NEW SEVEN SISTERS

Group 3: Abhishek Kumar Anuj Malviya Mohit Kapoor Ravi Dudeja Stuti Sethi

AGENDA AGENDA
Current Iran Crisis New Seven Sisters

PDVSA (Venezuela)

Saudi Aramco
(Saudi Arabia) Petrobras (Brazil)

NIOC
(Iran) CNPC (China) Gazprom (Russia) Petronas (Malaysia)

IRAN - Oil Power

4th largest proven oil reserves in the world 3rd largest crude oil exporter in the world, after Saudi Arabia and Russia Control of Gulf of HormuzChoke Point
Proven Oil Reserves as of Jan'2011
350 300 250 200 150 100 50 0 0 1 2 3 4 5 6 Billions of Barrels Saudi Arabia 263 Venezuela 215 Canada 175

Iran 137

Iraq 115

Iran Nuclear Knowhow

IRAN Oil Exports

(January 7, 2012 )

IRAN - Sanctions
EU Sanctions US Sanctions Asia

Ban new contracts to import petroleum and petroleum products from Iran and to end existing contracts by 1 July 2012

sanction banks, refiners and traders worldwide who buy Iranian oil

China, India and other significant non EU countries are unlikely to sign up to any full oil embargo

Affected Countries : Spain, Italy, Greece & Portugal

US froze all assets of Iranian financial Institutions

Tighter Western sanctions mean such customers will be able to insist on deeper discounts for Iranian oil, reducing Tehran's revenues

US can choose to cut the entities (involved with the purchase of Iranian oil) off from the US financial system

Impact of the current Iran Crisis on Oil Supply

Effects of the Iranian crisis on oil trading have been a rise in the prices of oil futures Impact of the EU ban on Iranian crude- oil imports likely to see premiums for similar quality nonIranian grades, hitting European refining costs Non-EU buyers are also likely to face higher premiums for non-Iranian crude providing an incentive to take more Iranian crude The concern is that Iran may cause problems with shipping in the Straits of Hormuz, the bottleneck of the Persian Gulf. Persian Gulf oil suppliers- Saudi Arabia promised to increase production in response to any reduction in production from Iran

Produce 10 % of the worlds oil and gas With 3 % of reserves

The new seven sisters- most influential energy companies from countries outside the OECD, have been identified by the Financial Times in consultation with numerous industry executives.

Of the world proven reserves of 1148 billions barrels. approximately 77% controlled by NOCs (no equity participation by the foreign international oil companies). Of the top 20 oil producing companies,14 are NOCs.

Saudi Aramco
(A Saudi Arabian NOC)
State owned national oil company

May29,1933Concession to Standard Oil Of California

1950: King Abdul Aziz Ibn Saud threatened to nationalize pressuring Aramco to agree to share profits 50/50

Saudi Arabian government acquired a 25% stake in Aramco. It increased its shareholding to 60% by 1974, and finally took full control of Aramco by 1980

1936: Texas Oil Company (Texaco) purchased a 50% stake of the concession

1944: Arabian American Oil Company (or Aramco)

1988: a Royal Decree changed name from Arabian American Oil Company to Saudi Arabian Oil Company (Saudi Aramco)

The Geopolitics Involved

Saudi Arabias Chinese factor involved in the petrochemicals market admittance Motiva, a refining joint venture between Saudi Aramco into the WTO subsidiary, Saudi Refining Inc., and Shell Oil in the U.S. Would in 2005 be the largest in the U.S
Initiated by the Prince Abdullah in 1998. Four Consortia (Royal Dutch/Shell and Total, Eni and Repsol, Sinopec, Lukoil).Saudi Aramco is a 20 % joint venture partner WTO Admission Process(2005)

Saudi Gas Initiative

Saudi expansion in Asia

Seoson, Korea Fujian refinery in China

28-03-2012

Rise of Gazprom
Largest extractor of natural gas in world and largest company of Russia Soviet Gas Industry was created in 1943 which was centralized in 1965 1989 - became Gazprom but still held by state 1991- dissolution of Soviet Union- Monopolisation of Gazprom in Russia Privatization started in 1993 though state retained 40% of shares Company chairman held a powerful position

Putin Reforms and Government Control

2000- Vladamir putin changed the situation by bringing in Medvedev and Miller- to establish state control in strategic companies

Used stock owned by state to carry out the actions

Medvedev and Milller started to streamline processes- stop Asset Stripping & Regain lost possessions

Controversies
Asset Stripping/Tax Evasion Critics claim Gazprom is all about politics

Tower Controversy

Forced independent domestic players to sell themselves

Accusations of exercising monopoly

Khodorkovsky A political Scapegoat

Owner of Yukos Oil.
Billionaire in a night. Political Ambitions Arrested in 2003. Yukos forced o shutdown and liquidated.

