PIB, NOCs And The New World Petroleum Order (1)

(By Francis Onyilo)

The growth of NOCs in recent years has unsettled the established petroleum giants, the (IOCs), and promises to engender a new world order in the global petroleum industry. In fact, since businessman and boss of Italian oil giant ENI, Enrico Mattei, used the phrase “seven sisters” to refer to the dominant oil companies of the 1950s, the Financial Times have coined its own “New Seven Sisters” to refer to leading NOCs around the world which already have a significant influence on the global petroleum industry.

THE regulation of petroleum industries is perhaps as old as the modern petroleum industry itself. Governments have historically shown a keen interest in maintaining varying degrees of control over this most strategic of resources. Indeed, following the domination of the American petroleum industry by Standard Oil in the late 19th century, authorities introduced the ‘Sherman Antitrust Act’ eventually forcing the oil giant to split its business into several companies in the early 20th century. Since then many countries have implemented reforms in their petroleum industries with hugely divergent objectives. Some have favoured overwhelming government control (Middle East, Venezuela, Mexico), some favoured commercialisation with significant public ownership (Norway, Brazil), while others adopted outright privatisation and competition (UK, U.S.).

  It is useful to note that for some countries there has been a continuous oscillation between private and public sector domination of the petroleum industry as in the case of Russia where the petroleum industry was under public control during communism under the Soviet Union, private sector domination with the fall of the Soviet Union and a return to public sector domination following the take-over of the hitherto largest private oil companies, Yukos and Sibneft, by state owned companies, Rosneft and Gazprom, respectively. These “acquisitions” have given the Russian state a stranglehold on the country’s oil and gas resources.

   Many developing countries tend to favour state control and Nigeria’s Petroleum Industry Bill (PIB) which is currently at the National Assembly (and has been for a while) proposes the setting up of a National Oil Company (NOC) as one of a number of successor entities of the Nigerian National Petroleum Corporation which is to be unbundled with the passage of the Bill. The reasons for state control are not farfetched; developing countries are concerned with upholding their sovereignty and the need to utilise resource revenues to provide for much needed socio-economic development. National Oil Companies (NOCs) therefore tend to serve as a veritable tool for governments of developing countries to manage their petroleum resources and to coordinate petroleum revenues.

   The growth of NOCs in recent years has unsettled the established petroleum giants, the (IOCs), and promises to engender a new world order in the global petroleum industry. In fact, since businessman and boss of Italian oil giant ENI, Enrico Mattei, used the phrase “seven sisters” to refer to the dominant oil companies of the 1950s, the Financial Times have coined its own “New Seven Sisters” to refer to leading NOCs around the world which already have a significant influence on the global petroleum industry. We shall briefly look at the strengths of these companies.

The Saudi Arabian Oil Company (Saudi Aramco) – Saudi Arabia:

   Founded in 1933, Saudi Aramco is the world’s largest petroleum company of any kind, public or private, with conventional proven reserves of 260 billion barrels and gas reserves of 285 trillion standard cubic feet (scf). Its average daily production for 2012 was 9.5 million barrels per day (bpd) with production capacity of 12 million bpd making it the coveted ‘central banker’ for global oil with spare capacity that may be utilised during oil shortages or high prices. Saudi Aramco also has stakeholding in refining assets amounting to 2.4 million bpd making it the world’s sixth largest refiner. With operations across the globe, Saudi Aramco manages over 100 oil fields and employs over 55,000 employees drawn from 70 countries.

Gazovaya Promyshlennost (Gazprom) – Russia

   Gazprom has risen to prominence with a spate of acquisitions which include hitherto privately owned companies such as Sibneft, Sakhalin Energy and TNK-BP. The company holds 18 per cent of the world’s proven reserves of gas, some 820 trillion scf, and is the world’s largest gas producer with average daily production of 47.1 billion scf for 2012. Gazprom operates through subsidiaries across the globe and is Russia’s largest owner of electricity generating assets, owning 17 per cent of Russia’s total installed electricity capacity of 203GW. Gazprom also has interests in media, aviation and finance through Gazprom Bank.  The company had a total of 219,000 employees working in its core gas business as at 2011.

