The Future of National Oil Companies in Russia and How They May Improve Their Global Competitiveness
Olsen, Mike, Houston Journal of International Law
I. INTRODUCTION II. RUSSIA A. Rosneft B. Gazprom III. LESSONS FROM LUKOIL AND STATOIL A. LUKOIL B. Statoil IV. FUTURE A. Share of Government Involvement B. Global Expansion V. CONCLUSION
In 2009, fifteen of the twenty largest oil companies were majority owned by nation states. (1) National Oil Companies (NOCs) have vastly increased in importance and size over the last several decades. In the 1970s, NOCs controlled less than ten percent of the world's oil and gas reserves; that number has increased to more than ninety percent in 2012. (2) This huge swing in percentage of control over the world's oil and gas reserves toward greater NOC control and less control by the major International Oil Companies (IOCs) (3) has significant implications for the international energy market. Some have distinguished between NOCs and hybrid NOCs based on ownership percentage, but this Article will only distinguish between IOCs (majority privately owned and controlled) and NOCs (majority government owned or controlled).
IOCs seek to maximize shareholder value, (4) achieve production efficiency, (5) and enhance profitability, (6) which benefits consumers by preventing shortages and ensuring more predictable prices. (7) NOCs often have conflicting goals because of the added government control and influence. The objectives of NOCs have been known to include politically motivated wealth re-distribution, wealth creation for the nation, job creation, general economic development, economic and energy security, foreign and strategic policy and alliance building, participation in national level politics, and vertical integration. (8) These noncommercial goals often conflict with a NOC's commercial goals such as the ability to maximize the value of its reserves, replace reserves, expand its production, and perform in a technically efficient manner. (9)
Not all NOCs are equal; some have been very successful in combining commercial goals and noncommercial state interests to create economic value and a globally competitive company. The most successful NOCs bring global standards home in regards to managerial and operational standards, (10) domestic suppliers, (11) and industries related to oil and gas. (12) Norway's Statoil is an exemplar of this model. In response to declining domestic reserves, Statoil expanded internationally--today nearly twenty-five percent of Statoil's total production comes from outside of Norway (13)--while also building research institutions in Norway and fostering a profitable domestic oil and gas industry. (14) Russia and its NOCs have not been known for balancing state responsibilities with commercial interests in past years, but since both Gazprom and Rosneft went public in 2006--allowing private ownership of shares (15)--the balance has become more equitable. (16) Russia is known for exerting control over most aspects of its NOCs, but as both Rosneft and Gazprom have grown they have become more commercially oriented and less politically controlled. (17)
The Russian oil and gas sector and its history since the collapse of the Soviet Union will be explained in Part I, which will focus on government influence over the oil and gas sectors and the history of both Rosneft and Gazprom. Part II will cover the experiences of LUKOIL and Statoil and how their respective histories provide lessons for Russian NOCs as they continue to evolve. Finally, this Article will explore the lessons to be learned from Statoil and LUKOIL to the experiences of Rosneft and Gazprom, outline state ownership reforms and methods of international expansion that have been implemented, are in the process of implementation, and should be implemented in the near future by Gazprom and Rosneft.
"The role of the country in the global energy markets largely determines its geopolitical influence." (18) "The goal of Russia's energy policy is to ensure . …