What A Disaster Nationalization of the US Oil Industry Would Have Been!

Back in the 1970's, there were serious proposals in Congress to nationalize US oil companies.  My dad, who was an executive at a major oil company, was being constantly dragged to DC to testify in front of Congress to try to explain what a bad idea that would be.  This was a time of incredible economic ignorance in Washington, perhaps even more than average, when a Republican President had recently instituted wage and price controls and Congress was looking for ways to "fix" problems with oil supply that they themselves had caused with price control rules and other restrictions on exploration.

Think about what we know about state-run oil companies in Venezuela, Mexico and even Saudi Arabia:

  • They always under-invest capital in well maintenance, preferring to route cash flow to social spending that helps maintain shaky governments in power.  Many folks don't understand this, but production from a well starts falling off almost from the moment you drill it.  Well's must be expensively reworked and maintained and upgrade to keep flowing over their life.  This has gotten so bad in Venezuela that the country with the world's largest oil reserves is running out of gas.  I worked with Pemex for years and, at least in the 1990's, were about 1 step away from Pemex looking just like Venezuela's state oil company
  • They have missed most of the recent revolutions in technology, and do no technology development of their own.  If not for technology developed by private western oil companies, they would barely be ahead of Edwin Drake.
  • They deal with price downturns by forming cartels and attempting to fix prices and reduce output.

Private oil companies at the same time:

  • Reinvest massively in both new and existing fields, often with 20-30 year time horizons
  • Continue to revolutionize technology - the shale boom is just one example
  • Respond to market price downturns with innovation and efficiency improvements.

The link above is gated so here is an excerpt:

Now, with oil currently trading near $50 a barrel, these producers are trying to unleash fracking 2.0, the next step in the technological transformation of the sector that is aimed at extracting oil even faster and less expensively to eke out profits at that level.

The promise of this new phase is potentially as significant as the original revolution. If more producers can follow EOG’s lead and profitably ramp up output from shale drilling even at lower prices, the sector could become a lasting force that challenges OPEC’s ability to control market prices.

For a sector in which the previous era’s success was tied to the rapid expansion of output, the shift toward finding more cost-effective ways to get to that oil and gas is full of challenges. When oil prices dropped, critics wondered if the shale industry—rife with heavily indebted companies that had never turned a profit—would collapse.

EOG, with its longtime focus on low-cost production, is the producer many hope to emulate, thanks to the iSteer app and dozens of other homegrown innovations. Dubbed the “Apple of oil” by one analyst, EOG made its name as a pioneer in horizontal drilling and in finding ways to get oil out of shale—often dense layers of rock that hold oil and gas in tiny pores—a feat many once believed impossible.

Can you imagine people like Gina McCarthy running our state oil company?  Good god, we would have $10 gas and import 80% of our oil.

  • tmitsss

    "TESTIFYING BEFORE the House Energy and Commerce Committee last week, Energy Secretary Steven Chu was asked about something he said in September. “Somehow,” the Nobel laureate had told The Wall Street Journal, “we have to figure out how to boost the price of gasoline to the levels in Europe.” At the time, gasoline in Europe was going for around $8 a gallon."
    http://www.jeffjacoby.com/5388/8-gas-and-the-green-agenda

  • J_W_W

    The true horror is that if we had done this, we'd never had known about the fracking revolution and the left would assume that the reality of peak oil and America never achieving energy independence were true. We know now that that belief was not.

    Now image what healthcare prices would be if the government hadn't started price fixing a major portion of that market around the same timeframe mentioned here.

  • SamWah

    Who is Gina McCarthy?

  • Mr. Generic

    The article is available through the Morningstar web site.

    FYI, it looks like some repeater/traffic building web site is copying the Coyoteblog posts (morninginarizona dot com) along with press releases and other random crap.

  • StillAnOptimist

    Someone who tried to get 10-289 passed into law - and is now fuming that ordinary people are able to live a good life because of inexpensive gas. Rumor is that she (or he? Xe? they-? thim-? whatever is correct) and Steven Chu are conspiring to sabotage innovation and innovative people - since they are primarily responsible for all this nasty oil finds and possible lower gasoline prices

  • johnmoore

    Do your comments also apply to ARAMCO?

  • mlhouse

    The short sightedness of government is ridiculous. I remember during the Clinton ADministration that one of the biggest reasons why we shouldnt drill in Alaska was that it would take 10 years for the oil to begin to hit the market. That was 20 years ago now.

  • 学习使人进步,到此拜读!

  • Bloke in North Dorset

    Many think that the first privatisation of the Thatcher era, what we now call British Telecom, was done for ideological reasons, it wasn't. They had been starved of cash for maintenance and investment in new technology to the point where all the Strowger exchanges were obsolete and they were running out of spares. The crossbar exchanges were not much better. Most exchanges were at full or near full capacity and it took months to get a new line. The whole system was close to collapse and the Government was warned that if it did it would further cripple the economy.

    Keith Joseph, a classic liberal and Thatcher's political guru, was in a meeting discussing the problem as we were in an economic mess and someone suggested privatisation in passing. It wasn't accepted straight away but eventually came to pass. The rest, as they say, is history.

    Would we have had the mobile and internet revolutions if telecoms companies around the world had remained as national champions and kept their monopolies? Eventually, but they would have probably have been for the rich for quite some time.

  • JoseM

    There are sites which stress failures of publicly owned agencies, and there are sites which stress failures of privately owned organizations. Both have failure modes, types of corruption, favored recipients, and other ills. Yet the world seems to stay divided and deluded as if these are the only two options. The only real solution free from most ills is something other than these two extremes.

  • CC

    When private companies fail there are almost always competitors that pushed them out of business because the competitors were more efficient, more innovative, or something. So the competitor takes over the business. Sears and K-Mart are about to fail because they haven't innovated in 30 yrs. Going in K-Mart is like going back in time.
    If the gov fails at something, there is no other option. You are stuck with it.

  • Conqueror of All Foes Cheese

    Well, how else are you going to cripple the economy and bring the plebes to heel?

  • irandom419

    I think Carpe Diem posted something like this, but here is a night picture of Texas and the lights follow the shale up to the Pemex border.

    https://blogs.scientificamerican.com/plugged-in/the-eagle-ford-shale-boom-from-space/