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The Biggest Threat To Western Oil Majors

Business

The international oil market is composed of two types of companies: International Oil Companies (IOC) and National Oil Companies (NOC). The former are Western firms with their origin often linked to the colonial past such as BP and Royal Dutch Shell. NOCs, on the other hand, were founded in a wave of nationalism in the 1950s and 1960s in primarily the Middle East and South America. The current challenges facing NOCs and their host states, however, is creating the need for a different kind of organization.

It is important to understand that NOCs are primarily agents and not determinants of the oil market. This means, for example, that the Russian state and Minister of Energy Novak determine Russia’s position instead of Rosneft or Gazprom. Despite some exceptions, most NOCs are comparable to any other energy company when it comes to organization and operations. The NOC is supposed to maximize the energy wealth of its owner, the state. A ‘gain’ can be described in different ways. Usually, it’s financial in the form of profit, but sometimes political influence is a goal in itself.

The challenges facing the national oil companies of energy-rich countries are significant. The energy transition and the fight against climate change, for example, create uncertainty concerning demand and energy prices. Energy-rich countries realize that fossil fuels are facing an uphill battle in the long-term. Although consumption will most likely increase until 2030, peak oil is becoming a reality. Maximizing the income from oil and gas production, therefore, is essential.

Over the years, NOCs have become formidable energy companies in their own right. Saudi Aramco, for example, is regarded as a highly efficient and effective organization. The technological and human capital that has been accrued over the years is a major asset that can be used overseas.

The capacity and the backing of the state strengthens NOC’s determination to venture abroad. While financial motives are the primary reason for the companies’ decision to invest in different markets, politics is usually not far behind. Most of the world’s oil and gas is concentrated in a handful of countries. For these states, their resources are not only a source of income, but also political influence.

The Arabian Peninsula, for example, has been a relatively insignificant region for most of its history. But relatively recent oil and gas production has led to staggering income growth for the local population over the past decades. Despite the shale revolution in the U.S., the Middle East remains strategically important for Washington. Also, other major importers, primarily the Asian giants like China and India, remain highly dependent on the region.

Two NOCs are exceptionally visible globally, Rosneft and Gazprom. The involvement of the Russian state isn’t a coincidence as Moscow was deprived of influence and income after the collapse of the Soviet Union. President Putin viewed Russia’s energy wealth as a tool to regain some of the country’s power. Oil is an important source of income while natural gas gives Moscow significant influence over customers in primarily Europe.

Gazprom’s extended pipeline infrastructure with Europe is a relic of the Cold War. The high dependency of Eastern European countries is worrying for the continent, especially in the light of Russia’s conflict with Ukraine which has led to several supply disruptions in the past decades.

Another Russian NOC, Rosneft, has become a major force to be reckoned with in the global oil market. The ambitious CEO Igor Sechin is behind the company’s rise. His aggressive strategy and President Putin’s support has provided room for Rosneft to become active in several foreign markets. The company is engaged in Iraq where it possesses the strategically important Kirkuk-Ceyhan pipeline. Besides the Middle East, Rosneft is also active in Africa and Latin America where it is a major creditor to Venezuela’s embattled PDVSA.

The foreign endeavors of NOCs is a challenge to IOCs due to the unfair playing field. Although generating income is an important goal, state support strengthens NOC’s position. Also, IOCs are only engaging in projects that could possibly generate sufficient income. NOCs, however, can take more risks as states provide support and political goals can be part of the reason to engage in foreign markets.

By Vanand Meliksetian for Oilprice.com



9 Comments on "The Biggest Threat To Western Oil Majors"

  1. printbabyprint on Sun, 29th Mar 2020 8:24 am 

    I hope that we have learned that we never again must allowed to be more then on billion people on this planet. Never never again , if we want to become a real civilization

  2. Telly Savalas on Sun, 29th Mar 2020 10:14 am 

    Who luvs ya baby!

  3. Abraham van Helsing on Sun, 29th Mar 2020 10:16 am 

    oh god my arse is so itchy!, what should I do?
    help!

  4. Theedrich on Sun, 29th Mar 2020 5:45 pm 

    The Saudi-Russian oil deluge is causing chaos. “Saudi America” has suddenly lost its footing.  Shale oil producers are suffering, if not going bankrupt.  Together with forced shutdowns of large (especially service) sections of the economy and the possible bankruptcy of various airlines (never mind the cruise industry), severe damage to tourism and other sectors, the indispensable nation will never be the same.  As expected, the RepubliDems have turned the whole crisis into a boondoggle from heaven.  To keep Fantasia on life support, 2 Terabucks ($10^12) were invented out of thin air, with multiples thereof almost certainly yet to come.

    The National Oil Companies have no incentive to turn down their spigots, since we are talking about Realpolitische power here.  Unless Yankeeland decides to take over the domestic oil industry (a possibility), U.S. petroleum may shrink to backyard scale.

    Out of sight and mind is the fact that Mexico is on the brink of national collapse.  Pemex, already a source of massive thievery and corruption, may be put in an ICU.  The three main sources of income for that country — tourism, oil export, and narcotrafficking to the U.S. — will be reduced to the criminal element alone as our bribe-ocratic Congress turns a blind eye to this festering sore.  The omens are not propitious.

    America will never be the same.  Yes, the internet and cyber business will remain standing.  But large numbers of low-IQ illiterates (especially Darkies) will hardly be able to find the [Enter] key on a computer keyboard, so will be the recipients of yet more government largesse created out of dreamland.  And the race-mixers will impose martial law on anyone who objects.  Think 75% of the 330 million hominins in the country on welfare.

    But unfortunately for Americans used to living in Utopia, sooner or later the piper must be paid.

