The changing roles of national oil companies in national development and politics
One notes a paradigm shift in both the way traditional oil and gas companies carry out their business and their relations with the various governmental authorities with which they react. The geopolitical situation of the world largely occasioned by the first oil crisis in the seventies and the rise of National Oil Companies (NOCs) have contributed to change the dynamics of who does what and to what effect in the oil and gas business.
The names of the once powerful companies that were the movers and shakers of politics in the Middle East and in the world generally have largely been replaced by those of countries that drill and market the commodity themselves or through their agents.
The Shells, Chevrons, BPs, ExxonMobils and so on have been replaced by the Saudi Aramco, Russia’s Gasprom, Brazil’s Petrobras, Nigeria’s National Petroleum Corporation and their other National counterparts. Even the influence of the cartel Organization of Petroleum Exporting Countries (OPEC) has waned. Countries with new discoveries of oil have taken over what the oil companies were previously doing.
It is in this light that our own Ghana National Petroleum Company (GNPC) should be evaluated.
The emergence of the NOCs is a response to the changing geopolitics and the emergence of new centres of power. An important trigger indicating the change in the world political situation is that the United States has become a net importer of oil.
Its vulnerability to external shocks as well as to its security has moved her to enter into deals and manoeuvres that would have been unthinkable some thirty or so years ago. Also countries that would have counted for little in world politics have emerged as key players on the world stage.
It is to be noted, however, that the world recoverable volume of 1,148 billion barrels, of which the NOCs are in control of 77 per cent by 2005 with no share holding partners, has an additional 6 per cent which is also 69 billion barrels from private or partly private Russian companies.
The IOCs, ExxonMobil, BP, Chevron, and Royal Shell Group which were ranked 14th, 17th, 19th, and 25th, can now rely on 10 per cent of the world oil and gas resource base, compared to the NOCs which depend on 77 per cent.
Although the NOCs have the largest share of this natural resource base of 77 per cent, the remaining 10 per cent is a gain being shared by both IOCs and NOCs. The leading 50 oil companies, according to a survey published by an authoritative oil newsletter, Petroleum Intelligence Weekly (PIW), 13 of the first 20 international owners of recoverable oil and gas proven reserves are either the known NOCs or newly privatized NOCs.
The usual world situation was disturbed with the fall of the Shah of Iran and the rise of the mullahs in that country. Alarm bells stated ringing.
The Shia majority in Iran threatened the sunni Saudi royalty who are also the custodians of the holy sites in the kingdom. Records show that the Saudis were worried that the nascent nuclear installations of the Iranians were going to destabilize the whole region. Their regime felt that it was particularly vulnerable.
They had reason to be worried. The antipathy between shia and sunni go back centuries and is limited not only to Iran and Saudi Arabia but is all over the region. It takes in Iraq, Syria and the other Gulf States.
The first oil shock in the late seventies laid the foundation for the subsequent crises involving oil and gas. The price of oil jumped from the cozy $30.00 per barrel to over $70.00. This price increase was followed by an economic downturn of the economy particularly in the United States.
The practice of the oil companies who held the largest concessions and of production could no longer control the volumes of oil and gas that they released on to the market. Their dominance has been taken over by the national entities. They are no more beholden to outside shareholders and powers whose interests did not coincide with the aspirations of the emerging peoples of the world.
According to the authoritative PIW 14 of the 20 leading oil producers are NOCs. Those cited include Saudi Aramco, Russia’s Gasprom, Iran’s NIOC, Pemex of Mexico, Algeria’s Sonatrach, INOC (Iraq), PetroChina, Kuwait Petroleum Corporation, Brazil’s Petrobras, Malaysia’s Petronas, Rosneft of Russia, ADNOC of Abu Dhabi, Russia’s Lukoil, PDVAS (Venezuela) and Nigeria’s National Petroleum Corporation (NNPC) as the top most oil and gas producing companies in the world.
Between the 1960s and 1970s the then British Prime Minister spoke of “a wind of change” blowing through Africa. In fact, the wind was also blowing elsewhere in the world particularly in the Middle East.
As European colonialism crumbled nationalist movements nationalized the oil and gas and took over the production and marketing of the produce in accordance to their own interests. A major interest was to use the oil and gas to improve the lives of their citizens.
