Tuesday, December 27, 2005

Access to Resources

Two stories in last week's news provide perfect counterpoints of the challenge facing the international oil industry with regard to gaining access to explore and produce oil and gas resources around the world. Both illustrate the degree to which these firms, despite their enormous cash flows and commensurate influence, are subject to the changing moods of host governments. The Bolivian election seems to be closing the door in that country, while changes in Kuwait's posture towards international participation in its oil sector seem much more positive.

As this op-ed from the New York Times suggests, it would be easy to over-react to the election of an avowed socialist as President of Bolivia. Evo Morales could never match the threat to US interests that Venezuela's President Chavez poses, but the rise of a similar anti-capitalist democratic sentiment in a resource-rich country such as Nigeria could be disastrous. Bolivia is a good example of the shortcomings of the current globalization system. It is in everyone's interest that these failings be addressed in a way that makes free markets beneficial for as many as possible, and not just for elites.

Kuwait is a very different story. As this excellent article from Friday's NY Times explains, Kuwait's desire to expand its production and optimize the income from its petroleum before alternatives cap the market can only be facilitated through foreign investment and expertise. Opening up Kuwait's undeveloped fields to international companies, even on terms that won't allow the latter to book the associated reserves, would represent an important breakthrough with positive implications for future oil supply and moderating prices for the next decade.

As much as the oil companies tout their impressive technology for locating and extracting oil in hard-to-reach places, their ability to navigate local responses to globalization could have a bigger impact on future energy supplies.

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