National Oil Firms Take Bigger Role
National Oil Firms Take Bigger Role
National Oil Firms Take Bigger Role
Governments Hold Most of World's Reserves
By Justin Blum
Washington Post Staff Writer
Wednesday, August 3, 2005; D01
As the world's thirst for oil increases, government-controlled national oil companies are challenging international firms such as Royal Dutch Shell PLC and Chevron Corp. in the global competition for oil reserves.
National oil companies are increasingly venturing beyond their home country's borders in search of reserves. The governments' motives are varied, but in cases such as China and India, they are seeking more secure oil supplies to meet the needs of their fast-growing economies.
One of China's government-controlled oil companies, Cnooc Ltd., yesterday withdrew from a bidding war with Chevron to acquire California-based Unocal Corp., which holds reserves of oil and natural gas in Asia, the United States and elsewhere. Although Cnooc pulled out in part due to political pressures in Washington, its aggressive bid underscores the more assertive presence of state-controlled oil firms on the world stage.
About 77 percent of the world's 1.1 trillion barrels in proven oil reserves is controlled by governments that significantly restrict access to international companies, according to PFC Energy, an industry consulting firm in Washington.
Much of those reserves are in the hands of countries belonging to the Organization of the Petroleum Exporting Countries, the cartel that attempts to influence world oil prices by regulating supply. The country with the world's largest reserves is Saudi Arabia, which has its own national oil company, Saudi Aramco, and does not allow foreign companies to pump oil.
Several years ago, when oil prices and demand were lower, international oil companies had the upper hand when negotiating with governments controlling access to reserves, analysts said. But with global oil demand now soaring and prices surpassing $60 a barrel, countries holding vast reserves have gained a stronger negotiating position with international oil companies that want to operate in their territory.
"The international companies don't run the business anymore," said J. Robinson West, chairman of PFC Energy. "The rulemakers are now the national oil companies. They drive the business."
The United States owns no reserves but has a nearly 700 million-barrel emergency stockpile of oil stored in salt caverns in Louisiana and Texas, known as the Strategic Petroleum Reserve. That supply is enough to satisfy U.S. demand for about one month.
The U.S. economy relies on oil traded on world markets. That oil could be produced by international companies such as Exxon Mobil Corp. or by government-controlled companies such as Saudi Aramco.
Oil analysts said that owning reserves or producing oil does not assure supply for any country. If there were a global scramble for oil, there would be nothing to stop a country with a strong military from seizing oil en route to its owner.
While international oil companies are reaping billions in profits from sales at today's prices, analysts said they are struggling to replace the reserves they have pumped from the ground. Many of the world's largest and most easily accessed oil fields that are open to foreign investment have been tapped already. Some international firms are sitting on billions of dollars, which analysts said reflects these fewer exploration opportunities.
International companies face intense pressure from shareholders to maximize profits. National oil companies, however, often do not have the same profit needs and in some cases been willing to plunk down more money and accept lower returns.
International oil firms also worry that their government-sponsored competitors receive unfair advantages. During the bidding war over Unocal, for instance, Chevron complained Cnooc could offer more money because the Chinese government was helping finance the bid by providing low- and no-interest loans.
One result of government ownership of oil supplies, analysts said, is that they often manage oil fields less efficiently than big international firms -- resulting in less oil for everyone. "The national oil companies are not really investing and developing oil fields," said Muhammad-Ali Zainy, senior energy economist at the Centre for Global Energy Studies in London.
There are roughly 60 national oil companies worldwide. Nearly half of them own reserves outside their home country, or hold ambitions to do so, analysts said.
Peter J. Robertson, vice chairman of Chevron, worries about the increasing dominance of national oil firms. Given that they already control more than three-quarters of the world's oil reserves, "if governments can come along and gobble up the rest of it at a percent or 2 percent at a time, pretty soon the commercial business looks pretty thin," Robertson said.
Government-controlled oil companies in China -- including China National Petroleum Corp. and Cnooc -- have been expanding internationally. Malaysia's Petronas now has business interests in 35 countries. Brazil's Petrobras has been active outside its home country and has developed expertise in deep-water production.
International oil companies and national companies, while sometimes rivals, often work together. In many cases, national oil companies lack the money, technology or managerial skill needed to develop big projects and seek to work with the bigger firms.
But some national oil companies have gained enough know-how to begin closing that gap. According to PFC data, more deals are being made between national oil companies, allowing one to operate in another's home country -- leaving the international firms out altogether.
Nowhere is the thirst for oil rising faster than in China and India. Both countries are aggressively seeking oil supplies, making deals in countries such as Sudan and Iran, where international companies have shied away for political reasons.
China consumed 4.8 million barrels of oil a day in 2000. The U.S. Energy Information Administration expects it to use up 7.2 million a day this year -- far less than current U.S. consumption of about 20 million barrels a day but rising more rapidly. In 2010, China is expected to consume 9.2 million barrels a day, according to the EIA.
The Chinese government wants to lock up supplies in part due to its belief that big oil companies and the United States are manipulating the market to choke China's economy, said Wenran Jiang, a political science professor at the University of Alberta.
"They feel it's not fair for China to depend on the commercialized, manipulated, artificially driven up price," said Jiang, who is part of a working group on energy cooperation between the Canadian and Chinese governments.
International oil companies also fear competition from their national rivals. In a speech in April, the chief executive of Shell, Jeroen van der Veer, said that "virtually every week" the national companies cut deals to acquire production assets.
Even so, officials from Shell and other large international oil companies, sometimes known as IOCs, said they still have advantages in operating big oil fields.