A concomitant objective was to use the commodity to further their nationalist objectives and project themselves in the world. Since the 1960s both objectives have been projected by the countries.
In the last 50 years or so newer and larger finds of gas and oil has been made. These finds have happened largely outside of the Middle East. As the above list indicates new players have made an appearance on the oil and gas scene. Countries like Equatorial Guinea and Angola have joined the fraternity of oil producers.
The independence of a country like South Sudan assumes an importance far beyond its apparent influence. The late Hugo Chavez could use his country’s oil leverage to literally thump his nose at the mighty United States of America. Above all the influence and diplomatic dominance of the US and her European allies have undergone a major metamorphosis where their options have narrowed considerably.
Currently with the high price of oil that gives no sign of coming down the behaviour of an oil producing country’s company has the possibility of playing both a foreign policy as well as taking on important domestic responsibilities. A good example of one such NOC is Saudi Aramco.
It has, over the years, not only sought to achieve a high commercial performance, it practices sound management culture. It also is mindful of working to realistic threshold rates for its investments and reviewing its business avenues through adoption of the best corporate practices and evaluation procedures.
Above all it works to meet the needs and demands of the state and the overall implementation of Saudi policy.
It is in this context that the Ghana National Petroleum Company (GNPC) comes unto its own. In spite of the fact that the volume of oil that is produced in the country is not colossal it will be an effective engine of growth of Ghana in the following ways.
The fact that Ghana is producing oil and potentially has a large volume of gas places it among the countries that are favoured to accelerate its development. More resources will be available that are prudently administered to move Ghana forward.
Also since the large industrial countries like the US and Japan continue to rely on increasing amounts of oil to sustain their growth we become a country of choice in terms of being a trade partner.
Another situation is that the GNPC needs to reevaluate its business strategies to better position itself in international oil and gas market. It is clear that we have more reserves of gas than of oil.
GNPC, therefore, will have to already be seeking strategic international alliances but continue to exploit a depleting oil reserves or political hindrances to production by diversifying the portfolio to develop natural gas resources for export to foreign countries.
Work is to be done to increase our exploitation of the gas reserves for true development to take place. The work includes the training of highly specialized skills and technology. Natural gas development is a lengthy and a very high risk venture.
The road to that achievement will mean developing strategies for working with private capital in a way that will bring progress to the country. The gas project going on at present in the Western region exemplifies all the different aspects of the problems and opportunities that a National Gas Company presents.
There is need for a large investment that has to be sourced from external sources. In this case the delay of the disbursement of the Chinese loan is causing considerable hiccups to the implementation of the project.
The delay is also triggering a chain reaction that is beginning to cause some anxiety all around. For example, the GNPC and the Ghana government have an initial policy of non flaring of gas from the Jubilee fields but the time is fast approaching when it will not be anymore possible for the reinjection of gas back into the oil wells.
When the National Gas Company’s (NGC) project is up and running it will be in a position to underpin the economy and propel it on the road to sustained development. To do that there will need to be the setting out of policies that will position Ghana in the centre of progress and development in the sub region.
In doing what the NGC needs to do the government will have to articulate a clear vision of the infrastructural, structural and general development that will propel Ghana on to new and developed heights. In this enterprise the Institution would have the examples of other National Companies to follow. Indeed, National entities have involved themselves in all aspects of the industry, that is, from exploration through drilling to downstream activity including marketing.
Additionally, the NOCs new role involves diversification into other related areas of investment that spur on national development. All the Middle East NOCs and increasingly those of Mexico, Brazil, Malaysia and Indonesia are using their economic clout to invest in other areas of their national countries’ economies. Reliance then is reduced on outside private investment.
Also investment is directed to those areas of the national economy that outsiders are reluctant to put their in but which the national authority sees as key to their own development.
It is, therefore, clear that NOCs are charting new paths that are aimed at enhancing the development of their countries. NOCs are also flexing their muscles politically. They are using their economic power to influence and in some cases drive the political situations in their perceived spheres of influence. In this instance NOCs in countries like Saudi Arabia, Iran and Venezuela come to mind.
There is no doubt then that the traditional role of the NOCs has moved from what it was about the 1970s. New ideas and the geopolitical situation have contributed to making their roles more dynamic and relevant to today’s needs.
Courage Kwashie Dovlo
(BBA, MSC OIL & GAS MGMT, IOSH, GLP.)