Plan. IV. How to enhance energy security by partnerships with private companies: Brazil and Russia examples. China and India examples

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1 THE STRATEGIES OF BRICS NATIONAL OIL COMPANIES FOR ENERGY SECURITY : JOINT VENTURES BARGAINING AND VERTICAL INTEGRATION PhD Supervsor Sophe MERITET Draga Clauda MARIN November 2012 Plan I. BRIC s n energy market II. Short presentaton of NOCs n BRICs III. Vertcal ntegraton for an enhanced ol supply securty. Chna and Inda examples IV. How to enhance energy securty by partnershps wth prvate companes: Brazl and Russa examples

2 I. BRICs n energy market Brazl : pre-salt reserves dscovered n 2006 Russa : 2 nd crude ol producer after Saud Araba Fgure 1. Economc and energetc data for BRICs (2011) Populaton GDP Mllon Bllon dollars GDP annual growth Annual % Proved ol reserves * Thousand mllon Crude producton Mllon daly Ol consumpt on ** Mllon daly Crude exports Thousand daly Brazl 196, ,70 2,7% 15,05 2,19 2,65 556,61 Russa 141, ,79 4,3% 88,18 10,28 2, ,30 Inda 1 241, ,77 6,9% 5,70 0,86 3,47 1,47 Chna 1 344, ,10 9,1% 14,71 4,09 9,76 30,00 US 311, ,00 1,7% 30,87 7,84 18,84 21,00 Saud Araba 28,1 576,80 6,8% 265,40 11,16 2, ,30 * Includes crude ol, shale ol, ol sands and NGLs (the lqud content of natural gas where ths s recovered separately). Excludes lqud fuels from other sources such as bomass and coal dervatves. ** Inland demand plus nternatonal avaton and marne bunkers and refnery fuel and loss. Consumpton of fuel ethanol and bodesel s also ncluded. Source : World Bank ; BP Statstcal Revew of World Energy June 2012 ; OPEC Annual Statstcal Bulletn 2012 ; CPDP (Comté Professonnel du Pétrole - Ol Professonal Commttee). Chna : R/P rato law (9.9) compared to the one of the world (54.2) Inda : 4 th most mportant consumer of ol n 2011 II. Short presentaton of NOCs n BRIC countres Fgure 2. Man NOCs n BRICs P R O D U C E R S NOC Year of Crude producton (2011) Country Busness Employees (2011) State ownershp establshement (mllon ) Exploraton and producton, refnng, ol and natural gas trade and Petrobras 1953 Brazl transportaton, petrochemcals, and dervatves, electrc energy, bofuel % 763 and other renewable energy source dstrbuton. Hydrocarbons exploraton & Rosneft 1993 Russa producton, producton of petroleum and petrochemcal products, refnng, % 869 marketng and dstrbuton. Exploraton, producton, refnng, ONGC 1956 Inda transport, marketng of crude ol, natural gas, LPG, ethane, propane, and other petroleum products, but % 164 also petrochemcal products, power generaton, sector servces. PetroChna 1999 Chna Ol and natural gas supply chan from exploraton to sale, producton and sale of basc, dervate and other 90% 886 chemcal products. Ol and gas supply chan from Snopec Corp Chna exploraton to marketng, producton, marketng, transport of petrochemcal, chemcal fbers, 80% 322 fertlzers and other chemcal products, mport/export. Sources : Annual reports of NOCs, NOCs web stes. C O N S U M E R S

