International Oil Industry

One of the most valuable natural resources in the world is oil. To the United States this resource provides our homes with heat, gives us means of transportation, and is even used (at a smaller percentage) to support electrical needs. Two thirds of the oil that the United States use goes towards fueling our cars, delivery trucks, and our planes as well. We also have found that we can use oil for lubricants and to create plastics as well. The value of this resource is critical to have and that is why there is a constant look for where to get it and at a fair price. We tend to go to Venezuela, Saudi Arabia, Canada, and Mexico. The chart below shows how the United States consumes oil each year.

Venezuela is a very large supplier to the United States for oil. They are blessed with many oil reserves, so many that they could cover Saudi Arabia with oil barrels. They are also very close to our (North America) market. This means they have the largest oil industry as well as close access to one of the most needy markets in the world as well.

According to the an article from the textbook, “an estimated 30% of its GDP, 55% of government revenues, and 95% of its exports are related to oil products.” Forbes magazine stated that, “In 2011 the U.S imported about 350 million barrels of oil from Venezuela.” That is a substantial amount of this resource and because of the prices we get from Venezuela that is why we go to other places first.

The fact that Venezuela has that much business from oil shows that they have a lot of control over the price in the oil industry. They can basically say they are responsible for millions and maybe even billions of peoples heat in their homes. The oil they have is said to be thick and does not flow easily which means it is expensive to produce. The profit margins are huge for potential price control when distributing to the demanding market. Even though the industry has declined from 3.3 million barrels per day to 2.23 million revenues have been hurt by deals that Venezuelan President Chavez has mad to promote his domestic and foeign agendas.

Chavez traded oil to the Cubans for security and free medical care to the poorer parts of Venezuela. Although that has impacted their oil revenue it is a smarter move because he is attempting to take what they have a surplus of (oil) and create a better lifestyle and living environment for the poor. However he has also been known to use his political power to punish any firms that stand in the way of his goals. This can effect his nation by getting shut out of trading, because although Venezuela has a vast supply of oil, that’s not the only place in the world that contains that valuable natural resource. During Chavez’ Presidential terms he has seen oil production decline by approximately 25%.

Venezuela’s oil industry was under private control until they nationalized it in 1974. In the 1990’s the PDVSA held an “oil opening” which let multiple private companies extract oil, which then led to majority shares in joint ventures and the operating agreements. The world’s largest reserves of heavy oil are located in the Orinoco Oil Belt. The joint ventures include Exxon Mobil, Chevron Texaco, Statoil, Conoco Phillips, and BP. Together they share a 60% stake (at minimum) no matter what other foreign investors try to pay. They want to control the prices of oil and gas and by doing this and banding together, they have to power and ability to do so.

If Venezuela wants to keep the United States as a constant buyer of oil they need to end their anti-American ways. We are 40% of their sales each year and that is after we use our own oil, as well as get it from other places as previously mentioned. Venezuela produces between 2.5 and 3 million barrels of oil a day. If Venezuela wishes to keep selling that and making profit they should realistically rethink about their pricing. My advice would be to give America a bigger discount on oil because of the large bulk we buy each year and what we mean to their income each year.

They give their neighbors such as Brazil and other nearby countries a discount yet we (America) are almost half of their income for this resource! It is something that America needs to bring to the discussion table with Venezuela. Although we might not be able to hold out on them forever, I believe that we can use domestic oil as well as import from Saudi Arabia, Mexico and Canada for a few years. This would create a huge impact on the national price of oil that Venezuela sets and would force Chavez to set aside his hatred for America and lower the price. If not then the upward trend as shown on the chart below from NASDAQ, will continue to rise because of the predicted 48% inflation of oil.

Canada is also a very large provider of oil to the United States. One of the largest oil reserves is Alberta, where most of the exports are extracted from oil sands or bitumen. Those are a thick tar like substance that they turn into the oil we use on a daily basis. However, the process to make this substance oil generates a lot of carbon dioxide. As we know, carbon dioxide is one of the main suspects for the cause of global warming. Yet almost all of the oil that this company generates ends up in the United States.

The “tree huggers” so to speak that know about this are completely against buying oil from Alberta because of what the process to make the oil does to our environment. On the other side, Canada wants to expand a pipeline that would almost double the exports of oil into the United States. If the United States refuses this offer, which they are thoroughly considering because we don’t want to have our hands dirty with the environment if we can avoid it, then Alberta will be in serious trouble of staying liquid.

The global oil industry is keeping a keen eye on Alberta. Corporations like Exxon Mobil and Royal Dutch Shell Group have invested in these oil sand productions since 2005. Since then they have made a rough estimate of $40 billion. It is believed that if the United States stays with Canada and gets the oil from them that over the next 20 years our dependency on other countries for energy sources will drop.

This could be a giant step for the United States and cut costs on other resources that could help turn the economy around. On the downside of staying with Canada and creating a pipeline, we would be responsible for all of the carbon dioxide that would be polluting the environment and essentially slowly deteriorating the atmosphere.

