A new trend is emerging in the global oil markets, the extension of state ownership of crude oil, natural gas, and energy supplies.
Aside from the increasingly obvious de facto nationalization of oil supplies in Russia, the proposed merger of Norway’s Statoil (NYSE: STO), a state controlled publicly traded company, and Norsk Hydro (NYSE: NHY), a major publicly traded competitor, may be a tipping point in a trend toward state ownership of critical energy supplies in countries that do not belong to OPEC or have a reputation as “dangerous” places to do business.
Over the past several years, it became obvious that Venezuela was moving toward a nationalization of its oil resources, as the Hugo Chavez government continued to tighten the screws on foreign oil companies doing business in the country.
Russia’s increasingly aggressive tactics against foreign oil companies, especially lately, against Royal Dutch and others involved in the Sakhalin island project was another example of the trend toward nationalization.
Yet, for lack of a better word, the trend toward nationalizing energy supplies was deemed as the purview of nations aligned either politically, ideologically, or militarily against the United States.
Norway is far from fitting that description, despite its socialist policies, yet it is a clear sign of what may come in the future, a trend toward the expansion of government controlled, publicly traded companies in energy.
To be sure, there is no shortage of those companies now, especially with the entrance of China into the global marketplace. Indeed, many of China’s publicly traded giants, such as China Petroleum (NYSE: SNP) were once solely owned by the government.
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Aside from the potential for fraud, and of using oil as a political weapon, another significant concern posed by these hybrid oil companies is whether they can actually deliver on their contractual obligations.
In Venezuela, credible reports have for years claimed that PDVSA, the national oil company, has neglected the maintenance of key infrastructure to its plants. To the best of our knowledge, there are still thousands of dead wells in Venezuela, which would be operational had PDVSA been able to maintain them.
Russia’s oil production has declined significantly over the last few years, slowing from a 10% growth rate, to a mere 2.5% increase in the last year. This slowing has coincided with the Kremlin’s aggressive, back door, nationalization of Russia’s oil industry.
According to the Washington Times: “the International Energy Agency is raising questions about whether growth in Russian oil and gas exports will be fast enough to keep up with rising demand in Europe and commitments Russia has made to deliver oil and gas to both Europe and Asia.”
In essence, what is happening is that Russia, and Venezuela, as well as Nigeria and Iran, have seized on the notion that oil is a lever against the rest of the world. By assuming control of the world’s most needed economic resource, they can increase their stature as a global power and gain a platform from which to launch nationally beneficial initiatives.
With Russia, we are seeing the Kremlin slowly regain its pre-Cold War status as a major player, while with others, we are seeing a change in their ability to affect regional balances of power.
Despite recent setbacks, Venezuela has rewritten the South American balance of power, while Iran, using both its oil resources, and now the nuclear card, is increasing its reach in the Middle East.
Which brings us back to the Statoil/Norsk Hydro merger. According to the Wall Street Journal: ‘Norwegian Prime Minister Jens Stoltenberg reacted positively to the announcement. “This is the start of a new era. We are creating a global energy company,” said Mr. Stoltenberg. “And the merger is an excellent foundation for meeting the challenges facing the oil and gas industry. The government sees the recommended merger as industrially and strategically well founded.”‘
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While the U.S. Congress threatens to tax American oil company profits and restrains their ability to compete, other world governments are subsidizing and aiding their companies, seeing that the world is changing, and making moves toward securing their own energy futures.
This analysis is not meant to support or sanctify U.S. oil companies. They have their share of warts. But, at the same time, it is important to note that if the current trends remain intact, the world’s oil supply will be controlled, not by private companies, but by governments, who have armies and the ability to print money to support their objectives.
Life, as we know it, is indeed, as Norwegian Prime Minister Jens Stoltenberg noted, “the start of a new era.”
