Big oil may not be big enough -- and bad enough -- to compete in the era of "resource nationalism"

Imagine a world in which those greedy, evil, profiteering "big oil" companies have been brought to their knees or gone out of business. To some Americans, who really seem to hate these companies, this would be a dream come true. But it would be an economic and national security nightmare if the world's privately-owned oil companies fail, leaving America at the mercy of the foreign-owned oil "companies" that have locked-up the lion's share of oil and gas fields.

If Americans don't like having to buy gas from ExxonMobile or Chevron, paying market prices, perhaps they’d prefer depending for their fuel supply on Russian-owned Gazprom (which is the third largest holder of oil and gas reserves in the world), or Petroleos of Venezuela (which ranks 6th in oil and gas reserves), or the Nigerian National Oil Company (which ranks 9th in the world), or the National Iranian Oil Company (which ranks first in oil and gas reserves, just ahead of Saudi Arabia's Aramco) -- with the price dictated by the political whims of the people who run these countries.

Think that’s far-fetched? Then read this sobering article in today's New York Times, which not only explains some of the major challenges facing the world's privately-held oil companies but warns of the ominous rise of “resource nationalism.” Here's an excerpt:

“Oil production has begun falling at all of the major Western oil companies, and they are finding it harder than ever to find new prospects even though they are awash in profits and eager to expand.

Part of the reason is political. From the Caspian Sea to South America, Western oil companies are being squeezed out of resource-rich provinces. They are being forced to renegotiate contracts on less-favorable terms and are fighting losing battles with assertive state-owned oil companies. And much of their production is in mature regions that are declining, like the North Sea.

The reality, experts say, is that the oil giants that once dominated the global market have lost much of their influence — and with it, their ability to increase supplies."

ExxonMobile, America’s largest oil company, doesn't even crack the world's top twelve, in terms of oil and gas reserves. And all the "supermajors" higher on the roster are owned by governments, not all of which are friendly to the United States -- and some of which are potentially hostile.

Most Americans seem blithely ignorant of these facts. A recent survey by the American Petroleum Institute found that only 6 percent of Americans knew that the world’s 10 largest oil companies are owned by foreign governments. Only 16 percent understand that U.S. companies control less than 10 percent of the world’s proven oil reserves. It's fair to say, based on these results, that a tiny fraction of Americans have thought through the implications of this.

The Times points out that the private energy companies America relies on for much of its oil and gas are better at finding it and extracting it than the "supermajors." But that’s where our advantages end.

National oil companies don't have to turn a profit to stay in business. National energy companies don’t have the whims of shareholders to satisfy, or have environmental extremists obstructing and criticizing everything they do. National oil companies operate in a regulatory environment established by the owner. National oil companies don’t have public relations worries. They don’t have to be wary of cuddling up with despots, or operating in world "hot spots," as the Chinese are doing in Sudan and Nigeria.

These aren’t just national energy companies: they are instruments of national power, which will be used as such by those in charge of the country that controls them. America represents a huge energy market, which it would he hard for "supermajors" not to sell to. But Russia has shown a willingness to sacrifice energy revenues to advance geopolitical ends. And profits may take a back seat to exercising raw power for many of the nations with their hands on the tap.

This doesn't argue for nationalizing private energy companies. It doesn't mean Americans should give them special treatment, or a free pass on meeting reasonable environmental standards. But it might make Americans a little less prone to waging rhetorical and regulatory warfare on these companies if they realize that “big oil” is just a bit player in the new era of “resource nationalism” – and that Americans would be in an even bigger energy predicament without it.