Why do we care about OPEC oil? Who are the main players involved in the supply?
The diagram below summarises the role of some key players in the energy supply
What influences oil pricing?
2 main determining factors-
Price of oil on the free market (demand and supply conditions)
Crude oil is the MOST TRADED COMMODITY (good) in the world
It can be sold as a ‘futures contract' where buyer agrees to take delivery and seller agrees to supply a fixed amount at a pre arranged price in specific location
Aims to avoid price fluctuation by ensuring future demand for supply in reliant industries (like Airlines)
Crude oil comes in varieties and is proced accordingly- Brent crude from the North Sea is the bench mark- all other oil is worth less and priced in relation to that
2008- Oil prices continuously increased supply could not keep pace with demand (esp. from China) OPEC worried about increasing output as then investors may feel there’s a glut on the market and drop prices, affecting OPEC economies
OPEC Member Countries: Country Joined OPEC Location Algeria 1969 Africa Angola 2007 Africa Ecuador(**) rejoined 2007 South America IR Iran* 1960 Middle East Iraq* 1960 Middle East Kuwait* 1960 Middle East SP Libyan AJ 1962 Africa Nigeria 1971 Africa Qatar 1961 Middle East Saudi Arabia* 1960 Middle East United Arab Emirates 1967 Middle East Venezuela* 1960 South America *founder Members ** Ecuador joined OPEC in 1973, suspended its membership from Dec. 1992-Oct. 2007
‘ The economics of oil’
OPEC’’s objective is to coordinate petroleum policies amongst members
To ensure fair and stable prices for producers
An efficient economic and regular supply to consumer nations
A far return on capital for those investing in industry
OPEC was formed in 1960 to protect interests of oil producing countries
At the time oil in mid east was controlled by TNCs- who raised and lowered prices as they wished to do so.
In 1960 faced with a glut of oil prices were lowered- reducing taxes and royalties for oil producers so 5 oil producers came together and OPEC was formed-
Some people say OPEC is a CARTEL (Association of producers or suppliers formed to monopolise the production and distribution of a product or service to control prices etc. In politics a cartel is an alliance of parties or interests created to further common aims)
What is OPEC?
The Organization of the Petroleum Exporting Countries (OPEC) is a permanent intergovernmental organization of 12 oil-exporting developing nations
It aims to
Protect the interests of member countries
Stabilise oil prices
Ensure efficient , economic and regular supply of oil
OPEC’s role in energy supply:
Sets oil production quotas (numbers) for members in response to economic growth rates and demand supply conditions.
If demand suddenly rises OPEC can increase production to prevent sharp price rises
It can also be reduced to maintain price if demand falls
Aims to get fair price for members without swamping the market or restricting it (forcing price up)
At the end of 2006 had proven reserves of over 900,000 million barrels of crude oil (nearly 78% of the world’s total reserves)
They produce about 45% of the world’s crude oil and 18% of its natural gas
Home Profile Inbox Friends Settings Logout Search View photos Info Photos Boxes What’s on your mind? Share Name Information Friends 10hrs ago View videos Older posts Wall Recent Activity Ads Groups Add a picture here Add personal information here Who would they be friends with? Last status update here What would they be typing now? What have they been doing on Facebook? Two interactions with friends What groups are they in? What ads would be targeted to them?
Read pages 32 – 33 Oxford and page 20 OUP
Complete the Facebook profile for OPEC
Briefly explain why OPEC is such a powerful player in the energy game
Homework- Powerful players in the global supply of energy OPEC
What is OPEC?
What are the aims of OPEC?
How much power does OPEC have?
What countries are not part of OPEC and why might they have chosen not to be a member?
Why could it be argued that both oil producing countries, benefit and suffer from OPEC?