Influence of Gazprom
Yielded considerable influence over price Subjugated Ukraine and Europe at large Europes Dangerous Dependence on Russia Pipeline Control and unlimited access to resources

Russian federal law legalized the exclusive right of Gazprom to export natural gas to Europe
Conclusion : Russia using Gazprom as a political weapon

Rise of Petrobras
Created in 1953- granted sole rights over domestic upstream oil exploration and production

1960s- diversified into petrochemicals to prevent foreign MNCs from dominating it

reduced scope at home - ventured further overseas - starting with Braspetro in 1972

1997- due to privatization process public stake fell below 40 %

Producing and exploring for oil in a variety of different places around the world diversifies risk and lowers international financing costs

 Since 1992, 1% of gross receipts -earmarked for R&D 2007-08 R&D expenditures similar BP and Shell and in excess of USand EU-based IOCs (Exxon, Chevron and Conoco etc.) Moved to the deepwater exploration

Reserves outside Brazil were < 12 % in 2002, rose to 17 % by 2010 Discovery of the Tupi oil field off Brazils southeastern coast in 2007 potential to transform Brazil into a global energy powerhouse

Bolivian Controversy
On May 2006, Bolivia's president Evo Morales announced the nationalization of all gas and oil fields in the country.

Petrobras was heavily affected by the nationalization -the company's Bolivian subsidiary had great importance in the country's economy
The company operated in 46% of the oil reserves in Bolivia and was responsible for 75% of the country's gas exports to Brazil Nationalization strained relationship between Petrobras and Bolivian govt. On October 28, 2006, Petrobras and Bolivia signed an agreement, whereby the company would take 18% of the profits, and the Bolivian govt would take the remainder

Geopolitics Behind Formation of NIOC

headquartered in Tehran- established in 1948

formed due to tensions between the British-owned Anglo-Persian Oil Company-and British Petroleum Company in 1954-and the Persian and then Iranian government, which came to a head after World War II

NIOC's attempts to take control of the industry weakened - the main international oil companies boycotted Iranian oil exports to demonstrate their support for the British company

September 1954 an eight-member consortium called the Iranian Oil Participants (IOP) was formed

Rise of NIOC
A law in 1957 empowered it to enter into JVs with foreign oil companies to explore areas other than those leased to IOP first joint venture agreement- Italian oil company Agip SpA June 1958 JV agreement was signed with Standard Oil Company of Indiana, jointly owned company with NIOC called the Iran Pan American Oil Company (Ipac) 1960s NIOC heightened its exploration efforts through service contracts Iran's 1987 Petroleum Law allowed for contracts with outside companies under a buyback system

Turn of Events
Nationalization in 1980, NIOC was granted sole control over all upstream operations and activities of the petroleum industry Oil production fell 75 % between 1979 and 1981 1990 crude oil production rose to 2.3 million barrels/day from 2 million in 1988, but refining capacity was still down - NIOC had to import petroleum products from overseas refineries Rehabilitation &development of the Iranian oil industry : re-establishing contracts with Western oil majors to provide technology and expertise NIOC's attempts to establish ties with US investors came to a halt in 1995 when US President Clinton imposed sanctions against Iran

The New Uprising

oil discoveries NIOC made since 1995 was the Darkhovin & 2001- Dasht-eAbadan & in 1999 made its largest oil discovery in 30 years: an onshore field known as Azadegan, located near the Iraq border exports surplus production according to the framework determined by the OPEC and at the prices prevalent in the international markets

2003 - 32 producing oil fields and net exports of 2.6 million barrels/day Iran largest heavy fuel oil exporter in the Middle East

Presently, NIOC ranks as the world's second largest oil company, after Saudi Arabia's stateowned Aramco

