ROLE OF GOVERNMENTS

Introduction

 Every individual is part of the society, whose well being is linked to the
economy of the country.
 Oil plays an important role in the economic growth apart from being a
natural resource of nation.
 Governments world over formulate policies and rules to regulate and
oversee the movement of oil – within and outside the country.
 Events in the oil industry have chain reaction affecting the life and
livelihood of common people.
 Oil companies carry out functions independently but the overall
framework in which they operate is controlled by the government.
 Irrespective of activity – upstream or downstream, oil companies have
to obtain the stipulated clearances framed by the government.
 Introduction

 The governments are effective in international arena through

coordination with other countries.
 The diplomatic relations are effective in behind-the-scenes activities and
bilateral trade matters including supply chain decisions.
 Close ties and mutual understanding between the governments helps in
resolving issues and provide support for moving forward.
 Involvement of government results in taking of holistic view as against a
narrow and self- centred approach sometimes adopted by commercial
organisations.
 Long term good relations between governments help in reaching
agreements between oil companies of respective countries thus taking
care of the commercial interests.
 Introduction

 In upstream sector the earlier production sharing contracts/concessions

between MNCs ( seven sisters) and producing countries were tilted
towards the foreign oil companies resulting in under development and
reported exploitation.
 With active role of governments, the complexion is changing. The
contracts have evolved such that the MNC acts like a service provider
and does not get ownership rights or share in the production. However
this is happening with proven certainty over presence of oil ( no risk).
 Based on experience governments make suitable amendments in
contracts in the national interest.
 Governments play key role indirectly through the national oil companies
which are owned and controlled by the government agencies.
 Introduction

 In the downstream ,the government formulates appropriate policies to

promote and support the type of companies required for petroleum
sector. To develop the local companies ( state owned or private ) the
government may give preferential treatment to them and place curbs on
foreign players.
 At appropriate time when advanced technology and capital is required,
the government may adopt open door policy giving tax breaks and fiscal
incentives to foreign companies making it attractive for them to
operate.
 Setting up of infrastructure, refining sector, ports etc are some such
areas. However it is important to remember that MNCs look to long
term stable foreign investment and taxation regimes before showing
genuine interest. They also want safety and security of their people and
investment before taking any step.
 National Oil Companies (NOCs)

 National Oil Companies (NOCs) are having a key role in the global
petroleum supply chain. Being state controlled they get full support not
just domestically but internationally also.
 NOCs own oil fields/reserves and operate refineries making them
integrated players. But their long term plans are in line with the
government’s line of thinking.
 Leaving the western countries, in most of the other parts of the hydro-
carbon world, it is the NOCs which are dominating.
 In some countries they have monopoly and virtually dictate the
petroleum contracts with counterparties.
 Due to government support, the other sectors like ports, railways,
power, roads , financial sector etc work in tandem with them.
 National Oil Companies (NOCs)

 Some of the major NOCs in the world are as under :

 Saudi Arabia - Saudi Aramco

 Algeria - Sonatrach
 Angola - Sonangol
 Brazil - Petrobras
 China - Petro China
 China – China Petroleum Corporation ( Sinopec)
 China – China National Offshore Oil Corporation ( Cnooc)
 China – China Petroleum Petroleum Corporation ( Cnpc)
 Kuwait - Kuwait Petroleum Corporation (KPC)
 National Oil Companies (NOCs)

 Qatar – Qatar Petroleum

 Iran - National Iranian Oil Company ( NIOC)
 Russia - Gazprom
 Russia - Rosneft
 Iraq - State Oil Marketing Organisation (SOMO)
 Malaysia – Petronas
 Azerbaijan – State Oil Company of Azerbaijan ( Socar)
 Indonesia – Pertamina
 Kazakhstan – Kazmunaigaz
 South Korea – Korea National Oil Company ( KNOC)
 Mexico – Pemex
 National Oil Companies ( NOCs)

 UAE – Abu Dhabu National Oil Company ( Adnoc)

 UAE – Emirates National Oil Company ( Enoc)
 Venezuela – PDVSA
 Oman – Petroleum Development Oman ( PDO)
 Vietnam – Petrovietnam
 Libya – National Oil Corporation (NOC)
 Uzbekistan – Uzbekneftgaz
 Turkmenistan - Turkmengaz
 OPEC

In petroleum world there are some inter governmental organisations

which play supportive role in international matters .

