…but it’s really a spurious designation.
Exxon Mobil (NYSE: XOM) is no longer the world’s largest corporate producer of oil. That distinction has gone to PetroChina (NYSE: PTR). Reuters reports that “PetroChina announced Thursday that it pumped 2.4 million barrels a day last year, surpassing Exxon by 100,000.” The change was inevitable.
China’s thirst for oil makes it the second largest net importer in the world after the US. PetroChina is also a quasi-governmental operation. It has access to Chinese capital. The central government of the People’s Republic needs an ever growing supply of crude to fuel industry and consumer uses–particularly for the use of cars and light trucks.
And, China can only afford so much in terms of crude price increases. China may have a central government, but the power of that government can only offset a huge rise in energy prices for so long before it must pass some of it along to consumers.
PetroChina isn’t the only foreign company which passed ExxonMobil. Rosneft, a Russian outfit mostly owned by that country’s government (it took over most of Yukos’ holdings when the Russian government decided to kill that company), also passed XOM.
PetroChina is really a state-owned oil company rather than a privately-owned one. It’s more like Saudi Aramco or PVDSA or Petrobras. China’s government, in the person of China National Petroleum Corporation (Sinopec) owns 86 percent of the stock of PetroChina.
And PetroChina’s mission isn’t that one might expect of a private-sector oil company, in which shareholder value is the primary goal. PetroChina’s primary goal is to drag as much oil back to China as possible.
Meaning that oil PetroChina gets its hands on is not oil traded on the world market. It’s oil taken off the world market. China takes a very mercantile approach to oil as a resource.
The Chinese don’t really care if they make a profit off PetroChina; they want to make just enough that outside investors would consider pumping money in, but beyond that they’re about gathering as much of the world’s oil supply under their control as possible.
This development worries lots of people in the industry.
In 2005, for example, CNOOC Ltd., a company mostly owned by the Chinese government tried to buy American oil producer Unocal. U.S. lawmakers worked to block the deal, asking President Bush to investigate the role the Chinese central government played in the process. Chevron Corp. eventually bought Unocal for $17.3 billion.
“There’s a resistance to Chinese investment in (U.S.) oil and gas,” Morningstar analyst Robert Bellinski says. “It’s like how Japan was to us in the 1980s. People think they’re going to take us over. They’re going to buy all of our resources.”
That’s unlikely to happen. It doesn’t make economic sense to export oil away from the world’s largest oil consumer.
But the Chinese could make it tougher for Big Oil to generate returns for their shareholders. China’s oil companies have been willing to outspend everyone and that drives up the price of fields and makes it more expensive for everyone to expand.
“You now have to outbid them,” says Argus Research analyst Phil Weiss. “If you can’t, you’re going to have access to fewer assets.”
In America, meanwhile, where there’s more oil than anywhere else, our president is busy spreading provable lies about oil resources and production while attempting to punish oil companies with the tax code…
President Obama on Thursday urged Congress to drop billions of dollars in tax breaks that amount to subsidies for the largest oil firms operating in the United States, which he noted were showing record profits as millions of Americans watch rising gas prices strain their household budgets.
“I think it is time they got by without more help from taxpayers,” Mr. Obama said in remarks in the White House Rose Garden, “the oil industry is doing just fine.”
Mr. Obama’s push comes minutes ahead of a Senate vote on a bill that would repeal the subsidies. With strong opposition from Republicans, the Senate is not expected to garner the 60 votes needed to get past a Republican filibuster and approve the measure.
But rising gas prices are a major concern at the White House and in Chicago, where Mr. Obama’s campaign is preparing for a fight to the finish with the Republican nominee for president.
Republicans oppose ending the tax breaks and note that any increase in the price of production of any given item is likely to result in higher prices down the line, in this case at the pump.
The president cast the issue as taxpayers paying the oil companies twice.
“You’re already paying a premium at the pump right now. And on top of that, Congress thinks it’s a good idea to send billions more of your tax dollars to the oil industry,” Mr. Obama said.
Obama continued making the same assertions his Interior Secretary got drilled for in a letter yesterday from Sens. Vitter, Sessions and Cornyn – that oil production is up as a result of his administration’s policies, that he’s opened more lands for drilling and that “we can’t drill our way out of this problem” since we have just 2 percent of the world’s proven oil reserves and use 20 percent of the oil.
What might be a fantastic response from the oil industry is this – “those so-called subsidies aren’t subsidies at all but rather tax breaks, but if you want to kill them be our guest. But in return, we want you to do something about the highest corporate tax rate in the world, which we’ll have next week. Drop that rate to 25 percent or lower, and you’ll help not just us but the entire economy – and we’ll happily expand our business without worrying about the lousy $4 billion in favorable tax treatment you run your mouth about so much.”
We can just about guarantee that if the oil industry were to take that posture they would get Obama to shut up about those subsidies. Obama could have cut the corporate tax rate any time he wanted over the last four years and failed to do so; it’s only logical to conclude he doesn’t want that rate lowered.
Which means it’s going to be that much harder for companies like ExxonMobil to keep up with the Chinese and the Russians as they gobble up the world’s resources in places the government isn’t anti-energy.
UPDATE: And of course the Senate Republicans blocked Democrat attempts to raise taxes on oil producers almost immediately after Obama’s rant about the evil oil companies.