1. 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

2. 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

3. 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

4. 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

5. 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

6. 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)

7. 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

8. 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

9. 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.

10. 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

11. 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 ) :
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

12. Concluding thoughts