Big Oil is dying

When Exxon announced record profits last month, it seemed o many that Big Oil had gained unprecedented power and wealth. Maybe that's true in the short term (thanks to the skyrocketing price of oil), but in the medium-to-long term the Big Oil companies are screwed. Newsweek reports:

The escalating dispute is emblematic of the problems facing Big Oil—shrinking access, falling profit margins, underinvestment in equipment and technology and a business model that's increasingly questioned. Major Western oil companies like BP, Exxon and Shell have dominated the industry for more than half a century, but the skyrocketing price of crude has shifted power to the countries owning the oil in the ground. They favor their own national oil companies, and are demanding an increasing slice of the pie—when they deign to share it at all. It's no wonder investors seem to be losing confidence in Big Oil's business model: last week, after Exxon reported the largest quarterly profit in global corporate history, its share price fell by 2 percent, and has now fallen 12 percent so far this year. With Exxon struggling to bring new fields on line, gas and oil production was actually down by 8 percent...

It is by now fairly common knowledge that the Western majors today own a mere 5 percent of the world's oil reserves, compared to more than 70 percent in the 1970s (the rest is controlled by governments). That shift is sharply cutting into Big Oil's share of joint projects...

National oil companies have also become tough competitors outside their home markets. Because state-controlled companies like Petrochina have a mandate to secure resources for their countries rather than extract profits for shareholders, they can often make the highest bids. When Libya recently auctioned off offshore-drilling licenses in the Mediterranean, Asian oil companies outbid the Western majors on many parcels by offering ultrasweet deals to the Libyans—in effect giving away their profits just to get their hands on the oil.

One remaining advantage of the Western oil companies is their technology and expertise in running complex and difficult projects...[but] thanks to a decade of technology underinvestment by Big Oil, it's specialized oil-services companies like Schlumberger that hold the most patents and have the best technology. Governments can hire them directly, circumventing Big Oil...

What happens if [technology is not] enough for Big Oil to keep growing?...Mature oil companies aren't going to turn into nimble nuke, wind or solar specialists, just as the railroads in the 1950s didn't suddenly grow into airlines.

So basically, Exxon - the most profitable company in all history - will shortly be reduced to an oil refining and distributing company. I can't say I'm sad. Businesses die, and the economy moves on. And with all the vile political meddling Exxon has done, I'll be particularly happy to read about the day they go belly-up.