State oil companies or the global oil majors!
With global oil consumption going up, and, the need to tap new avenues and the search for big fields and new reserves intensifying, the debate about who could lead the world out of its current energy imbroglio is heating up all around.
The world is energy hungry. It needs still more energy. And there are definite limits to what is on offer — currently. To soothe the nerves of this increasingly itchy, energy hungry world, greater emphasis now is on innovative technology and still new finds. Efficiency, so much the hallmark of a vibrant, private sector, should thus be expected to take lead. Not so in the case of the energy industry.
This energy world has its own, rather peculiar dimensions. With nationalistic feelings running high, the very idea of, some global oil major, that many equate today with a new form of imperialism, taking over and running the fields, is not taken without a pinch of salt. At stake is not just the control of these precious assets; often associated is the very issue of sovereignty of the state.
Thus even the slightest hint of interference raises the issue of ownership of resources, of imperialistic designs. Over the last few decades, however, a realization has finally been arrived that the ownership of energy assets is a sensitive issue for every asset holder and no nation — big or small, strong or weak — could be expected to strike a compromise, on this very issue.
And thus despite what is being said and practiced in the corridors of power politics, this global village will ultimately need to take a decision about the mix best suited to this essentially crucial industry, for the sake of the very survival of this fossil fuel driven civilization.
Looking at the sector, the issue of reinvesting in new resources and innovative technology is thus of paramount importance, to the entire world. Global oil majors today claim of having distinct technological edge over most — and indeed not all — of the state energy companies. They have the resources and can raise still more, to put in at the right place, at the right time, it is often argued.
Yet they have their limitations too.
Despite the fact that the industry was passing through best of the times, as far as returns on investments, are concerned, the oil majors are reportedly handing back most of its cash windfall to investors.
And this is despite the fact that the investment budgets of most of the western oil majors have gone up in recent years. But in comparison, their earnings have risen manifold. This year, ExxonMobil, BP and Shell plan up to $54 billion of capital spending. That is less than the $59.2 billion they handed their investors last year — in dividends and stock buybacks.
Oil majors thus appear conservative, as far as ploughing back their windfall earnings are concerned. There are indeed reasons for oil firms’ caution about oil prices and investment. Their overall vision is somewhat different. They look at things form the prism of increasing a high earning per share — a tunnel vision — to say the least. New projects may absorb cash without generating output for years, many apparently believe.
And many oil executives still remember an oil-price slump to $10 in 1998 because of the Asian economic crisis that prompted predictions at the time of low prices for good. Given uncertainty about how long the current oil price rally will last, oil companies are more prudent this time round. Business decisions have to be cool and calculated.
However, the energy world apparently needs more than that. And that appears somewhat beyond the very mission of the global energy majors. And here lies the catch!
In sharp contrast, the national oil companies, they look at investments into the sector from a rather different perspective. Hence at least some of them appear today well on the course of massive investments in the energy infrastructure. Saudi Aramco stands out in this respect much taller than many of the oil majors. The Saudi state oil company has been stressing for long that it has the will, capacity, funds, and the expertise to ensure massive growth in the sector, so as to be able to meet the rising global demand. Ever since the nationalization of its oil assets, the Saudi oil capacity has undergone major transformation. Over the recent years too, it has made huge investments. From a capacity of 7.7 million bpd at the end of 1999, Saudi Arabia currently is producing 9.5 million bpd and it still could boast off a spare capacity of roughly around roughly 1.5 million bpd.
Saudi Aramco is currently undertaking huge, further, investment of $50,000 million in its oil infrastructure. Analysts concede Aramco is looking at things from a futuristic and nationalistic prism, rather than just returns on short-term basis. It has a much longer vision than any private oil major. And it also has the technical expertise to refurbish some of its aging fields, such as Ghawar, and achieve its stated objective of touching 15 million bpd capacity, if required. Other Gulf oil producers including the UAE and Kuwait are also pursuing major development projects. The Abu Dhabi National Oil Company of UAE has been working on projects for last several years to increase its output capacity from the current 2.3 million bpd to 3 million bpd. Consequently it is now expected that the UAE capacity would go up to 3 million bpd within this year now.
Kuwait also plans to increase its crude production from the current 2.6 million barrels a day to three million bpd in 2010, 3.5 million bpd in 2015 and ultimately to four million barrels by 2020. Oil executives in Kuwait say the emirate will pump at least $64 billion into the sector.