25 Jul /13

The State of Oil

state owned oilOil is a big business and it is biggest in the hands of government. For decades the energy market in general and oil production in particular has seen a uniquely high share of government ownership. State-owned oil companies, like Saudi Aramco, Petróleos de Venezuela, Pemex and China National Petroleum, in fact, control more than 70 percent of the world’s oil production. Russia’s Gazprom is the world’s largest gas producer. State-owned and operated energy companies were founded to keep the revenue from natural resource development in-country and maintain control over production sites and energy reserves. For many years this strategy offered to oil rich countries a very stable and lucrative business model as it not only generated thousands of jobs but also kept every single dollar spent in the process within the local economy.

However, why is it that companies such as Mexico’s Petroleos Mexicanos are coming increasingly under fire and, as in Pemex’s case, will almost surely be opened to outside investment in the very near future?

The truth is that by protecting national interests, national oil companies also deter foreign investment. Countries that manage their energy production in an overly protective manner, by default, shut out potentially lucrative business from abroad. One of those arenas, recent research suggests, are high-risk E&P projects as they can be found in unconventional gas and oil sand development. Traditionally, state-owned companies focus on the development of low-cost and low-risk resources and thus often forego the potentially lucrative avenues that unconventional energy can present. Furthermore, governments that can tap into significant natural resources and bring these to market through a state-owned and operated system tend to over-subsidize their home market thereby creating dangerous inconsistencies between local consumption and export prices that fuel overconsumption. In Russia, for instance, consumers are only charged a small of portion of the price Western European importers pay for the natural gas from the Far East. Similarly, Venezuelans paid around $0.20 for a gallon of regular unleaded in 2012, about 5% of the price of a gallon of gas in the U.S. and less than 2% of the average gas prices in Europe. Reducing these kinds of subsidies might not only help to stabilize oil prices but also may motivate consumers to reduce their consumption and thereby help to reduce greenhouse emissions. The last recurring problem that has plagued state-owned oil companies around the globe, but particularly in South America and Africa, was brought to the forefront again last Sunday when a pipeline blast injured 7 people near Mexico City. Illegal tapping is believed to be responsible for this particular incident, but lack of oversight and outdated infrastructure has made safety a frequent and costly issue in many NOCs.

As an FPAL registered translation company EVS Translations is a specialist for all oil and gas translations. Its particular focus is the translation of documents related to the exploration, extraction, refining, and delivery of petroleum and gas products.