The term "Big Oil," which initially was coined with derisive and derogatory connotations, has since come to designate those proverbial “Titans” and veritable leaders of the oil industry, now, once again, being dutifully appreciated and respected as "The New Seven Sisters!"
But wait just one moment! These representatives of “Big Oil” probably aren’t the same cast of characters you have come to expect. Today’s Big Oil has a completely new look, image and sound and has been working it’s way to the top of the mountain with certain advantages and protective sanctions that the original player never had working for them.
One of the many questions that we must ask ourselves as we analyze this “New Seven Sisters” scenario, is should the rules call for fair and level playing field when contestants are competing vertically and not horizontally, as they would in an international game.
The original “Seven Sisters,” a moniker that was coined by Enrico Mattei, the Italian energy magnate, were the seven international oil companies that were dominating the world's oil production just after the Second World War. Back then, the oil industry “Magnificent Seven” included Anglo Persian Oil Company, Gulf Oil, Royal Dutch Shell, Standard Oil of California, Standard Oil of New Jersey, Standard Oil of New York and Texaco.
No one could have possibly imagined that power and profits would eventually slip away from these Energy Industry Giants a mere fifty years after their official, publicly declared coronation, but life can be funny that way.
Now, there is an completely new line up of Big Oil’s primary “Movers & Shakers” and according to “The Financial Times,” that list includes: Aramco of Saudi Arabia, CNPC of China, Gazprom of Russia, NIOC of Iran, PDVSA of Venezuela, , Petrobras of Brazil, as well as Petronas of Malaysia.
What is most striking about this new line-up of “Seven Sisters” is not so much the fact that these companies are relatively unknown and unheard of outside of energy industry insiders, or that fact that they all hail from emerging regions of the world, but that they are largely “state-owned” companies who have the full weight of what might be perceived as “national protectionism” carefully and meticulously watching their back and fending off harsh and debilitating criticism and in many cases, intense media scrutiny and numerous potential legal confrontations.
How is it that the “New Seven Sisters” now control over 30% of the world's oil and gas production and reserves while the bloodline descendants of the original “Seven Sisters,” companies like ExxonMobil, Chevron, BP and Royal Dutch Shell now produce only 10% of the world's oil and gas and hold a mere 3% of its reserves.
What happened? What momentous calamity befell the “Big Five,” Exxon-Mobil, Royal Dutch Shell, BP, Chevron and Conoco-Phillips, whom we once proudly hailed as our reliably trust worthy providers of premium quality petroleum around the world?
The big 5 may not be the Monsters you Think
Why, when the Big Five are investing so much more of their diminishing profits into all sorts of alternative “Green Energy” sources, from wind power to bio-fuels, would the International Energy Agency (IEA) predict that the their position of prominence in the energy industry will continue to dissipate while the “New Seven Sisters” could within 40 years, be providing and holding stakes in more than 50% of the world energy resources?
What distinct disadvantages are the Big 5 now being unfairly forced to compete against, while working their way back up and off of the canvas they were knocked down to by a world population that demanded of barrels of cheap, clean fuel while simultaneously cursing and fighting against those very companies who were dutifully attempting to supply the voracious demands placed upon themselves?
Well, first of all, there is the fact Saudi Arabia possesses 25% of the world's oil reserves and Saudi Aramco has 3 times the capacity to produce oil than any other company that is competing on the market. This means they literally have the power and position to serve as the planets self appointed central bank of oil, turning on and off the tap whenever they choose, depending on how they feel about the current market situation.
That’s pretty much like having the freedom to print money at will, whenever you feel like it. If you were a company competing for dominance in the Fortune 500, would having the ability to print as much money as you like offer up any sort of unfair advantage over your competitors? That’s a definitive YES!
Meanwhile, Russia's “Gazprom” has come to be viewed world wide as the oil industry’s official “Bad Boy” who intentionally tries to keep the competition jittery by notoriously flexing its “militaristic muscle” whenever it fears it may have been strategically out-played on the business battlefield.
What strategic financial advantages might BP, Chevron or ExonMobil find in their favor, if they can call in armed troops or bombing strikes from the air whenever a competitor appears to be gaining the upper hand in a business transaction?
So while the Big 5 don’t have a powerfully controlled government backing their every decision and protecting them from ridicule or investigation, nor do they have an endless supply of oil that they can turn on or off at a moments whim or the ability to call in the troops whenever a business competitor has out-flanked them in the boardroom, what they do have is good old fashioned business sense and the commitment to do what it takes to climb back up and take their rightful place of leadership.