Exam style question-
Assess the impact of OPEC on global oil supply and demand (10)
The role of energy TNC’s
Build a brief fact file of an energy TNC to illustrate its importance as an energy player. You should cover the following points:
Country of HQ
Areas of operation
Share of market/turnover
Evidence of political power
Plans for future diversification
ENI or Ente Nazionale Idrocarburi is an Italian-based, government backed multinational company started in the 1920s with the official incorporation finalized about 30 years later. With strong presence inside its country of origin and worldwide, the company is now ranked as the third largest oil refiner in Europe, behind Shell and Total. ENI’s core businesses include exploration and production, gas, power, energy, engineering, technology and construction.
Based in Rio de Janeiro, Brazil, Petrobras inception was highly credited to the country’s two-time President, Getulio Vargas, whose political career ended with a suicide. Between 1950s up to the turn of the 20th century, Petrobras was the monopoly for the oil and gas industry in Brazil and played a big part in driving the country’s economy. Apart from its native country, the company also has significant presence in North America, South America, Africa, Europe and Asia.
One of the most profitable companies in Asia, PetroChina was also ranked by Forbes as the largest company in China, and 55th in the overall worldwide ranking. Through prudent management and operation, the company has been presented with a string of awards by international magazines that include the best company in dividend payout policy, best investor relation, and best corporate governance. PetroChina is publicly traded in a few major stock exchanges including New York , Hong Kong and Shanghai.
Chevron is also another spin-off from the Standard Oil company, and made its mark after discovering the world’s largest oil field in Saudi Arabia in the 50s. Chevron has commercial interests in pretty much everything related to oil and gas - exploration, production, transportation, logistics, marketing and trading, manufacturing, polymer, chemicals and power. The company operates in more than 80 countries worldwide, providing employment to more than 50,000 people across all major continents.
Gazprom is Russia’s largest company, and controls as much as 90% of the country’s overall production of gas. Its overall capacity also accounts for more than 15% market share of the world’s gas reserve. On top of that, the company boasts its presence by owning a gas pipeline network stretching some 150 thousand kilometers in length, currently the longest pipeline in the world. Apart from oil and gas, Gazprom also has business interests in finance, insurance, banking, communication, media, agriculture and construction.
ConocoPhillips is listed among the Six Supermajors alongside ExxonMobil, Shell, BP, Chevron and Total. The Supermajor refers to the world’s largest non-state owned energy companies. As of today, the company operates in close to 40 countries worldwide, with its headquarter located in Texas, United States, and employing more than 30,000 staff. Conoco runs service stations under different brand names such as ProJET (Malaysia), COOP (Switzerland) and Turkpetrol (Turkey).
Two companies - Royal Dutch Petroleum of Netherlands and Shell Transport and Trading Company of United Kingdom decided to merge their operations in the early 20th century. The result is the formation of The Royal Dutch Shell Group with 2 main offices, one in The Hague (Netherlands), and another in London (United Kingdom). The formation of the new entity also signaled the group’s intention to compete with the then dominant Standard Oil company. After more than a century, seems like it is doing well.
The founding of BP was almost concurrent with the formation of the Shell Group, but it had to endure a path full of controversies and complexity. BP’s history is always linked to the middle east oil struggle, America’s CIA agents, and the coup of the Iranian’s power to protect the company’s commercial interest in the country. After merging with Amoco, the group was known as BP Amoco albeit for only a while before reverting back to BP. While BP originally denotes British Petroleum , the company is transitioning its name to Beyond Petroleum to reflect its global reach and operation.
The French government was once approached by the Shell Group to be part of the company, but instead of agreeing for a partnership deal, the then Prime Minister, Raymond Poincare decided to form something original, and something French. Under his directive, a company by the name of Compagnie francaise des petroles, or CFP was founded in 1924 which was also made as a commercial tool in case of war. A number of mergers and acquisition ensued in the next few decades, before the company settling with its new name Total.
The history of ExxonMobil stretches back all the way to the 19th century, through the inception of Standard Oil company founded by John D. Rockefeller.
From a small outfit, Standard Oil grew enormously until it was considered a monopoly, forcing the authority to split the company to 34 different companies. Exxon and Mobil are two of the resulting new entities, which in 1999 decided to merge in a so-called the biggest merger in history. Fortune also named ExxonMobil as the world’s most profitable company , ahead of Shell and General Electric .