures quoted by Time, that start with the fact that 26 years ago, when oil prices were surging because of the Iran versus Iraq war, Exxon spent $11 billion on fresh capital investment, a massive increase on previous years and designed to capitalise of high oil prices.
Now with oil prices performing in a similar fashion, the merged ExxonMobil plans to spend $20 billion on exploration and development – roughly double the 1981 spend, but probably less after allowing for inflation, and less than the $29.6 billion spent on stock buybacks (plus another $7.6 billion on dividends).
The complete picture is of an industry, at the top end anyway, which is looking like it has run its race. The best years of growth are over, expansion is becoming awfully difficult (exploring and delivering, as seen in the California LNG debacle) and now it’s time to give the money back or, in the case of BP, look to a hydrogen future.
That’s why we come back to The Slug’s original point: what is the future shape of oil – a question which ultimately leads back to the point that the best of the world’s oil acreage is off limits to the western world.
Arab states see oil as their ticket to world domination. Russia sees oil as a way to dominate Europe, and Venezuela’s Hugo Chavez sees it as a way to dominate South America.
For a time, perhaps a decade or so, the crazies of the world will believe that they’re winning.
But over time, the western world will adopt nuclear for its electricity, including many of its vehicles, and hydrogen will become the gas of the future.
Over time, it would not surprise The Slug if big oil sees its future this way, sidelined from the world’s oil reserves, and looking for something to do with its cash.
How long will it be before we see a break from this pattern of decline and see an oil major re-embrace nuclear as a legitimate investment – or make a deeper move into alternatives such as hydrogen.
As for oil, it looks like it will become a speciality of the “controlled” economies of the world while the western world heads off in a different direction.
