Interesting article in The Times: "The resources of the national oil companies make a mockery of the reserves of the West's proud majors"
The Times, July 16
Middle East draws on reserves of strength to flex oil muscles
The power of the huge national companies is stronger than ever, writes Carl Mortished
Saudi Aramco, the Saudi Arabian state oil company, has reserves to last 90 years, compared with BP Amoco's 13 years
When Everette Lee DeGolyer, the pioneer of modern oil
exploration, first surveyed the Arabian peninsula, he was
astounded at what he found. The American was the first
to apply geophysics to the search of oil, blasting with
dynamite and recording shock waves with a seismograph.
At the behest of a US government at war and anxious
about oil supplies, the founder of DeGolyer and
MacNaughton, the oil consultants, toured Iraq, Iran,
Kuwait, Bahrain and Saudi Arabia, returning to
Washington with his epic report, which declared: "The oil
in this region is the greatest single prize in all history."
DeGolyer reported total reserves of 25 billion barrels for
Iran, Iraq, Saudi Arabia, Kuwait, Bahrain and Qatar, with
Saudi accounting for a fifth. A cautious man, DeGolyer
downplayed to his Washington masters the enormity of
what he had discovered. Privately, he believed the Saudi
reserves alone to be as high as 100 billion barrels.
Half a century later, the world is consuming more than 26
billion barrels of the black stuff every year. After 56 years
of gas-guzzling, one might have predicted the demise of
the Middle East as the world's power supply, its colossal
reserves spent and new resources discovered by the
Western multinationals.
But DeGolyer was right and the Western oil majors are
now flocking to the Gulf in the hope that diplomacy,
technological help or just plain begging will get them a
slice of the low-cost oil reserves that still drive the energy
market. Saudi Aramco, the state oil company of the
desert kingdom, boasts some 250 billion barrels in
reserves. Add to that the country's known gasfields and its
proven resources are three times DeGolyer's bold
estimates, despite Saudi Arabia's colossal production rate
of some 8 million barrels per day.
The resources of the national oil companies (NOCs)
make a mockery of the reserves of the West's proud
majors. After two years of frenzied takeovers, three
companies dominate the West: Exxon/Mobil, Royal
Dutch/Shell and BP Amoco. But with some 20 billion
barrels each, they barely feature on a radar screen plotting
the National Iranian Oil Company (NIOC), Kuwait
Petroleum Company, Gazprom of Russia and PdVSA of
Venezuela.
Far from being the past, the NOCs are the future of the
industry and they are beginning to spread their wings.
Petronas of Malaysia is among the most active and most
successful, making no secret of its ambition to be Asia's
Islamic oil major.
With net profits of more than $2 billion per year, Petronas
has cash to invest overseas. Last year it took over South
Africa's leading oil company, Engen, and has placed
markers upstream in a dozen countries, including Syria,
Turkmenistan, Pakistan, Algeria and Sudan.
Petronas is ready to invest where others fear to tread. It
was an early player in Iran - to the annoyance of the US
State Department - and recently bought a large stake in a
Burmese gasfield from Texaco, following criticism of the
US company's involvement in the country.
According to Gavin Law, of Wood MacKenzie, the
consultants, Petronas is behaving like a Western company
and exploiting its advantages, whether religious in Islamic
countries or as a friendly neighbour in Burma. Its Achilles'
heel may be political. Ultimate control of the company is
with Mahathir Mohamed, Malaysia's Prime Minister, and
the company's ample cash flow has bailed out a good
number of Malay institutions.
Despite its wheeling and dealing, Petronas remains an arm
of the state, but elsewhere there is talk of privatisation.
China National Petroleum Corporation is to sell a third of
its shares for a reputed $10 billion. According to Law,
China's industry is mature, recent exploration in the
Western desert region has been disappointing and the
company needs cash to secure access to oil and gas
reserves abroad. CNPC has interests in Iraq, Sudan and
Kazakhstan, where it plans to build a $4 billion gas
pipeline to link Caspian gas to China.
Europe's energy future is mainly about natural gas and it
will quickly become dependent on three vast state energy
companies. Russia's Gazprom, the world's largest gas
company, is piping energy in from the east, supplying 40
per cent of the German market. From the south, gas is
being brought into Spain across the Gibraltar straits linking
the desert gasfields of Algeria's Sonatrach to Europe's gas
grid. And from the north, Norway's huge gas reserves,
largely in state ownership, are heading for the Continent.
With a population of fewer than 3 million, Norway could
rest easy with some 17 billion barrels in reserves, most of
which are directly owned by the state energy fund, SDFI.
But the Government is worried that its industry has
become lazy and inefficient. The management of Statoil,
the state oil company, was recently sacked for incurring
big cost overruns on a project. The appointment of
external advisers by the Government suggests Statoil may
be heading for a shake-up, possibly a partial privatisation.
The largest players, the NOCs of the Middle East, are
guarded closely by jealous governments. Even a partial
flotation of Saudi Aramco would eclipse the combined
market worth of the "Three Sisters". Leo Drollas of the
Centre for Global Energy Studies doubts that the
Kingdom would ever contemplate a sale of the equity in
its endowment of upstream riches. The Saudis and
Kuwaitis have invested abroad but only downstream, the
Saudis teaming up to form marketing alliances with
Texaco and Kuwait establishing its own marketing arm,
Q8.
But the challenge is not in what the Middle Eastern NOCs
do abroad, it is whether the Western oil companies can
get access to the Middle East. Last year was one of
reckoning for the oil majors. The price per barrel fell to
$12 and the high cost of producing it in the North Sea and
onshore US fields exceeded the market price. The profits
of the major oil companies collapsed, forcing them to
drastic cuts in both employment and investment. That in
turn has caused oil production growth to falter. In an effort
to reverse the decline, the industry embarked on a
tumultuous round of mergers and takeovers.
Oil prices are back to $18 levels but the "Three Sisters"
are frantically courting government officials in Tehran and
Riyadh, looking for openings, fearful that oil prices could
tumble again. Once confident of growth and renowned for
extravagance, the oil majors need more control over the
commodity they sell if they are not to see their power
dwindle. Philip Lambert, a former investment banker
currently advising the Norwegian government, reckons
that the majors have reason to be worried. "What if they
don't get access to reserves in the Middle East?" he asks.
He points to some striking comparisons: Saudi Aramco
and Kuwait Petroleum both have oil reserves to last some
90 years of present production while Gazprom will be
piping gas out of its fields for the next 70 years. That
compares with a shelf life of 17 years for what Shell keeps
in its back pocket and just 13 years of reserves at BP
Amoco.
Is it any wonder that Mark Moody-Stuart, Shell's
chairman, has paid official visits to the Gulf? Or that both
Shell and BP Amoco are competing for the relatively
unattractive business on offer in Iran.
A year of crisis for the oil industry has changed the people
but not the landscape. The Western oil majors clung to
each other in a sometimes violent squeeze to protect
themselves from market forces. Meanwhile, the national
oil companies of the Middle East appeared to wake from
slumber to take control of markets once again by curbing
production. Both the oil price fall and subsequent
recovery are a useful reminder of the power and influence
of the NOCs. Their ability to control supply and set prices
will not diminish in the coming years. It will grow. |
