The Politics of Energy
- Richard L. Wottrich (Dresner Partners/IMAP Chicago)
- Document ID
- Petroleum Society of Canada
- Journal of Canadian Petroleum Technology
- Publication Date
- August 2009
- Document Type
- Journal Paper
- 12 - 13
- 2009. Petroleum Society of Canada (now Society of Petroleum Engineers)
- 7.4.5 Future of energy/oil and gas, 4.3.4 Scale, 6.5.7 Climate Change
- nationalization, supply, demand
- 4 in the last 30 days
- 388 since 2007
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As an international investment banker with Dresner Partners, I am very interested in the politics of governments and how they affect the flow of business transactions globally. In multiple trips to China, India, Turkey and other emerging economies, I have observed first hand the voracious energy appetite of these high growth economic engines. As the global energy industry comes under ever increasing political scrutiny, and as governments worldwide beg into favour and fund alternative energy technologies, these politics become ever more important.
Historical Nationalization of Oil &Gas Reserves
Global trends in the nationalization of oil and gas reserves are well understood with the historical formation of national oil companies such as Petroleos de Mexicanos (PEMEX), Saudi Aramco, Petroleos de Venezuela, PetroChina and Russia's Gazprom. While many private citizens in most countries usually assume that the major oil companies control their product, in fact nearly 80 percent of the world's oil reserves are held by national oil companies with no private equity, and there are 13 state-owned oil companies with more reserves than ExxonMobil, the largest public multinational oil company.
The politics of nationalized oil usually revolve around jingoistic themes that a country's oil is being "taken" by foreign oil giants. But in reality, the economics of nationalized oil most always revolve around a few elites gaining extraordinary wealth at the expense of their country's citizens. The history of oil-dependent countries has produced what Stanford University professor Terry Lynn Karl has called "the paradox of plenty."
Relatively speaking, oil creates few jobs and it distorts and destroys jobs in other economic sectors. The export of oil distorts an economy, for example, by increasing a country's exchange rate."Oil rents drive out any other productive activity," said Karl. "Why would you bother to produce your own food if you could buy it? Why would you bother to develop any kind of export industry if oil makes your money worth more and that hurts all your other exports?" Norway is the exception that proves the rule, with a national oil sovereign fund worth 2.28 trillion kroner ($357 billion) for just 4.8 million citizens.
As and when the world's economy begins to recover from the present deep recession, global demand for oil will resume its steady growth. Based on what is known about the world's petroleum reserves, nearly all of future increases will have to come from countries that have national oil company monopolies. These governments are, in many cases, politically unreliable except in their desire to keep the price of a barrel of oil high.
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