Big Oil is much smarter than people think. By Big Oil this writer means the free world’s independent oil companies. For those watching, Big Oil has been shifting the publicly visible emphasis to natural gas and enhanced recovery investment. The Axis of Oil, the countries between free Big Oil and the organized national oil companies most of which are in OPEC, are just plundering crude oil for maximum output at the highest price the market can manage. It might not be such a dumb idea.

OPEC is in the midst of an argument; raise production a wee bit to keep the price in line with some worldwide economic growth, leveled against the idea that higher oil prices won’t keep world growth suppressed or drive to more alternatives, conservation and efficiency.

With the likelihood of an oil price run up, some points deserve some thought.

Against the oil price matter is a growing list of opportunities. With both the Nissan Leaf and GM’s Chevy Volt on the streets with media acclaim that’s deserved, the door to electrification of light personal transport is cracked open with seriously strong wedging. More auto wedges are on the way, most auto manufacturers will have similar models out very soon. Gasoline use in the developed world has likely peaked – and for a per mile basis, the peak is now a certainty. The question seems to be will more miles get added keeping gasoline volume up over time.

Higher efficiency models, hybrids, flex fuel engined and electric vehicles are at a new sales rate point; the chances that these vehicle’s market will evaporate wiping out the research, development and factory preparations are getting smaller by the month.

Big Oil has another advantage. They fund research, they see lots of grant applications; they also get progress reports on what they fund long before papers are published. That can be months worth of advantage. BP’s getting into biofuel processes, petroleum chemistry, and other research shouldn’t surprise anyone. Exxon Mobil’s major foray into partnering with Craig Venter’s firm with $600 million is a sure sign – the Big Oil companies are definitely going to market energy and fuels however the market changes. Loyalty to crude oil might not be something to count on.

Last week Khaled Al Buraik, executive director of the government-controlled company Saudi Aramco made news pointing out there are 14 trillion barrels of crude oil now discovered, with about 1.2 trillion that can be recovered with today’s technology. The recoverable number is more than all the oil used so far. On the surface that rather casts doubt on why alternatives have any hope of getting to market.

The foundation to change is competition. Not just between companies, but between products used. Big Oil knows this; natural gas on an energy content basis is priced at below 25% of oil.

Meanwhile Big Oil earns on the equity less than most big industrial sectors. For all the media hype on the profits there are better investments than stock in Big Oil. – Unless things are changing, which they are. Big Oil is very likely positioning itself beyond the monthly and quarterly stock analysts reports. It’s a sure bet that Big Oil Management is looking years down the road.

Watching Big Oil is like reading tealeaves. The stuff that matters for the future isn’t in plain view. Nor can such information be pried out. These are huge firms, and it’s a certainty that those who are paid to be spokespeople are not privy to deep future planning of the resources committed, forecasts and expectations about the years out. That information may well be under armed guard.

But watch the Big Oil funding forays into the alternatives, extraction of oil and gas, processes, chemistry, biology and wherever research connects to the future the executives have in mind. Thus we know, even as Big Oil resists ethanol, they’re not in full war mode, actually behind the scenes they’re pretty accommodating, the corn ethanol folks don’t have all that big a fight on their hands.

Everyone has known since the Arabs organized and executed the first oil embargo 30 odd years ago that the market isn’t rationally functional. The rules of capital and mercantile business don’t work correctly. It sets up a guessing game. To complicate things further governments world wide love to control activities causing even more unpredictability, administrative expense, delays, liabilities and other concerns.

To any smart businessman or investor having all of ones equity at risk on one product named crude oil is a major risk in itself.

Yet almost all the capital is in oil, and one can’t just walk away. So we watch Big Oil do two things, protect the oil products market and set up to substitute oil over time. The entertaining part is they can’t admit it even when its plain there is no other choice.

Most values for oil on the books are a bit over $50 a barrel now. Its becoming more clear that technology, insight, innovation and creativity are going to offer fuel and energy choices below that over time. It must be unnerving to Big Oil that natural gas is way under the $50 equivalent right now.

At the same time, everyone in industry knows that consumers make the wealth. When the buying stops the product is nearly worthless. But the market and all that crude oil energizes must go on. The transition to the future must be gradual.

The day this post goes up this writer will be in Washington D.C. attending the American Petroleum Institute’s release of a comprehensive report titled ‘The State of American Energy’ at a kickoff event. API’s President and CEO Jack Gerard is hosting a luncheon, where he’ll discuss the role of the oil and natural gas industry in economic growth, job creation and energy security. Additionally, he will offer policy recommendations on how the United States can meet its energy goals.

The airfare, two nights of lodging and about half the food is being paid for by the API. They order up coach tickets by the way. All very business like. The investment they’re making implies that the presentation will be of significance as far as keeping the status quo intact, the consumers able to buy products at a sensible price and help some voices connected to listening ears on their side as the media continues to demonize the foundation industry of the world’s modern era.

The API is a creature of the combined Big Oil company members. There won’t be any future planning exposed, grant applications discussed or other bits exposing how the R&D investments today will affect the future.

What this writer expects is that Mr. Gerard and Ms. Van Ryan have a thoroughly vetted and very carefully designed presentation to keep the world powered up. Links, data, and text will post when ready.

On the other hand, recall how things were for the OPEC members for that brief period after oil hit the record high. The cash disappeared at alarming rates, payments were in doubt, populations restless, with oil at under $40. Now suppose alternative products to oil were profitable at $40 per barrel – now you’re thinking what Big Oil is thinking and not saying.

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