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

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

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

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

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

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

Concluding thoughts