A Question About Oil Companies and the Coming Energy Crunch: Do We Bail Out Big Oil?

Posted on October 29, 2008. Filed under: Uncategorized | Tags: , , |

A Question About Oil Companies and the Coming Energy Crunch

Although I have a little more than rudimentary knowledge of economics, I don’t claim to be an expert.  And, my understanding of the oil industry usually goes no further than finding a filling station with the cheapest gas.  But I do have a question that has been bouncing around in my wee little brain for the past couple of weeks now.

I thought of this question after watching multiple banks around the world tank all at once, causing all sorts of problems for corporations and governments alike.  I watched as these banks asked for help and were extended “rescue packages” to ease the world markets (although, at the writing of this blog, said banks have taken their money but are holding on to it, unwilling to extend credit, greedy s.o.b. s that they are.) 

Although banks being handed a bail out was the bigger news, few people heard about Detroit’s auto manufacturers asking Congress for a bailout of their own.  They want an additional $25 billion dollar “aid package” along with the $25 billion they received last year.  What would happen if an industry with multiple global-sized corporations were to suddenly hit the skids as well?  I’m talking about oil companies.

I’ve expressed to those that will listen, that I believe that the next financial crisis/bailout will be the energy sector.  As we slowly gain speed in draining our natural resources, those companies that are making their money doing such will eventually work their way to their own demise.  Once the oil and gas reserves are sucked dry, there’s no more.  

I do believe that companies as large as Amerada Hess or Chevron already have people working on ways to use renewable resources, but are they moving fast enough?  Now, think of just the petroleum companies who’re headquartered in the United States, none of which even make it into the top ten for oil reserves.  What happens when these companies tank?  What happens when their billions of dollars in assets are no longer good?

What happens when companies like ConocoPhillips, Sinclair Oil, ExxonMobil, and Kerr-McGee start to lose everything in a matter of months?  When the oil runs dry or when someone develops a newer more efficient and renewable energy resource that makes the demand for petroleum products drastically drop, what will these oil companies do?  Will they too ask for a government bailout? 

This isn’t just a financial problem for the United States.  Like I’d said earlier, none of the companies that are stationed here even crack the top ten largest oil reserves.  What happens when Petroleos de Venezuela (located out of, you guessed it, Venezuela) , Russia’s Gazprom or Saudi Aramco finally go under?  What will that do to the world economy?  You think we have problems now but banks have trillions of dollars worth of interest in these companies. 

My problem is that what we have done by providing bailouts to the banks may have set a precedent for large overburdened companies to follow when they fall on hard times.  Do we do the “right thing” and let these petroleum companies die the death that is required by the market?  After all, no one is shedding any tears over the collapse of Huntingburg Wagon Works, the former largest manufacturer of wagons in the United States.  Once the gasoline powered automobile entered the mix, the market decided to put down the old wagon makers for the simple fact that they were no longer viable.  Those companies that could not adapt went out of business and made room for those could. 

So again I ask, when the energy (or should I say, petroleum) crunch comes, do we extend the same courtesy to the oil companies that we did to the banks?  Should we keep around dinosaurs of the past simply because they’ve grown so big that we don’t know what we’d do without them?  Or, do we let the market sort it out and let the ones who could not change die off like the Dodo or the Irish Elk?  Do we collectively have the cojones to let big businesses fail anymore or do we coddle everyone? 

This is not an opinion piece but a genuine question, and I’d love your responses.  I want to know what we should do and what we are willing to do, because these days those are two completely different questions.

 

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