The changing role of National Oil Companies in international oil markets
NOCs are considerably less technically efficient than a comparable firm privately owned. Depending on the government’s share in the company and whether the company has to sell their fuel at subsidized prices this on average leads to a 65% efficiency loss for an NOC that is fully government owned and sells at subsidized prices as compared to a privately held firm. The prior often have non-commercial socio-economic priorities rather than economic drivers. This may result in that NOCs encounter more problems in replacing their reserves and to expand their production.
In a response NOCs have started to adopt some institutional elements of private sector firms to enhance their performance. They for example started to get involved in international exploration and refining and have started to issue publicly traded shares. Furthermore the NOCs are increasingly using international capital markets to raise investment capital. This further improves their compliance with international standards of corporate responsibility. The adaptation of a strategy of vertical integration also has multiple benefits for NOCs like capturing added value, enhancing security of demand and to help diversify and mitigate risks. In this respect asset swaps between NOCs and IOCs are to be seen as a promising avenue for IOC/NOC partnering and collaboration.
The increasing importance of NOCs in international energy markets and their different nature from IOCs also have policy implications for Western governments. If a larger share of global upstream investment runs the risk of being impeded by NOCs’ non-commercial socioeconomic priorities, then importing nations need to adjust their national energy strategies to reduce vulnerability to changes or instability in NOC reinvestment strategies. Consuming nations also will have to debate the benefits and challenges of having NOCs seek security of demand and other benefits of vertical integration by positioning themselves in the large consumer markets.
These are the main conclusions of the study of the James Baker III institute lead by Amy Myers Jaffe on the position of national oil corporations in today’s energy world. The study consist of 13 case studies that each examine the history and formation of 15 state owned companies. Furthermore the study consists of a framework to analyze the strategies, objectives and effectiveness of NOCs also in comparison with International Oil Corporations.