  5. Abraham van Helsing on Mon, 30th Mar 2020 4:53 am 

    The big winner of private e-transportation sector is likely going to be Volkswagen:

    https://cleantechnica.com/2020/03/29/volkswagen-is-optimistic-about-its-electric-car-future/

    “Volkswagen Is Optimistic About Its Electric Car Future”

    VW is to be expected to be the nr 1 e-manufacturer by 2025 by far and will be three times the size of Tesla:

    https://deepresource.wordpress.com/2019/08/18/e-vehicles-2025-and-the-winner-is-volkswagen/

  6. Abraham van Helsing on Mon, 30th Mar 2020 5:39 am 

    The next big thing in solar: Perovskite.

    The potential for further cost reduction in silicon solar has largely been exhausted. Result: 300 Watt solar panel for 100 euro in the Netherlands. Total yield in 30 years in Holland: 30 x 285 kWh = 8550 kWh or 1.1 cent/kWh, which is fantastic already.

    Note that in the Sahara or Arabian desert you get a yield that is twice as high. Currently a kWh from solar all-in (including installation cost) is 2 cent/kWh. This puts the poor global south in a advantageous economic position to finally make themselves useful and produce cheap hydrogen for the global market, competing on cheap labor price and perfect solar conditions.

    Perovskite solar cells have further potential to substantially reduce cost as compared to silicon.

    https://en.wikipedia.org/wiki/Perovskite_solar_cell

    https://cleantechnica.com/2020/02/21/how-low-can-solar-cells-go-perovskite-researchers-say-down-down-down/

    “How Low Can Solar Cells Go? Perovskite Researchers Say Down, Down, Down”

    There.is.no.energy.problem.

  7. Davy on Mon, 30th Mar 2020 5:41 am 

    Oops there goes another EU industry along with planes and cars. Europe’s tourism industry was forecast to close in on $1TRIL in a few years that will surely be decimated. Silk road is likely dead too. Not good for the cloggo’s EuropeUP.

    The virus is here to stay for a time. It will impact in waves so a flexible response is needed. The entire economy cannot be shut down for very long, obviously. This means a period of a few years and or until a vaccine is developed means get used to social distancing and an altered way of life. It appears things like tourism and other economic sectors that require the gathering of people in confined areas are a dead man walking economically.

    “Harvard Researchers Propose “Intermittent” Lockdowns And “Widespread Surveillance” Of Americans To Avoid Critical-Care Capacity”
    https://tinyurl.com/vg5vco7 zero hedge
    https://tinyurl.com/usqf3g8 zero hedge graph

    “Researchers from Harvard’s T.H. Chan School of Public Health published a study titled “Social distancing strategies for curbing the COVID-19 epidemic,” Tuesday (March 24) on the medRxive pre-print server for health sciences, detailing how a single prolonged widespread lockdown of the country is not the best strategy to combat the COVID-19 pandemic. Instead, the study calls for “intermittent” lockdowns and “widespread surveillance” to mitigate the spread and prevent hospital systems from being overwhelmed…However, the computer models are based on other pandemics and already show that one prolonged lockdown of the country is not the best solution because the virus will return in waves. The study says some parts of the country where virus cases are low can remain open for business. While other parts that are hard-hit can enforce trict “stay-at-home” public health orders to mitigate the risks of overwhelming hospital systems…The study said the pandemic would likely hit in waves, with the virus subsiding this summer, but could return this fall…The study concludes by saying, “intermittent distancing measures” on 20-week intervals for specific geographical regions could be turned on and off like a water spigot through 2022…As for what determines if an area should be locked down for a 20-week interval is if cases exceed 37.5 cases of the disease per 10,000 adult people in the population. This threshold, the researchers note, would allow health care systems in those regions to maintain an adequate number of hospital beds and ICU-level treatments…To sum up, “intermittent” social distancing could become a reality, embraced by the Trump administration to avoid a prolonged depression in the US as much of the economy is shut down at the moment.”

  8. Abraham van Helsing on Mon, 30th Mar 2020 5:48 am 

    Bye-bye fossil fuel:

    https://cleantechnica.com/2019/10/28/no-gold-perovskite-solar-cells-aim-a-dagger-at-the-heart-of-fossil-fuels/

    “No-Gold Perovskite Solar Cells Aim A Dagger At The Heart Of Fossil Fuels”

    https://cleantechnica.com/2020/03/29/new-research-tackles-perovskite-solar-cell-trap-state-trap-cleantechnica-interview/

    “New Research Tackles Perovskite Solar Cell Trap State Trap — CleanTechnica Interview”

  9. Abraham van Helsing on Mon, 30th Mar 2020 5:58 am 

    “Silk road is likely dead too.”

    That’s what you hope. In reality it is a perfect opportunity to gradually get rid of Anglos and their not so hidden agenda of world conquest and play you out against China.

    https://www.forbes.com/sites/wadeshepard/2020/03/27/chinas-health-silk-road-gets-a-boost-from-covid-19/#312fee176043

    “China’s ‘Health Silk Road’ Gets A Boost From COVID-19”

    https://www.railfreight.com/business/2020/03/26/new-silk-road-sme-resilience/

    “New Silk Road SME resilience”

    First train with fresh fish from Holland to China, Russia is no longer blocking it:

    https://www.spoorpro.nl/goederenvervoer/2020/03/24/eerste-lading-verse-producten-per-trein-onderweg-naar-rusland/?gdpr=accept

    Train transport is fast en suitable for relatively high value per weight trade. The Chinese love Dutch dairy products.

    https://www.zeelandnet.nl/nieuws/eerste-goederentrein-op-weg-van-wuhan-richting-europa

    Trains are rolling again from Wuhan to continental Europe.

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