There’s a three day conference in Rome for the major oil producers going on right now, and an AFP article raises a very interesting, and crucial point:
“”In the 1970s, international oil companies (IOCs) controlled nearly 75 percent of global oil reserves and 80 percent of oil production,” said Paolo Scaroni, head of Italian petroleum group Eni.
“Now, IOCs control only six percent of oil and 20 percent of gas reserves, and 24 percent of oil and 35 percent of gas production. The rest is in the hands of national oil companies.”"
Everyone knows that Saudi Aramco holds the largest reserves, Petrochina the world’s largest company and Gazprom the most ambitious, but Western nostalgia still holds Shell and the old guard above them all. But with figures like these, the new wave is hard to ignore and harder to understand.
Leaders like Hugo Chavez of Venezuela use their oil clout to unfairly pressure neighboring countries while Iran’s Mahmoud Ahmadinejad understands the political leverage gained over more developed economies. China is using its state companies to fuel national growth at the expense of higher global prices and Putin hopes to create a monopoly in Europe with Gazprom.
National oil companies can too easily be used to fund government agenda’s, leaving them inefficiently run and uncompetitive, one need only look at Mexico’s Petróleos Mexicanos. However international firms like Shell can not take compete because they must satisfy shareholders in the short term and can’t take the high risk, long term investments state companies do. Independent Bangladesh explicitly states that “the share of profits taken by governments of oil-rich countries is cutting international oil companies’ profits, in some cases below their capital costs.”
Taken to the extreme, state companies can engage in destroyer or predator pricing, where they accept losses in the short run to outsell internationals. In the long run international firms will be squeezed out and inefficiency will hold sway.
To prevent this, IOC’s must ”profoundly rethink their business model in order to survive and prosper,” says Scaroni. Obviously no one today is admitting to engaging in predator pricing or monoplistic goals, but consumers, governments and companies must keep checks on the growing power of national oil. The alternative is bad news for IOC’s, but worse news for consumers.
Subscribe to the RSS feed or check back soon as Oil Energy Money reports on further developments from the conference in Rome.
