National Oil Firms Take Bigger Role
Wednesday, August 3, 2005
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.