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The New Seven Sisters

Posted by Richard on March 27, 2007

In the latest issue of The Global Guru , Nicholas Vardy looked at today's powerhouses in the oil and gas industry. Financial Times recently christened them the "New Seven Sisters," and they're mostly — and unfortunately — government-owned enterprises. (The original Seven Sisters were the seven big international oil companies that dominated production after WWII.)

The New Seven Sisters are also largely from developing countries. Saudi Aramco is the big kid on the block, with a quarter of the world's reserves and three times the capacity of anyone else. But the others are growing in importance:

Although less powerful than the Saudis, the other sisters now dominate the familiar Western majors in terms of influence. Russia's Gazprom is the industry bad boy, never reluctant to flex its muscles on the battlefield of business. China's CNPC owns 88% of PetroChina and is active in about 20 countries from Azerbaijan to Ecuador. NIOC, Iran's national energy company, has partnerships with Italian, French, Dutch and Norwegian companies and collaborates with Chinese and Russian groups. PDVSA is Venezuelan President Hugo Chávez's political pawn. The company's profits are subsidizing London commuters. Brazil's Petrobras is a global leader in finding and producing oil from deep waters. Petronas is Malaysia's national oil company and may be the slickest and most commercial organization of the bunch

Aside from the moral and practical harm related to expropriation of private property, the growing "natural resources nationalism" has other bad consequences:

Some of the New Seven Sisters have become little more than their home country's bottomless piggybank, funding politically expedient social ventures. The poster child of irresponsible profligacy is President Hugo Chávez of Venezuela who spends two-thirds of PDVSA's profits on his populist social programs. The result? PDVSA's production capacity has fallen from 3.4 to 1.5 million barrels per day since 1999. In Iran, NIOC cannot boost its oil production or fix its refineries because its profits go toward keeping gas at 40 cents per gallon for Iranian consumers. In Russia, too, little of Gazprom's earnings go towards upgrading Russia's antiquated, leaking pipeline system.

This mismanagement has global consequences. The IEA estimates that the world is falling 20% short of making the investment needed to ensure adequate energy supplies for the next 25 years. And governments' unwillingness to allow their national oil companies to reinvest profits back into industry is the primary culprit.

Just what we need. Megalomaniacal socialist scum who would flunk Econ 101 are dragging down global energy production to satisfy their lust for power and indulge their redistributionist whims.

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