A discussion of the world refining industry must include a distinction between Independent Oil Companies and National Oil Companies. Everyone is familiar with the Independent Oil Companies the top of which are referred to as the Big Six Oil Majors. The Big Six include Exxon, Chevron, Shell, BP, Total, and, until the recent announcement of its split, Conoco Phillips. People may be less familiar with state owned oil companies like Venezuela’s PDVSA, Brazil’s Petrobras, and Mexico’s PEMEX.
For decades, independent oil companies held the bulk of the world’s oil reserves and were leaders in exploration, production, and refining technologies. In 1975, IOC’s held 85% of the world’s oil reserves, today they have access to 10%. NOC’s now control 94% of the world’s crude oil reserves (Qaddumi). Considering that crude oil is a country’s natural resource and should, therefore, belong to the people of that country-this trend isn’t necessarily a bad thing. However, the rise of NOC’s has fundamentally changed oil industry due to evolving geopolitical risks in addition to age old supply and demand.
Governments versus Corporations
Governments have very different interests than corporations. Corporations are only responsible for returning shareholder value (let’s not argue about ethical obligations to employees, sustainability, etc.-corporations are in the business of making money-geez I’m Big Oil!). Governments are accountable to their citizens. Governments are (hopefully) concerned with ensuring their citizens are employed, protected by its laws, and have the general right to the pursuit of happiness (leave me alone-I’m American). National Oil Companies are revenue, employment, and prestige generators. Therefore, some, not all, NOC’s have been accused of sacrificing efficiency for the sake of ensuring employment of its employees-citizens. Where an Independent Company might run its operations as lean as possible to reduce fixed costs and boost profit margin for its annual statement, an NOC might stress maximum employment. Where an Independent Oil Company might idle a refinery due to reduced gasoline demand, and National Oil Company of a developing nation might build additional refining capacity to demonstrate to the world its arrival as a world power.
Political Stability
As NOC’s have become more prominent, politics plays an even greater role in the stability of the crude oil supply chain and resulting crude oil price. Civil wars, sanctions, collusion can disrupt world crude oil supplies.
Civil unrest in Nigeria’s, responsible for 3% of world oil production in 2007, oil rich Delta Region causes frequent disruptions in Nigerian Oil Production and has all but put to a halt the country’s downstream refining industry (mbendi.com). The US’s sanctions with Iran prevent American Oil Companies with doing business with one of the world’s third largest holder of proven oil reserves. During the 1973 Oil crisis, OPEC countries colluded to cut off the United States from its member countries’ oil supplies as a result of the United States support of Israel (Wiki).
No comments:
Post a Comment