It’s striking is how quiet things are in oil for the moment. The focus in the energy field is more different now both in substance and location than any other time I can remember. Everything used to center on the Middle East, especially Saudi Arabia. But now, with the occasional exception of Iraq (and for different reasons, Iran), the Middle East is quiet, below the radar. Even Russia has, except for a brief snit with Belarus earlier this winter, been quietly pumping along.
2009 last quarter profits were a mixed bag. Shell, which relies heavily on natural gas (which is cheap now), was hurt worse than BP and Exxon which are more reliant on oil. Oil had hovered between $70-80 a barrel for months, despite still-weak demand. But the point is they are making money — last year around this time, oil was nose-diving to $34 a barrel.
Now in 2010, instead of the major oil multinationals, the talk is all about natural gas, green energy and China.
The oil companies — the supers, majors, small, wildcat — are not disappearing. But they are changing because the global environment on energy has changed considerably in the past year and a half, since the oil boom and bust. Oil companies see the future and apparently realize it’s adapt or die.
Of course, much of the oil in the world is now in the hands of national (or sort of national) oil companies, like Aramco in Saudi Arabia, or adventurous national companies which bid outside their own countries, like Petronas (Malaysia), Sonangol (Angola), or CNPC or other Chinese companies.
That’s one reason the oil companies are diversifying. For another, there’s just less easy oil around. You know when you hear that Exxon is out there wildcatting in the Philippines that easy oil is over. (A wildcat explores/drills in a new area that has never produced anything to date)
The most obvious first move is to natural gas. In December, Exxon acquired XTO in a deal worth $41 billion. XTO is/was a natural gas extraction company. Exxon did it to buy into the Marcellus shale gas field and other sites. Gas is extremely plentiful the world over and requires less research and innovation than green energy. Gas and oil have many points in common — often found together, they both used drilled wells, pipelines, refinement etc etc — it’s petroleum, after all.
Big oil companies are looking at green energy. Last week, Shell announced a $1.6 billion investment in Brazilian ethanol and, over 2009, spent $60 million on research at Codexis, according to the Wall Street Journal. In the same article, Exxon said it was spending $600 million on algae-based green research with Synthetic Genomics. Chevron and BP are also looking at biofuels. (These do not involve plants primarily used for food.)
Another reason to diversify: it will be tougher on oil (and other) companies that have traditionally looked to US public lands for cheap leases. In January,
The interior secretary, Ken Salazar, said that his department would conduct more rigorous reviews of oil and gas leasing on public lands, declaring that the agency would no longer be a “candy store” for the petroleum industry, as he said it had been during the Bush administration…
Many auditors and judges have found that previous decisions were made arbitrarily and with little consultation with other agencies. Under the new guidelines, teams from several agencies will consult and officials will physically inspect the sites rather than making decisions from behind their desks, said Bob Abbey, the bureau’s director.” (New York Times 1/6/10)
Salazar had also rescinded environmentally threatening leases in the West earlier. Needless to say, the oil/gas/mining industries are unhappy. Yet leasing on public lands (federal, state) has been often too cheap and, recently, too easy. So this development would be a welcome trend for those outside the industry.
We will still need oil for decades, and new oil is now found mainly in hard-to-reach or otherwise expensive places like offshore deep-water oil in the Gulf of Mexico or off the Atlantic shores of Africa. Extraction from these sites still requires immense know-how and capital to extract. Few besides the biggest oil companies will have the money to risk or the technical expertise to try. Big Oil isn’t going anywhere.