China National Petroleum Corporation (CNPC) – China

  CNPC along with its subsidiary, PetroChina, has embarked on perhaps the largest quest for energy resource acquisition in recent times. Notable interests include acquisitions in Sudan, Canada, Australia and Venezuela as well as significant operations across the African continent. With operations in at least 30 countries, CNPC and PetroChina are involved in petroleum exploration and production, refining, marketing and the provision of oilfield services. They control estimated proven reserves of 3.7 billion barrels and have made significant inroads in oilfield services especially in Africa.

National Iranian Oil Company (NIOC) – Iran

  Nationalised in 1951, NIOC is the world’s third largest petroleum company and controls Iran’s vast petroleum resources. NIOC has proven oil reserves estimated at 137 billion barrels and proven gas reserves estimated at 1000 trillion scf, the world’s largest. The company’s produces 4.3 million bpd of oil, the second highest in OPEC, and 17.8 trillion scf per day of gas making it the second largest gas producer in the world. NIOC controls South Pars, the world’s largest gas field. NIOC also owns international assets in the UK North Sea and Azerbaijan in partnership with BP.

Petroleos de Venezuela Sociedad Anonima (PDVSA) – Venezuela

    Established in 1976 following the nationalisation of the Venezuelan petroleum industry, PDVSA retains constitutional control over Venezuela’s petroleum resources and is now virtually indistinguishable from the government itself. With 78 billion barrels in proven reserves of oil and 150 trillion scf of gas reserves, PDVSA is the largest in the Western Hemisphere. It also retains control of Venezuela’s vast reserves of unconventional (heavy) oil in the country’s Orinoco Belt, some 230 billion barrels. PDVSA is, however, heavily politicised with the administration of former president Hugo Chavez forcing employees to support the government or lose their jobs.

Petroleo Brasileiro (Petrobras) – Brazil

   Established in 1953, Petrobras is a success story. Renowned for its technology in ultra-deep water exploration and bio fuels extraction, Petrobras produces 4.2 million bpd of oil and has proved reserves of 16 billion barrels of oil equivalent (boe). Present in 25 countries as of 2012, Petrobras operates 125 oil platforms, owns 12 refineries, 18 thermal power plants and 237 transport ships making it a fully integrated energy company engaged in exploration, production, refining, transportation and marketing of petroleum as well as power generation. Its remarkable technology includes extracting “Pre-salt” oil which lies under 2 km deep layer of salt, which is below roughly 2 km deep rock formations that lie 2-3 kms under the Atlantic as far as 300 km off the Brazilian coast.

Petroliam Nasional Berhad (Petronas) – Malaysia

   Like its Brazilian counterpart, Petronas is a fully integrated energy company engaged in exploration, production, refining and marketing of petroleum as well as power generation. Petronas is the world’s third largest exporter of liquefied natural gas (LNG) and has expanded its operations into 35 countries following the depletion in Malaysian oil reserves. It currently holds international oil reserves in excess of 6 billion barrels. Petronas, a Fortune Global 500 Company, has further styled itself into an energy service provider with partnerships in energy projects across the world.

    The above review is to bring into perspective, the enormous task facing policy makers in Nigeria with regards to the setting up of a National Oil Company as proposed in the PIB. An NOC in name alone will clearly not be sufficient in the emerging world petroleum order dominated by NOCs. Without a viable NOC, the nation risks being placed in a situation of having to deal with global NOCs in the manner it currently deals with IOCs, namely as the nominal partner retaining ownership and control but with limited capacity to execute. Clearly, in fashioning out the role of the proposed NOC, strategic and workable models will have to be adopted to ensure the proposed NOC is capable of managing the enormous resources that will devolve to it as well as surmounting the stiff challenges it will face.

   Two questions that readily come to mind when one reflects on the proposed NOC are; what will the proposed NOC do and how will it do it?. The former is addressed by the PIB itself in S.152 (1) “Following the incorporation of the National Oil Company, the assets and liabilities held by the NNPC on behalf of the Federal Government of Nigeria except the interests in unincorporated joint ventures and the Nigerian Gas Company shall be vested in the National Oil Company within twelve to twenty-four months from the Effective Date”. Thus, with a few exceptions, the proposed NOC will take over all the obligations of the NNPC and become the effective prosecutor of the nation’s oil interests. This brings us to the second question; how will it do it? The PIB is entirely devoid of how the NOC will manage the assets and liabilities it has taken up.

To be continued.

francisonyilo@yahoo.com

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