31st USAEE/IAEE North American Conference Sheraton Austin, Texas 4-7 November 2012 THE STRATEGIES OF BRICS’ NATIONAL OIL COMPANIES FOR ENERGY SECURITY : JOINT VENTURES BARGAINING AND VERTICAL INTEGRATION Draga Claudia MARIN

Agenda Introduction : BRICs and NOCs, how do they ensure their continuing growth on the energy market ? Vertical integration for an enhanced oil supply security. China and India examples The influence of vertical integration on oil supply security : construction of an econometrical model

Brazil : pre-salt reserves discovered in 2006 I. Introduction : BRICs and NOCs, how do they ensure their continuing growth on the energy market ? Brazil : pre-salt reserves discovered in 2006 Russia : 2nd crude oil producer after Saudi Arabia China : R/P ratio law (9.9) compared to the one of the world (54.2) India : 4th most important consumer of oil in 2011

Figure 2. Main NOCs in BRICs I. Introduction : BRICs and NOCs, how do they ensure their continuing growth on the energy market ? Figure 2. Main NOCs in BRICs PRODUCERS CONSUMERS

Joint ventures bargaining I. Introduction : BRICs and NOCs, how do they ensure their continuing growth on the energy market ?  We analyze the strategy of NOCs from BRICs to enhance oil supply security in their countries  Econometrical model showing the influence of vertical integration on oil supply security Vertical integration Joint ventures bargaining Oil supply security China and India - NOCs started activities in the upstream -Integration in downstream to ensure access to oil products and more efficiency Brazil and Russia - NOCs don’t have the needed technology for upstream - Government and IOCs have different objectives, sometimes conflicting

II. Vertical integration for an enhanced oil supply security II. Vertical integration for an enhanced oil supply security. China and India examples Figure 3. Advantages and disadvantages of vertical integration Sources : Deschamps and Méritet (2000), Godard and Lipczynski (2005), Harrigan (1984), Mitchell (1976)

II. Vertical integration for an enhanced oil supply security II. Vertical integration for an enhanced oil supply security. China and India examples China : net importer since 1993 Chinese NOCs are searching for overseas assets Ex: Singapore Petroleum Company acquisition by PetroChina India : target is to become self-sufficient ONGC plan of vertical integration by the increasing of the refining capacity Ex: MRPL acquisition by ONGC

Construction of oil supply indicators III. The influence of vertical integration on oil supply security : construction of an econometrical model Construction of oil supply indicators Based on Arkel, Boots and Jansen’s (2004) report 4 indicators : The diversity index Diversity of supply regions Diversity of supply regions and socio-politic stability Resources depletion Oil supply security index

Vertical integration measurement III. The influence of vertical integration on oil supply security : construction of an econometrical model   Vertical integration measurement Based on Harrigan (1986) work 4 dimensions : Degree : measured at BU level, represents the % of a certain semi-finished product transferred to downstream BU (or the % of needs of a certain product bought to upstream units). Number of stages of processing : index constructed as the sum of the number of steps multiplied by the value added for each step. We’ll compare NOCs with other private oil companies Breath of activities : number of activities in which the firm has engaged in (at a stage of production)/number of activities in which it was possible to engage in The form of ownership : % of participation in each strategic BU.

Regression model = indicator of oil supply security = average III. The influence of vertical integration on oil supply security : construction of an econometrical model Regression model = indicator of oil supply security = average i=2000…2011 =unknown parameters indicator of degree of vertical integration = average (degree of upstream integration; degree of downstream integration) indicator of number of stages of processing indicator of breadth of activities indicator of ownership form error term

The model is in a conceptual shape Data missing : III. The influence of vertical integration on oil supply security : construction of an econometrical model The model is in a conceptual shape Data missing : For China and India (for the period 2000-2011) : Crude oil production abroad in each country Crude oil imports from each source Crude oil production in some provinces of China For ONGC (for the period 2000-2011) : self-supply from E&P

Concluding thoughts