Now, not only officially on the bandwagon, but clearly leading the way in research and implementation of “Green Energy” strategies, The “Big 5” are not only putting their words and actions to work promoting new, clean energy options, but are investing huge chunks of their diminishing profit margins into “Green Power!”
They are actively and enthusiastically working “hand in hand” and “shoulder to shoulder” with Universities, Environmental Organizations and Government Agencies, seeking out the most effective clean energy options and are well in front of the rest of the scientific pack when it comes to technological research, innovation, upgrades and implementations.
So how is the world, particularly energy investors, responding to the new face of today’s “Big Oil?” Well, according to popular energy writer Jon Markman of MSN Money, “With prices starting to stabilize, household-name energy companies such as Exxon Mobil are returning to the head of the class.”
Markman explains, “The profits of supersized energy companies have shrunk in the past year, as lower demand and lower prices have pushed revenue growth down to levels not seen in the past four years. But with crude oil stabilizing around $75 to $80 a barrel and recession around the world fading, it looks like the biggest companies in the world are about to get their mojo back. And that ought to limit softness elsewhere in the market's benchmark indexes.”
He continues on to say “Call it a return to quality or just a rebound of rationality: The likes of ExxonMobil (XOM), Chevron (CVX) and ConocoPhillips (COP) could be on the verge of reclaiming their rightful spot at the head of the investing table.”
Meanwhile, purely from an economic perspective, both a declining dollar and higher emerging-market demand is good for oil prices. A company like Exxon for example, has the world's largest assortment of natural-gas interests, and the coming winter is expected to be colder than usual, which normally puts a lot of strain on natural-gas prices.
Oil Companies and Biofuels
According to Guy Chazan of the Wall Street Journal, “The biofuels industry, hit hard by the global credit crunch, is getting a shot in the arm from a new source–the oil majors.” He then goes on to explain that “among the oil companies, BP PLC and Royal Dutch Shell PLC have been the most active investors in the sector.”
Chazan continues, “But it's even beginning to attract more-conservative companies like Exxon Mobil Corp., whose chief executive, Rex Tillerson, once famously dismissed corn-based ethanol as "moonshine." Exxon announced in July it was investing $600 million in an algae-to-fuel start-up, Synthetic Genomics Inc.”
"It was a major signal to the biofuels industry," says Bruce Jamerson, chief executive of Mascoma Corp., a producer of cellulosic ethanol, which is made from inedible plant materials.
That’s right Big Oil and biotech are no longer enemies, but now close and reliable allies working together like a well oiled machine.
"Oil companies have a natural affinity for the biofuels business," says Katrina Landis, head of BP's Alternative Energy division. Combining their knowledge of how to produce and market transportation fuels with the potential of biotech start-ups creates a "very powerful partnership," she says.
Let us not forget that Shell recently made a similar move, announcing that it would now concentrate on biofuels along with carbon capture and storage, or CCS, a technology to counter global warming by trapping carbon dioxide from the emissions of power plants and burying it deep underground.
Shell has also been known over the past decade, as a leader and innovator in the research to most effectively utilize wind power is now working with Canada's Iogen Corp in an effort to produce fuel from wheat straw, as well as a joint venture with Choren Industries GmbH of Germany to make fuel from wood residue.
British petroleum has recently aligned itself in a joint venture effort with “Verenium Corp,” a maker of “cellulosic ethanol,” while ChevronCorp is now working side by side with lumber giant Weyerhaeuser Co, in a venture to make fuel from biomass such as “switch grass,” a prairie grass native to the southeastern U.S.
Chazan’s Wall Street Journal commentary adds that “Shell, for example, has spent about $1.7 billion on alternative energy and carbon-emission-reducing technologies like CCS in the past five years, while its total capital investment budget last year was $32 billion. BP's investments in alternative energy totaled $1.4 billion last year, about 6% of its capital-expenditure budget for the year, and will fall to between $500 million and $1 billion this year as the global economic slowdown saps demand for energy.”
And lastly, Rana Foroohar of NEWSWEEK points out that “ExxonMobil announced big plans to grow green algae to fuel cars …Chevron unveiled the world's largest carbon-sequestration project in Australia; and in recent months, Valero, Marathon, and Sunoco carried out a series of acquisitions that resulted in Big Oil controlling 7 percent of the U.S. ethanol business.”
So all signs seem to point to Big Oil making a big, impressive comeback, based on smart and creative business innovations and tightly run ships built on experience and integrity. They’re regaining their prominence and prestige the old fashioned way, by “Earning It!”
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