The Changing Role of National Oil Companies in the International Energy Market Chapter I: Introduction to the Study 1.1 Introduction to the problem Oil is one of currently one of the most essential needs of every country in the world. It is crucial to the manufacturing industry, as well as the automobile industry, and other human industries…
Oil prices increased in recent years from about $20 to about $100 per barrel, thereby expanding profits for many national and international oil companies. With decreasing supply and increasing demands for oil, oil companies have been competing with each other to seek more substantive oil sources. The fact that majority of oil reserved are under government control is giving a major advantage for national oil companies on access to oil sources. Having control over these oil reserves has also brought about greater pressure for oil companies, mostly pressure in relation to their national roles and responsibilities, especially those which relate to supply and demand, globalization challenges, physical security, and international oil competition. 1.2 Background of the problem National oil companies are oil companies which are partially or wholly owned by national governments. Recent surveys from the United States Energy Information Administration indicate that about 52% of oil companies are nationally owned; and about 88% of oil reserved is controlled by national oil companies (Energy Information Administration, 2009). National oil companies (NOCs) have become dominant in recent years and in relation to international oil corporations, including ExxonMobil, BP, and Royal Dutch Shell, their dominance has gained much momentum. These NOCs have also increased their investments outside their borders. Some corporations have even abandoned their investments in various countries, as was the case for ExxonMobil abandoning its million dollar investments in the Orinoco basin in Venezuela (Mommer, 2001). This decision was caused by the breakdown of negotiations between the international oil companies on one side and President Hugo Chavez and Petroleos de Venezula (PDV) on the other (Kalicki and Goldwyn, 2005). Other international oil companies, including Total SA of France, Statoil of Norway, BP from Britain, and Chevron from the US agreed to raise the PDV share in the Orinoco projects from 40% to 78% (Oil Daily, 2007). Under these conditions, ConocoPhillips found this decision very much unfavourable to their interests. The company was able to detect about 1.1 billion barrels of reserves from their interests in Venezuela and this represented about 10% of their total reserve holdings, and their Venezuela interests was equivalent to 4% of their total crude oil reserves (Oil Daily, 2007). ConocoPhillips suffered $4.5 billion dollar write-off under these conditions and was unable to meet its targets; as a result, its shares suffered a beating in the stock market (Oil Daily, 2007). On the part of Venezuela, PDV was able to increase its reserves and its production activities; as a result, it gained more power in the international oil market (Pirog, 2007). Venezuela has a major share in the crude oil imports of the US and their oil flow is not directly controlled by their government (Pirog, 2007). These conditions however, may not allow the crude oil market to follow and be influenced by economic market dictates. The ranking of oil companies can be determined through various considerations. Various standards have to be used in order to evaluate the changing qualities of oil companies. In addition, investments in explorations and development are major considerations linking the present to the future, ensuring significant expansions for the company and preventing the depletion of reserves ...
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