3 III. Vertcal ntegraton for an enhanced ol supply securty. Chna and Inda examples Fgure 3. Advantages and dsadvantages of vertcal ntegraton Advantages Dsadvantages Company level Company level -costs reducton : economes n terms of - rsky : functon of technologes, t can ncrease communcaton, mprovement of actvty costs ; coordnaton, elmnaton of certan - flexblty loss ; producton dctrbuton levels ; - loss of compettvty ; - economes of scale ; - possble capacty surplus. - reducton of opportunstc behavor ; - vertcal ntegraton between downstream and upstream companes permts to avod taxes or prce control ; -prce control by the government or regulaton can be avoded ; -monopoly profts ncrease. Market level Market level - ncrease of the market power ; - possble dffcult access to suppler and - mprove market strategy ; - better control the envronment ; consumers, so loss of nformaton ; - rsk that company process and technologes become obsolete ; - product dfferencaton ; - possble anttrust problems ; - mprove antcpaton of demand and prce - synerges after vertcal ntegraton can be changes. surevaluated. III. Vertcal ntegraton for an enhanced ol supply securty. Chna and Inda examples Import dependency n 2011 Country Consumpton Crude mports Crude exports Net mports Import (MT) (MT) (MT) (MT) dependency Chna 461,8 252,9 1,5 251,42 54,33% Inda 162,3 169,7 0,1 169,63 104,51% Source : BP Statstcal Revew of World Energy June 2012 Chna : net mporter snce 1993 Chnese NOCs are searchng for overseas assets Ex: acquston by PetroChna of the Sngapore Petroleum Company Inda : target s to become self-suffcent ONGC plan of vertcal ntegraton by the ncreasng of the refnng capacty Ex: MRPL acquston by ONGC

4 Constructon of ol supply ndcators III. Vertcal ntegraton for an enhanced ol supply securty. Chna and Inda examples Based on Arkel, Boots and Jansen s (2004) report 4 ndcators : The dversty ndex I ( 1 1 = c ln ) p p Dversty of supply regons I ( 2 2 = c ln ) p p Dversty of supply regons and soco-poltc stablty Resources depleton I = ( c 4 ln ) p p 4 I = ( c 3 ln ) p p 3 Ol supply securty ndex I = average( I1; I 2; I3; I4) III. Vertcal ntegraton for an enhanced ol supply securty. Chna and Inda examples Vertcal ntegraton measurement Based on Harrgan (1986) work 4 dmensons : Degree : measured at BU level, represents the % of a certan sem-fnshed product transferred to downstream BU (or the % of needs of a certan product bought to upstream unts). Number of stages of processng : ndex constructed as the sum of the number of steps multpled by the value added for each step. We ll compare NOCs wth other prvate ol companes Breath of actvtes : number of actvtes n whch the frm has engaged n (at a stage of producton)/number of actvtes n whch t was possble to engage n The form of ownershp : % of partcpaton n each strategc BU.

5 Regresson model I = a + b x + c z + d t + g u + e III. Vertcal ntegraton for an enhanced ol supply securty. Chna and Inda examples I = ndcator of ol supply securty = a, b, c, d, g = unknown parameters x = ndcator of degree of vertcal ntegraton = average (degree of upstream ntegraton; degree of downstream ntegraton) = ndcator of number of stages of processng z t = ndcator of breadth of actvtes = ndcator of ownershp form u e = error term IV. How to enhance energy securty by partnershps wth prvate companes: Brazl and Russa examples Contrbuton of NOC and IOC to a JV NOC-IOC JV expertse n rsk and project management IOC access to downstream market advanced technology NOC fnancal resources access to resources

6 Petrobras prefers to partcpate to call of tenders n partnershps wth other companes In average 27 % of partnershps durng rounds 1 to 4 and 22 % durng rounds 6, 7, 9 and 10. Technology transfer has been done by Petrobras partnershps wth IOCs lke Shell, Repsol, Chevron IV. How to enhance energy securty by partnershps wth prvate companes: Brazl and Russa examples Petrobras and Rosneft examples Soluton for Rosneft s reserves declne : development of Eastern Sbera and Arctc area advanced technology. Jont ventures role n Russa s producton has ncreased wth the Sakhaln projects. August 2011 : Rosneft has made a partnershp wth ExxonMobl for the exploraton of Arctc reserves IV. How to enhance energy securty by partnershps wth prvate companes: Brazl and Russa examples Barganng strategy n JV JV n ol ndustry : no jont proft, common target of the partners s the search of proft or to jontly make operatons. Relatonshp between a NOC and a IOC : cooperaton and conflct elements. Barganng n jont-ventures usng game theory has been studed n the lterature : Rao and Shakun (1974), Harrgan (1984) NOCs and IOCs barganng power Examples of barganng ponts

7 Concludng thoughts