One of the other largest leaders in the nationalization of the oil industry is Mexico. In 1938 Mexico nationalized its oil industry. They have never allowed foreign investors to get in on their wealth. Even though Mexico produces more oil than the rest of Latin America it is still not their number one exported resource. Their leading oil corporation (Pemex) is now in a decline and has recently considered allowing foreign investors to help further production.

I think that getting involved with Mexico on any level of business right now is a horrible idea. The Cartel issues they have and all the tourists being killed there serve for a huge debate as to getting involved with “dirty money.” Although oil is a necessity and they do have a large oil reserve it is nothing compared to what we can amount from the Middle East, Canada, or even Venezuela. I believe that the best solution to investing in oil would be to invest in the corporations that have proved loyal and are capable of meeting our great demand for the natural resource. If Mexico is already having issues then who’s to say they won’t get worse with time.

According to Forbes, “barrels of oil could go for $95-$105 depending on stock prices. Besides the important of crude oil to the energy stocks, there is often a close correlation between crude oil and the stock market. Crude oil prices are a bit lower early Wednesday, so it will be important how December crude oil acts if it tests the support at $94.60.”

Now that we have covered what oil means to both the United States and other foreign countries, I want to discuss the problems oil has brought to the environment and some of the major oil spills that have occurred over the years.

In 1989 the Exxon Valdez oil spill was to put it slightly, a catastrophe. It had caused serious damage to the ecosystem and killed a lot of the marine life in the waters. The 1,000 foot oil tanker spilled nearly 11 million gallons across 1,300 miles of Alaskan coastline. An online article about the spill stated this tragic fact; “The statistics are grim. Upwards of half a million seabirds were killed outright by the spill. Scientists also counted among the dead 1,000 otters, 300 harbor seals, 250 bald eagles and 22 killer whales.

The number of salmon and herring eggs destroyed was put in the billions.” (www.wired.com/science/discoveries/news/2009/03/dayintech_0234 This kind of accident happens more often than not which is horrible because of what it does to our environment. The worst part of this is when the company comes out and says, “It could have been a lot worse. We are lucky that more oil did not spill that what had.” This kind of statement to cover up a tragedy turns my stomach.

Billions of animals were killed for no reason other than there was a lack of attention on the ship and they hit a rock that led to that catastrophe. In terms of volume for the spill it only ranks number 53 but in terms of environment damage it is argued to be the worst spill in history.

The captain of the Exxon ship had his master’s license suspended but it was never actually taken away from him. He was then sentenced to 1,000 hours community service and had to pay a $50,000 fine. Although his punishment makes it appear that the captain had gotten away with it, he couldn’t find a job as a captain ever again.

One of the largest oil spills, which happen to be the worst offshore oil spill in United States history, happened recently. On April 20, 2010 an explosion on the Deep-water Horizon drilling rig killed 11 men and unleashed millions of gallons of oil into the Gulf of Mexico. Some facts about the BP oil spill will shock you and make you realize that we need to be more serious about taking precautions when it comes to transporting oil. More than 200 million gallons of oil were let into the Gulf for a total of 87 days.

“The spill covered a total of 16,000 miles that affected Texas, Louisiana, Mississippi, Alabama, and Florida. The spill also caused long term damages to people living in the area. Besides the death of 11 men during the explosion, 17 others were injured. Over 8,000 animals including birds, turtles, and mammals, were reported dead just 6 months after the spill. Many of the animals were already on the endangered species list. BP is responsible for close to $40 billion in fines, clean up costs, and settlements as a result of this spill. They were also hit the an additional $16 billion due to the clean water act.” (www.dosomething.org/tipsandtools?11-facts-about-bp-oil-spill)

It is clear that oil is a necessity to what we have developed to be a way of life. We use it daily for our cars, to heat our homes, and to travel the world. Yet at the same time, it has destroyed our wild life, deemed food inedible, and tampered our waters. Creating it burns our atmosphere creating a global warming. Without this natural resource however, we could no longer survive. We need to use our science and technology to find more efficient and safe ways to use and transport oil.

With the tools that we have today and the everyday advances in technology, I see no reason that we cant find a way to accomplish either of these tasks to help our environment and make the use of this resource so that we can have it for as long as possible. Although in our lifetime we may not run out of it, realistically we wont have it forever. Perhaps we could even find another natural resource that is capable of being used for the same kids of tasks that we use oil for in our everyday life.

Bibliography http://www.forbes.com/sites/tomaspray/2012/09/19/crude-oil-next-stop-102-or-92/ http://www.nasdaq.com/markets/crude-oil.aspx http://www.dosomething.org/tipsandtools/11-facts-about-bp-oil-spill http://countrystudies.us/mexico/78.htm http://www.forbes.com/sites/afontevecchia/2012/10/08/what-chavezs-reelection-in-venezuela-means-for-global-oil-prices/ International Business Textbook