Who has oil and natural gas?
A fascinating editorial in Forbes magazine recently (April 16, 2007, Steve Forbes) pointed out an amazing fact: 95% of oil and natural gas reserves are controlled by government owned oil companies versus only 5% for international oil companies.
I find this interesting for a couple of reasons.
First, I think it points out how ridiculous it is to blame big oil companies for oil and gas prices. If international oil companies like ExxonMobil, BP and Chevron only control 5% of oil and gas reserves, it’s simply not possible for them to control energy prices. All they can really control is their costs of production, and they should be judged by that criteria.
Second, I think it brings up an interesting question about where oil and gas prices will go over the long term.
If you believe that government owned oil companies will do an efficient job of finding, producing and bringing to market oil and natural gas, then such energy prices should be headed down.
If you believe the government controlled oil companies of Saudi Arabia, Iran, Qatar, the United Arab Emirates (UAE), Iraq, Russia, Kuwait, Venezuela, Nigeria, Libya, Algeria, Malaysia, Mexico, China, Brazil, and India will do an inefficient job of keeping supplies up with demand, then you should expect oil and natural gas prices to head up over time.
Please keep in mind that not every country has an equal vote. Saudi Arabia and Iran have close to twice the reserves as #3, Qatar. And, Quatar, UAE, Iraq, Russia, Kuwait and Venezuela have about twice as much as #9, Nigeria. (ExxonMobil, #14, has only about 1/3 as much as Nigeria)
I’m over-simplifying things a bit, but in general, the performance of investments in oil and gas companies will hinge on the market price of the commodities they produce. If exploration and production can stay ahead of demand, prices will go down. If it can’t, then prices will go up. And, judging by the low price to earnings multiples of many oil and natural gas companies, I’d say the market is guessing the government oil companies will keep up. I’m not so sure.
Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.