National Oil Companies: Fueling Anxiety

Mark Thurber Associate Director, Program on Energy and Sustainable Development Stanford University

University of Texas Energy Symposium Austin, Texas 8 March 2012

http://pesd.stanford.edu • Stanford University

2 Largest Reserves Holders are NOCs

NOC (PESD sample) NOC (Other) IOC (Major) IOC (Other)

*Wood Mackenzie commercial + technical reserves as of Oct 2009 (Reserves figures on working interest basis) Data Source: Wood Mackenzie

3 Largest Producers are NOCs

NOC (PESD sample) NOC (Other) IOC (Major) IOC (Other)

(Production figures on working interest basis) Data Source: Wood Mackenzie

4 Role of NOCs in Oil

Oil Reserves* as of Oct 2009 2008 Oil Production (top 1460 companies) (top 1460 petroleum companies)

Total = 1.5 trillion barrels Total = 77 million barrels/day *Wood Mackenzie commercial + technical reserves (94% of world total) (All reserves and production figures on working interest basis) NOCs control 73% of world oil reserves and 61% of world oil production

Data Source: Wood Mackenzie Corporate Analysis Tool5 Role of NOCs in Natural Gas

Gas Reserves* as of Oct 2009 2008 Gas Production (top 1460 petroleum companies) (top 1460 petroleum companies)

Total = 1.2 trillion barrels oil equivalent Total = 48 million barrels oil eq/day *Wood Mackenzie commercial + technical reserves (93% of world total) (All reserves and production figures on working interest basis) NOCs control 68% of world gas reserves and 52% of world gas production

Data Source: Wood Mackenzie Corporate Analysis Tool6 7 Should We Worry?

…about the future of private oil companies?

…about NOCs as geopolitical weapons?

…about the effect of NOCs on price?

…about the environmental impacts of NOCs?

8 How NOCs are Different and Why It Matters

9 Our Sample of 15 NOCs

Gazprom

KPC CNPC Sonatrach ONGC

PDVSA ADNOC NNPC

Petrobras Sonangol

10 Some are active National abroad Natural gas too (and Oil sometimes a lot else) A stretch in describing Company many NOCs

SCEIWH = State-Controlled Entity Involved With Hydrocarbons 11 NOCs Produce Their Reserves More Slowly

Data Source: Wood Mackenzie Corporate Analysis Tool (2009) (Working interest production and commercial + technical reserves) Why? • Poor performance? • Inflation of reserves estimates? • Deliberate strategy? 12

Oil Company Goals

International Oil Company (IOC) objectives • Maximize and grow profits

13 Principal-Agent Theory

Government Principal

Incentive/monitoring scheme

•Different objectives from principal Oil Company (e.g. most pay for least work) Private – Agent •Knows more about its performance State-Owned – (“information asymmetry”) Oil Company Goals

International Oil Company (IOC) objectives • Maximize and grow profits

National Oil Company (NOC) objectives (many are possible) • Maximize and grow profits • Provide major portion of government budget • Subsidize domestic • Provide social programs / employment – Programs can also be used to build political base • Serve as government implementing agent • Provide for “energy security” of country • Pursue foreign policy aims of government • Extend lifetime of resources 15 Level of Burden Social Goods Private Goods

High (subsidized domestic gas) NIOC (rents to security and police groups that back NIOC (fuel subsidies; social programs) ruling elites) NNPC (fuel subsidies) NNPC (political patronage; contracts and “lifting PDVSA (post-strikes) (fuel subsidies; social licenses” to associates; senior posts as political programs) plums) Pemex (high taxes, spent by government for broad PDVSA (post-strikes) (political pat