Business Finance in Less Developed Capital Markets

DANIEL D. TZANG

The role oil and gas will play in meeting the world's energy requirements will remain significant in the foreseeable future. The recent oil-price decline has reduced concern about new exploration activities and new sources of oil supply in the world, but oil shortages may well occur by the end of the present decade when the economies of both developed and developing countries increase the oil demand to fuel their renewed economic growth. The developing countries as a whole are estimated to have 53 billion barrels of ultimately recoverable oil reserves, 24 billion barrels in established oil-producing countries and 29 billion barrels in the remaining developing countries. ¹ There is considerable evidence that the prospects for discovering petroleum resources in developing countries are promising. ² One important source of new oil supply in 1990s could be the non-OPEC developing countries (NODCs).

During the past the NODCs have been importing crude oil and crude-oil products at a rapidly rising rate. There are two identifiable dangers in this pattern of rising oil imports by NODCs. The first is that these imports will influence crude-oil availability in the world petroleum market and exert inflationary pressures on world petroleum prices, especially in times of global oil shortage. Second, huge oil-import bills have been placing severe strains on these countries' balances of payments and their economies in general. The rising oil imports by NODCs are bound to create further balance-of-payments strains on these nations and, by extension, on the world financial markets. Increasing indigenous supplies of petroleum resources can relieve the burden of imports and spur domestic economic activity.

Petroleum exploitation involves a substantial investment outlay, sophisticated technical and managerial skill, and marketing outlets. Most NODCs do not have sufficient expertise or technical capacity to exploit petroleum resources within their

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