National Oil Companies – A boon or bane for the economy

Compared to IOCs (InterNational oil companies) like BP, ExxonMobil, or any of the 'Big Oil' companies, the NOCs dominate global reserves of crude oil and natural gas. The dominance of National oil companies has seen a dramatic increase in recent years and they have also started investing in exploration and refining not only within their national borders, but in other countries too. National oil companies or NOCs have control over a very large share of global crude oil and natural gas resources, either as actual oil producers, or as custodians of a natural national resource. IOCs are given exploration and exploitation rights and access by the NOCs and the national government.

Additionally, an approximate 60 to 65 percent of undiscovered crude oil and natural gas reserves are estimated to be in countries where the NOCs have sole privilege and access to the reserves. This means that in the near future, crude oil production and supply will be mainly from National oil companies. The NOCs are powerful companies and even the smallest one is a powerful organization within their own nations. The NOCs serve public interest in many ways with the supply of essential fuels like petrol, diesel, and natural gas. They also provide associated services and generate revenue, thus contribute to the economic development of a nation. NOCs are also responsible for managing the environment and reducing risks due to exploration, refining, and transportation of crude oil and petroleum products.

Although the National oil companies were popular and successful in the early years in some countries, as they provided jobs to thousands of people in upstream and downstream industries, the general performance of many NOCs has proved disappointing. A Comparison with IOCs has shown that the NOCs tend to be less efficient and less profitable and more prone to political pressures and influence, including corruption. Politicians in many countries use NOCs to provide jobs to their favorites and supporters as a reward. In many countries, these politicians also controlled, directly or indirectly, the financial sector; the NOCs received bank loans at heavily subsidized rates of interest. Despite all this, every country needs National oil companies to safeguard its natural resources.

The recent volatility in crude oil prices, along with global recession, and an uncertain world economy makes it very difficult to define a long-term perspective and outlook on energy demand and supply of petroleum products, which is critical in determining the future political and economic role of most National oil companies. But in many countries, crude oil and natural gas are key industries that impact social, economic, and political issues, particularly in developing countries. The crude oil and natural gas sector contributes a major share in the domestic economy of developing countries. Whether it is consumption or production, there is a strong incentive in imposing comprehensive involvement by the national government to secure both financial and political advantage.

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Source by Sunil Punjabi


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