NIOC has been at forefront of Tehrans strained relations with US

CNPC
On July 27, 1998 Chinese govt decided to restructure and China National Petroleum Corporation establish CNPC in was established on accordance with Sept 17, 1988 principle of upstream and downstream integration Past 20 years, China moved from being East Asias largest oil exporter to becoming the worlds 3rd largest importer of oil in 2008, behind the US & Japan

CNPCs important subsidiary-PetroChina (established- Oct 28 1999)

CNPCs International Operations

In 1993, it signed a service contract with the government of Peru to manage an oil field. In 1997 , it acquired oil contracts and stakes in oil companies in Sudan, Kazakhstan, Uzbekistan, and Venezuela. By end-2006, CNPC had invested in 65 energy projects in 26 countries. in May 2008, the PrC and Venezuela signed an agreement to jointly develop the heavy oil business in Orinoco. in 2009, CNPC announced plans to build a 20 million ton annual capacity refinery in the southern PrC with Venezuelas PDVSA

Kazakhstan-China oil pipeline

The Kazakhstan China oil pipeline is China's first direct oil import pipeline allowing oil import from Central Asia China was reportedly considering asking Russian companies to help it fill the pipeline with oil, until Kazakh supply was sufficient

The Rush for Africa and the Nigeria factor

China aggressively entering the offshore oil industry in heavyweight oil producing African countries with CNPC leading the charge Nigeria remains one of Chinas most important strategic partners in Africa and the most important in West Africa Nigerias attractiveness to Beijing hinges on several issues:
Its location in the strategic Gulf of Guinea region. Its potentially massive domestic consumer market of 130 million people. Its continental and regional influence in institutions such as the African Union (AU), Nepad, Ecowas and Ecomog. Most importantly, its massive oil reserves.

PDVSA
PDVSA is the national oil company that serves as the conduit of Venezuelan petroleum to world energy markets.

It is the world's fifth largest oil exporter.

Created in 1976, PDVSA has represented polar opposites to critics and supporters. PDVSAs activities were fundamentally affected by Venezuelan president Huga Chavez Bolivarian Revolution

PDVSA
Before 1999 Apertura (the opening up) strategy in the 90s The Apertura helped thrust PDVSA into a competitive environment After 1999
(especially with the experience of the events of April 2002 and the subsequent oil strike)

Govt. retaking of control through the following elements : Increased taxes and royalties for oil extracted Elimination of the oil concessions & transition to these joint ventures Creation of subsidiaries of PDVSA- part of the activities had been outsourced PDVSAs international expansion, especially within the membership of ALBA, South America and other allied countries such as China

PDVSA

Till 2007, PDVSAs main export destinations were US Canada and the Caribbean Central America markets

The Chinese and South American potential had not yet been met

PETRONAS (Petroliam Nasional,Malaysian NOC)

28-03-2012

Petronas founded in 1974

New Economic Policy (NEP) of 1973 Made a Corporation rather than a Statutory body Working: 2-phase Domestic and overseas

Petronas Emergence Factors

1972 oil price hike- An Opportunity Indonesian support Information asymmetry New Economic Policy (NEP) of 1973: The Malay Politics Confiscation of upstream assets (Venezuela and the Middle East)

28-03-2012

Socio-Economic Politics into play

Malaysia: A federal system
Convincing the foreign oil companies to give up concessions (Esso dissention)

Management Shares
License regulations

The Production Sharing contract

Malay Scholarship Program
28-03-2012

Overseas Strategies Sudan(civil war 1983) , Iran and Myanmar:

Involvement in Sudan. Islamic Unity factor. Proposal of US Sanction. MISC (Malaysia International Shipping Corporation)

Russia :
A striking example of the Petronas effort to go global was its 2006 purchase of US$1.1 billion stake in Russias Rosneft, its first Russian venture. Economic Reasons: Domestic reserves were never of the class of those in Indonesia or the Middle East and declined in spite of conservation Programs. Political reasons: The interest of then Prime Minister Mohammad Mahathir (anti US) in placing Malaysia more firmly on the international stage.
28-03-2012

 State Owned Emerged as Superpowers in their respective countries Yielded Political influence on dependant countries Pipeline Politics The more you sell, the more you gain Sooner or later, the state-owned enterprises are bound to fail, either through inefficiency or as victims of political expediency