Nationalised oil production and global stability

Nationalised oil companies control about 80% of the world's oil, and although some of them are doing an efficient job and increasing production, a number are failing to keep pace.

by Newsweek
Last Updated: 23 Jul 2013

Oil production is a difficult process and requires complex management skills and cutting-edge technology, but Venezuela has just ruled that the operations of Western energy companies such as BP, Chevron and Exxon would be reduced, and that state-owned Chinese oil giant CNPC would play a bigger role in finding and producing oil.

Venezuela is one of the world's largest oil-producing nations, but the industry there is already in decline, with the number of barrels produced per day falling from 3.3m in 1997 to 2.4m this year.

President Hugo Chavez has ruled over this decline, partly caused by a cut in staff numbers at national oil company Petroleos de Venezuela (PDVSA) of 20,000. Although Chavez's strategy of trying to get the best deal for oil makes sense, shipping to China instead of the US does not, as it is expensive to move oil by tanker, and Chinese refineries are less capable than US ones.

The situation in Venezuela is part of a trend, the implications of which could be catastrophic.

If state-owned oil producers don't invest in the business, the problem of excessive demand for oil will be exacerbated, enriching oil-based kleptocracies and adding to instability.

The response from the US should be to act now to deal with demand, by cutting consumption and increasing energy production from traditional and renewable sources.

The Production Crunch
Source: Newsweek
Author: J. Robinson West
Newsweek May 14/May 21
Reviewed by Jennifer Whitehead

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