Crude capitalism

Hands-off approach wins governments more oil

A hands-off approach seems to win governments more oil. That at least is the lesson from BPs latest survey, which shows US crude production surging by a world-beating 14 per cent in 2012. Another private-sector industry, Canadas, came close behind. State-dominated oil giants in Brazil, Venezuela and elsewhere suffered declines in output.

The United States controls only two per cent of the worlds oil reserves. But it pumped over a million barrels a day more last year than in 2011 to produce nearly 9 million barrels a day, approaching 10 per cent of global output. Only Libya, rebounding from civil war, posted a bigger percentage increase in production.

Driving the US increase are independent oil companies, in particular the pioneers of hydraulic fracturing techniques used to extract crude trapped in shale rock. Still, Washington can claim a share of the credit having allowed private-sector firms to operate with minimal interference. The same is true of Canada, which racked up a seven per cent increase in output last year despite a shortage of pipelines to export its crude.

Economies dominated by lumbering state-controlled giants, by contrast, are failing to keep pace. Take Venezuela, which boasts the worlds largest oil reserves. The inefficiency of government oil behemoth PDVSA helps explain a 1.5 per cent output decline in 2012, on top of significant shrinkage in previous years. The heavy-handed meddling by Brazils government in the affairs of Petrobras is also yielding disappointing results. Instead of the expected soaring output after huge oil discoveries since 2007, crude output slid by two per cent last year.

Part of North Americas outperformance reflects a technological lead in fracking and horizontal drilling, which have yet to be fully mastered elsewhere. The likes of Russia where output rose a measly one per cent last year and Venezuela could eventually catch up.

But BPs survey suggests that market forces are more effective than state control at getting oil out of the ground. That will come as no surprise to Western capitalists. But for governments in places where energy resources are held tightly as a national patrimony, its a lesson worth emphasising: For best results, back off.