ORGANISATION OF PETROLEUM EXPORTING COUNTRIES (OPEC)

 An intergovernmental body with secretariat in Vienna, Austria.

 Established in 1960 by Iran, Iraq, Kuwait. Saudi Arabia and Venezuela
 A producers organisation formed due to cheap oil flowing from Russia
which prompted oil MNCs ( ‘seven sisters’) to cut oil prices thereby
adversely affecting revenues of oil producing countries.
 In ‘70s some OPEC members nationalised the oil companies and took
control of oil production and supply with a say in pricing of oil .
 OPEC

 First ‘oil shock’ in ’73 triggered by oil embargo. Prices shot up from $3 to
$ 12/barrel. World shaken up and took notice of power of OPEC.
 Second ‘oil shock’ in ‘79 with Iranian revolution with the ouster of Shah
and return of Ayatollah Khomeini. Prices went from $ 13 to $ 32 per
barrel.
 Objectives of OPEC :
 Coordinate and unify petroleum policies among member countries in
order to secure fair and stable prices for oil producers
 Maintain regular supplies of oil to consuming nations by investing,
operating and maintaining the oil producing network
 To achieve fair return on capital invested in the petroleum industry
 15 Members – Iran, Iraq, Saudi Arabia, Kuwait, UAE, Qatar Algeria,
Angola, Nigeria, Libya, Gabon, E.Guinea, Ecuador, Venezuela,Congo
 OPEC

 OPEC countries have control over production capacity which is used as a

tool since one third of global demand met by its members.
 Seller’s organisation.
 Regulates oil supply through quotas for its members which are
periodically revised.
 Normally hold quarterly meetings where Saudi Arabia plays important
role , as the largest producer in the group and has spare capacity.
 Lack of discipline observed sometimes by Iran, Venezuela and Nigeria
 Face difficult period with low oil prices and insistence by Saudi Arabia to
maintain production levels leading to global over supply
 OPEC claims to go by 3 guiding themes : stable energy markets,
sustainable development and the environment.
 OPEC

 Escalating social unrest in many parts of the world affected both supply
and demand, although market remained relatively balanced.
 Trade patterns shifting with demand growing faster in Asian countries
and shrinking in OECD countries.
 OPEC continues to seek stability in the market , enhance dialogue with
stakeholders, cooperation with consumers and non-OPEC producers.
 IEA

INTERNATIONAL ENERGY AGENCY (IEA)

 In the wake of first oil shock in ’73 caused by producers group, the
consuming countries decided to organise their response for better
preparedness.
 An autonomous intergovernmental organisation established at Paris in
’74 by Organisation for Economic Cooperation and Development (OECD).
 Only an OECD country can become a member but not every OECD
country is a member.
 Currently has 30 countries as members including Australia, Austria,
Belgium, Canada, Czech Republic, Denmark, Estonia, Finland, France,
Germany, Greece, Hungary, Ireland, Italy, Japan, Korea, Luxembourg,
Mexico, The Netherlands, New Zealand, Norway, Poland, Portugal,
Slovak Republic, Spain, Sweden, Switzerland, Turkey, UK, US.
 IEA

 Before becoming a member, the candidate country must demonstrate

that it has as a net oil importer, reserves of crude oil and/or products
equivalent to 90 days of prior year’s average net imports.
 The Govt must have immediate access to such reserves even if it does
not own the stocks directly.
 The need for such reserves is activated under Coordinated Emergency
Response Measures ( CERM ) which provide a rapid and flexible system
of response to actual or imminent oil supply disruption.
 Candidate country must be a member of OECD.
 However it is not necessary that every member of OECD (35) has to be a
member of IEA. Examples of such countries include Chile, Iceland and
Israel .
 IEA

Main objectives of IEA are :

 Maintain and improve system for coping with oil supply disruption
 Promote regional energy policies through cooperative relations with
non-member countries.
 Operate a permanent information system on international oil market
 Improve global energy structure by developing alternative energy
sources and increasing energy efficiency
 Assist in integration of environmental and energy policies

Main focus areas are :

 Energy security
 Economic development – eliminate energy poverty
 IEA

 Economic awareness – tackling climate change

 Engagement worldwide
 Member countries are required to maintain 90 days total oil stock
levels
 IEA intervened 3 times by releasing oil stocks
- 1991 during Gulf War
- 2005 during hurricane Katrina
- 2011 during Libyan civil war

Some countries have Association status and include Brazil, China, India,
Indonesia, Morocco, Singapore and Thailand.
European Union (EU) also participates in IEA.
 IEF

INTERNATIONAL ENERGY FORUM ( IEF )

 Historically oil producers and consumers have had divergent interests.

