If We All Started Driving Priuses, We'd Consume More Energy Than Ever Before

By Robert Bryce, Public Affairs Books. Posted May 10, 2008.

The following is an excerpt from Robert Bryce's new book "Gusher of Lies" (Public Affairs Books, 2008). It first appeared in the Texas Observer.

From 1859, when Colonel Drake discovered oil in Pennsylvania, through 1973, the U.S. was the dominant player in the global energy business. For much of that time, America was both the dominant producer and dominant consumer of oil and gas on the planet.

That dominance extended into technology, finance, transportation, and refining. When it came to developing oil reserves and getting those reserves into the marketplace, the U.S. had no serious rivals. American drill bits, like those made by Hughes Tool Co., bored the holes. American companies, like Gulf Oil, or Standard Oil of New Jersey, did the seismic work, managed the production, built the pipelines, and did the refining. The drilling work was done by companies like Sedco. The drilling technology was developed by outfits like Halliburton. The bridges, or dams, or cities needed to support the cities that were created by the new oil wealth were built by Halliburton's subsidiary Brown & Root, or by American engineering giants like Bechtel. Texas-based law firms like Baker Botts or Vinson & Elkins handled much of the legal work. And all the while, the prolific oil fields in Texas, Oklahoma, and other states allowed the U.S. to effectively set the global price of crude.

Those days are gone.

A half century ago, American-based energy companies pumped about 45 percent of all the oil produced overseas. Today, that percentage is about 10 percent. Out of the top 20 oil-producing companies on the planet, 14 are national oil companies like Saudi Aramco or the National Iranian Oil Company. Furthermore, the national oil companies now control about 77 percent of the world's proven oil reserves. The international oil companies control less than 10 percent.

American energy companies are still big players in the global market, but they are no longer the dominant players. Instead of dictating terms, American energy companies and other international energy companies must now court the national oil companies who sit atop the vast majority of the world's remaining oil and gas deposits. That means that state-controlled outfits like Saudi Aramco, Russia's Gazprom and Venezuela's Petrleos de Venezuela (PDVSA), are, in many cases, able to dictate the rules by which the major oil companies must play.

At the same time that the big oil companies are losing their negotiating strength, rising demand from China, India, and other developing countries is allowing the national oil companies to change their focus. Instead of looking first to export their products to Western consumers, they are looking east.

Long before the rise of OPEC, and years before Saudi Arabia became the key player in the global oil business, the world's most important oil cartel was based in downtown Austin, Texas.

Between the 1930s and the early 1970s, the three members of the Texas Railroad Commission were the most important people in the global oil business. They met once per month to set "allowables" -- the volume of oil that each operator in the state was allowed to produce from his wells that month. The allowables were set to meet current oil demand and not a barrel more. The Texas cartel operated in a straightforward manner. The three commissioners looked at oil inventories. If they were rising, they cut production. If inventories were falling, they allowed production to rise. And because the Railroad Commission controlled the flow of oil from the world's most prolific fields -- the ones in Texas -- the system worked. No other entity was able to control the supply of oil with the discipline and effectiveness of the commission. And by controlling the prices in the burgeoning American market, the Texas cartel effectively determined world prices, too.

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Robert Bryce is the author of "Gusher of Lies" (Public Affairs Books, 2008). He's the managing editor of the Energy Tribune.

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