"Governments will need IOCs as much as we need them," van der Veer said.
National Oil Firms Take Bigger Role
Governments Hold Most of World's Reserves
By Justin Blum
Washington Post Staff Writer
Wednesday, August 3, 2005; D01
As the world's thirst for oil increases, government-controlled national oil companies are challenging international firms such as Royal Dutch Shell PLC and Chevron Corp. in the global competition for oil reserves.
National oil companies are increasingly venturing beyond their home country's borders in search of reserves. The governments' motives are varied, but in cases such as China and India, they are seeking more secure oil supplies to meet the needs of their fast-growing economies.
One of China's government-controlled oil companies, Cnooc Ltd., yesterday withdrew from a bidding war with Chevron to acquire California-based Unocal Corp., which holds reserves of oil and natural gas in Asia, the United States and elsewhere. Although Cnooc pulled out in part due to political pressures in Washington, its aggressive bid underscores the more assertive presence of state-controlled oil firms on the world stage.
About 77 percent of the world's 1.1 trillion barrels in proven oil reserves is controlled by governments that significantly restrict access to international companies, according to PFC Energy, an industry consulting firm in Washington.
Much of those reserves are in the hands of countries belonging to the Organization of the Petroleum Exporting Countries, the cartel that attempts to influence world oil prices by regulating supply. The country with the world's largest reserves is Saudi Arabia, which has its own national oil company, Saudi Aramco, and does not allow foreign companies to pump oil.
Several years ago, when oil prices and demand were lower, international oil companies had the upper hand when negotiating with governments controlling access to reserves, analysts said. But with global oil demand now soaring and prices surpassing $60 a barrel, countries holding vast reserves have gained a stronger negotiating position with international oil companies that want to operate in their territory.
"The international companies don't run the business anymore," said J. Robinson West, chairman of PFC Energy. "The rulemakers are now the national oil companies. They drive the business."
The United States owns no reserves but has a nearly 700 million-barrel emergency stockpile of oil stored in salt caverns in Louisiana and Texas, known as the Strategic Petroleum Reserve. That supply is enough to satisfy U.S. demand for about one month.
The U.S. economy relies on oil traded on world markets. That oil could be produced by international companies such as Exxon Mobil Corp. or by government-controlled companies such as Saudi Aramco.
Oil analysts said that owning reserves or producing oil does not assure supply for any country. If there were a global scramble for oil, there would be nothing to stop a country with a strong military from seizing oil en route to its owner.
While international oil companies are reaping billions in profits from sales at today's prices, analysts said they are struggling to replace the reserves they have pumped from the ground. Many of the world's largest and most easily accessed oil fields that are open to foreign investment have been tapped already. Some international firms are sitting on billions of dollars, which analysts said reflects these fewer exploration opportunities.
International companies face intense pressure from shareholders to maximize profits. National oil companies, however, often do not have the same profit needs and in some cases been willing to plunk down more money and accept lower returns.
International oil firms also worry that their government-sponsored competitors receive unfair advantages. During the bidding war over Unocal, for instance, Chevron complained Cnooc could offer more money because the Chinese government was helping finance the bid by providing low- and no-interest loans.
One result of government ownership of oil supplies, analysts said, is that they often manage oil fields less efficiently than big international firms -- resulting in less oil for everyone. "The national oil companies are not really investing and developing oil fields," said Muhammad-Ali Zainy, senior energy economist at the Centre for Global Energy Studies in London.
There are roughly 60 national oil companies worldwide. Nearly half of them own reserves outside their home country, or hold ambitions to do so, analysts said.
Peter J. Robertson, vice chairman of Chevron, worries about the increasing dominance of national oil firms. Given that they already control more than three-quarters of the world's oil reserves, "if governments can come along and gobble up the rest of it at a percent or 2 percent at a time, pretty soon the commercial business looks pretty thin," Robertson said.
Government-controlled oil companies in China -- including China National Petroleum Corp. and Cnooc -- have been expanding internationally. Malaysia's Petronas now has business interests in 35 countries. Brazil's Petrobras has been active outside its home country and has developed expertise in deep-water production.
International oil companies and national companies, while sometimes rivals, often work together. In many cases, national oil companies lack the money, technology or managerial skill needed to develop big projects and seek to work with the bigger firms.
But some national oil companies have gained enough know-how to begin closing that gap. According to PFC data, more deals are being made between national oil companies, allowing one to operate in another's home country -- leaving the international firms out altogether.
Nowhere is the thirst for oil rising faster than in China and India. Both countries are aggressively seeking oil supplies, making deals in countries such as Sudan and Iran, where international companies have shied away for political reasons.
China consumed 4.8 million barrels of oil a day in 2000. The U.S. Energy Information Administration expects it to use up 7.2 million a day this year -- far less than current U.S. consumption of about 20 million barrels a day but rising more rapidly. In 2010, China is expected to consume 9.2 million barrels a day, according to the EIA.
The Chinese government wants to lock up supplies in part due to its belief that big oil companies and the United States are manipulating the market to choke China's economy, said Wenran Jiang, a political science professor at the University of Alberta.
"They feel it's not fair for China to depend on the commercialized, manipulated, artificially driven up price," said Jiang, who is part of a working group on energy cooperation between the Canadian and Chinese governments.
International oil companies also fear competition from their national rivals. In a speech in April, the chief executive of Shell, Jeroen van der Veer, said that "virtually every week" the national companies cut deals to acquire production assets.
Even so, officials from Shell and other large international oil companies, sometimes known as IOCs, said they still have advantages in operating big oil fields.
"Governments will need IOCs as much as we need them," van der Veer said.
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