 Producers wish higher prices and consumers lower prices.
 To create a more stable oil market and bridge the gap, need was felt for
starting a dialogue between the two groups at government level.
 World’s first ‘ Producers Consumers Dialogue ‘ Forum held in 1991 at
Paris. Subsequently permanent Secretariat was established in Riyadh,
Saudi Arabia with funding from the member countries.
 Biennial Ministerial meetings with governments participation are held to
discuss issues of common interest pertaining to global energy scenario .
 Last Ministerial was held in New Delhi in April 2018 and next will be
hosted by China in 2020.
 IEF

 The 72 member countries account for almost 90% of world oil & gas
supply and demand.
 There is full awareness among member countries about common
challenges despite diverse interests.
 There is increased awareness and recognition of high degree of energy
‘interdependence’ among member countries.
 Rather than treating oil as a source of conflict, it should be seen as a
cohesive force underpinning healthy growth of world economy.
 This is a far cry from the tense relations that existed between producers
and consumers in 1970s and ‘80s.
 IEF Secretariat at Riyadh is headed by Secretary General with an
Executive Board comprising of selected member countries.
 EIA

ENERGY INFORMATION ADMINISTRATION (EIA )

 A body within the Department of Energy , US government
 It collects, analyses and disseminates independent and impartial
energy information, including oil, to promote sound policy making,
efficient market and public understanding.
 Provides wide range of information and data covering production,
stock, demand, imports, exports, prices and prepares special
reports on topics of current interest.
 Focus areas include energy statistics, energy analysis,
communications, resource and technology management.
 Activities are transparent, planned and executed in time.
 Provides Short Term Outlooks and Annual Outlooks with in-depth
data and statistics.
 EIA

 Country-wise detailed information about energy is available

including overview, data, reports, briefs etc.
 For markets, weekly inventory data for crude oil and petroleum
products for US is important and has an impact on the
international oil prices.
 Ready availability of past data, events as well as forecasts and
future outlook on energy matters including oil.
 Useful for reference purposes, updated statistics and global energy
conditions.
 Government Role

 In general in most countries the government directly or indirectly

plays a vital role in hydrocarbon sector in terms of policy
formulation and administrative control.
Areas of work include :
 Production, supply, distribution, marketing and pricing of
petroleum including natural gas and petroleum products
 Planning, development and regulation of oil field services
 Oil Refineries including lube plants
 Exploration and exploitation of petroleum resources including
natural gas
 Government Role

Issuance of Notifications and Policies is carried out respect of

following :
 Marketing & Distribution
 Exploration & Production
 Pricing
 Disinvestment
 Refining
 Foreign Direct Investment (FDI)
 Production Sharing Contracts
 Management of Oil & Gas resources
 Oil Industry Development Board
 Government Role

Acts, Rules and Orders for petroleum sector include :

 Petroleum Act 1934( Amendment 1977) and Petroleum Rules
2002(Amendment 2007)
 Motor Spirit and High Speed Diesel ( Prevention of Malpractices in
Supply and Distribution) Order 1990
 Kerosene ( Restriction on use and fixation of price) Order 1993
 Furnace Oil (Fixation of Ceiling Price and Distribution ) Order 1974
 The Petroleum Pipelines(Acquisition of Right of User in land) Act
1962
 The Oil fields ( Regulation & Development ) Act 1948
 Government Role

 Governments play a crucial role in petroleum supply chain through

subsidies in products - a phenomenon seen in many countries.
 Normally under free market scenario the oil companies (mostly
private) maintain supplies of products to consumers and sell at a
profit covering their costs.
 In Countries having NOCs, the government implements its policies
through the NOCs, controlled by them.
 To insulate the weaker sections of the society from the burden of
high product prices and to give relief, schemes are devised.
 ‘Freight Subsidy Scheme 2002’ is applicable for far-flung areas for
supply of PDS Kerosene and Domestic LPG. It covers a part of the
freight cost in eligible areas for these two products.
 Government Role

 Freight for supply of PDS Kerosene up to the wholesale dealer is

subsidised by the government and not included in the price.
 Far-flung areas include :
 Assam, Arunachal Pradesh, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim and Tripura.
 Jammu & Kashmir
 Himachal Pradesh
 Uttrakhand
 Andaman & Nicobar Islands
 Lakshadweep Islands