The dilemma of the big oil

The industry must stop and choose from prospeccionar innovate or be forced to liquidate.

At that time oil prices have settled on a long-term strip 30-50 dollars / barrel (as described here a year ago), energy users everywhere enjoy a small boost its annual revenue, worth over 2 trillion. The net result will certainly accelerate global growth because the beneficiaries of this tremendous redistribution homes are mainly low and middle income they spend everything they earn.

Of course, there will be big losers, especially, the governments of oil producing countries, which exhausted its reserves and will borrow in financial markets all possible not to cut public spending time. It is, after all, a favorite approach of politicians, especially when waging wars, geopolitical challenge facing pressures or popular uprisings.

But not all producers equally lost. A group that is cutting sharply are Western oil companies have announced reductions investing 200,000 million this year. And that has contributed to the weakness of stock markets around the world, although paradoxically the shareholders of the oil could end up benefiting big time from this new era of cheap oil.

Must meet only one condition: the policies of major energy companies have to deal with the economic reality and abandon their wasteful obsession of finding oil. The 75 major oil companies still invest more than 650,000 million dollars a year on the search and extraction of fossil fuels in increasingly challenging environments. It is one of the biggest mistakes in the allocation of capital in history, economically viable only by artificial monopoly prices.
Difficult time for the monopoly

Now the monopoly faces a difficult time. Assuming that the development of shale gas, environmental pressures and advances in clean energy to maintain the cartel paralyzed OPEC oil will pass quoted as any other commodity in a competitive normal market, as happened between 1986 and 2005. When investors understand this new reality, they will focus on a basic principle of economics: the marginal cost.

In a normal competitive market, prices are set based on the cost of producing an additional barrel of the cheapest sites with spare capacity. That is, all the reserves in Saudi Arabia, Iran, Iraq, Russia and Central Asia should be developed to the fullest and exhausted before anyone even bother to explore under the ice of the Arctic, deep in the Gulf of Mexico, or hundreds of miles from the coast of Brazil.

Of course, the real world is never as simple as the economic textbooks. Geopolitical tensions, transport costs and poor infrastructure make the oil-consuming countries are willing to pay a premium for energy security, including the accumulation of strategic supplies on their territory.

However, with OPEC on the ropes, the general principle applies: ExxonMobil, Shell and BP can not hope to compete with Saudi, Iranian or Russian companies, which now have exclusive access to reserves that may be extracted with units of nineteenth pumping. Iran, for example, ensures that oil produces only a dollar a barrel. Your reservations available (in second place in the Middle East only after those of Saudi Arabia) will develop rapidly, as international economic sanctions lifted.

For Western oil, the rational strategy is to stop oil exploration and seek benefits in the supply of equipment, geological and new technologies such as hydraulic fracturing (fracking) to the oil-producing countries knowledge. Your ultimate goal should be to sell its current oil reserves as soon as possible and distribute the resulting tsunami cash to its shareholders until all low cost deposits are exhausted.

That is precisely the reverse strategy that the tobacco used for the benefit of its shareholders. If oil executives refuse to break the same way, some activist shareholders or corporate raptors could do for them. If a consortium of private equity investors raise the 118,000 million dollars needed to buy BP at its current price, you could begin to liquidate immediately 10,500 million barrels of proven reserves, valued at more than 360,000 million dollars, even at the price " depressed "current of less than $ 35 a barrel.

There are two reasons why it has not happened (yet). Oil executives still think, with an almost pious fervor, in perpetual increase in demand and prices. So rather spend the money on finding new reserves rather than maximizing liquids payments to shareholders. And scornfully reject the only other possible strategy: a change in investment from oil to new energy technologies that will ultimately replace fossil fuel exploration.

Redirect only half of the 50,000 billion that oil could be spent this year on exploration for new reserves more than double the 10,000 million dollars in research in clean energy announced in 2015 by twenty Governments in the climate change conference in Paris . The financial returns on this investment is certainly far superior to oil exploration. And yet, when asked why his company was taking risks with deepwater drilling, instead of investing in alternative energy, a BP manager replied that "we are a drilling business and that's what we know. Why spend time and money in new technologies to compete with General Electric and Toshiba?. "

While restrictions OPEC production and the expansion of cheap deposits in the Middle East to Western oil protected marginal costs, this complacency was understandable, but the Saudi government and other OPEC executives now seem to realize that production restrictions only cede market share to American fraqueadores and other high-cost producers, while environmental pressures and advances in clean energy transform much of its oil in an "active unused" worthless and not it can never be used or sold.

Mark Carney, Governor of the Bank of England has warned that the problem of obsolete assets could threaten global financial stability if the "carbon budgets" agreements involving the global and regional climate detract from the fossil fuel reserves that oil currently valued at billions of dollars. This environmental pressure now interacts with technological progress and reduced the price of solar power to almost parity with fossil fuels.
¿Untapped reserves?

As technology continues to improve and harden environmental restrictions, it seems inevitable that much of the proven oil reserves in the world will stay put, as most of the coal. Sheikh Zaki Yamani, the Saudi oil minister veteran, he knew in the eighties, when he reminded his countrymen that "the Stone Age did not end because the cavemen ran out of stones."