Source: http://www.opinionjournal.com/columnists/hjenkins/?id=110007753
Monday, January 2, 2006 12:01 a.m. EST
Sen. Byron Dorgan, who keeps himself deliberately uninformed about the workings of the private sector lest it cast him into doubt about his easy demagoguery, recently castigated the oil industry for "buying back stock, hoarding cash and drilling on Wall Street." He is one of several who've backed legislation to confiscate the industry's "windfall profits" if companies don't reinvest the money in new energy projects.
In fact, the capital markets are in charge of deciding where money is best invested, and oil companies are in charge only of doing what corporate governance reformers insist all companies should be doing--being careful with their shareholders' money. That's why the six biggest oil companies, Mr. Dorgan's fury notwithstanding, are expected this year to allocate more than 60% of their profits to dividends and stock buybacks while reinvesting only about one-third in the oil business.
Manifested here is not pigheadedness or any need to be instructed by Congress about how to make money. Opportunity is what's lacking.
Mr. Dorgan perhaps hasn't noticed but Big Oil has become a pygmy. It accounts for less than 16% of the world's current production and less than 10% of the reserves that will supply our needs in the future. The industry doesn't reinvest more in energy development because, bluntly, most of the opportunities are off limits to it.
The real powers today are the Saudi state oil company, the Iranian state oil company, the Venezuelan state oil company, etc. Not only are governments in control of most of the world's oil and gas reserves, but increasingly they decline even to make use of the technical and management skills of Big Oil anymore.
This trend is worrisome not because we fear an axis of America haters might cut off our supply someday (these governments want our money even more than we want their oil). Rather it's worrisome because oil wealth empowers destructive elites and raises the stakes of political competition in states that, if you look closely, are all too ripe to earn the sobriquet "failing."
Down the road traveled by Saddam Hussein's Iraq now are headed Vladimir Putin's Russia, Hugo Chavez's Venezuela, Mahmoud Ahmadinejad's Iran and perhaps the Bolivia of President-elect Evo Morales. The formula: By deliberately limiting their nations' development to the energy sectors under their control, politicians make themselves the source of all opportunity and wealth for their peoples. You heard it here: The world can expect to pay a price in instability for decades to come thanks to this phenomenon.
Foolish or worse, then, is the agenda of the Global Policy Forum, a tired leftist group that monitors and lobbies the United Nations and has taken recently to denouncing the new Iraqi government for contemplating "production sharing" agreements with international oil companies. Such deals are always and everywhere a rip-off, insists the group, never mind that Libya just signed a bunch that were distinctly favorable to Libya.
Alas, the corrupting politicization wished upon Iraq's oil industry is becoming a universal norm. Consider the perfected idiocy of Sen. Maria Cantwell of Washington, who bought her Senate seat with a now-diminished dot-com fortune and has reason to worry about whether voters will find her worth re-electing. This undoubtedly explains her sudden and shrill emergence as the most unhinged of oil-industry bashers.
Last month she was quick to confuse the filing of a lawsuit with proof of guilt, denouncing BP and Exxon because they were named in an antitrust complaint by the deservedly obscure Alaska Gasline Port Authority. Ms. Cantwell was likely impressed by the name of David Boies, celebrity lawyer, as counsel for the plaintiffs. In fact, the AGPA consists of three Alaska municipalities whose plan for a gas liquefaction facility in the port of Valdez was recently rejected by the state as lacking any means of financing.
The group has decided to blame its troubles on BP and Exxon for allegedly sitting on undeveloped natural gas reserves in Alaska in order to drive up prices in the U.S. domestic market. This overlooks the fact that the two companies supply just 12% of the natural gas in the lower 48, so any such manipulation would benefit mostly their competitors.
In reality, the AGPA nakedly exists to divert Alaska's untapped gas wealth into a local construction boondoggle, lacking any economic rationale. Indeed, the mere act of liquefying Alaskan gas and loading it aboard a ship would put the state in competition on absurdly unfavorable terms with far cheaper suppliers of liquefied natural gas in Qatar, Indonesia, Australia, Russia and elsewhere.
In contrast, a pipeline to the Midwest would deliver the gas, without the expense of liquefaction and refrigeration, directly to a large, landlocked market where supply is short and getting shorter. That's why Exxon, BP and a third leaseholder, Conoco, prefer this approach and are prepared to finance it, joined by Alaska's sane governor, Frank Murkowski.
This should be a no-brainer, but the little Putins of the Alaska Gasline Port Authority, cheered on by the silly Ms. Cantwell and the cynical Mr. Boies, are determined to politicize what should be a straightforward economic decision. This is not just bad economics for Alaska. It's an example of increasingly nonsensical policymaking by energy-consuming nations, promoted in the U.S. by knee-jerk oil industry critics on Capitol Hill.
Folks like Ms. Cantwell and Mr. Dorgan should look up from their polling data once in a while and take stock of the world, as statesmen are supposed to do. Their juvenile and myopic electioneering strategies are a big wet favor to the likes of Messrs. Putin and Ahmadinejad. Now is the time our leaders should be seeking to strengthen a profit-motivated global oil industry to balance the power of oil-controlling governments that don't have America's interests at heart.
Mr. Jenkins is a member of The Wall Street Journal's editorial board. His column appears in the Journal on Wednesdays.
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