Freeman Spogli Institute for International Studies Program on Energy and Sustainable Development Stanford University

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National Oil Companies

State-controlled oil companies-so-called national oil companies (NOCs)-hold about three-quarters of the world's oil reserves, with implications for everything from gasoline prices to geopolitics.  In some countries where NOCs had been waning in influence as governments adopted rules to encourage investment by private firms-including the international oil companies (IOCs)-recent years have seen a resurgence in the roles for state-controlled companies.  High energy prices have encouraged governments and NOC managers, alike, to concentrate authority in the hands of state firms, with a number of countries shelving plans to open their hydrocarbon sectors.

While all NOCs have in common some degree of state control over their activities, there is enormous variation in the roles these enterprises play both at home and in the world oil market.  Some NOCs, including Pemex in Mexico and Saudi Aramco in Saudi Arabia, are singular in their control over their home market; others engage in various joint ventures or are exposed to competition.  NOCs also differ markedly in the ways they are governed and the tightness of their relationship with government.  Some states, notably Norway and Brazil, allow their NOCs relative freedom to pursue commercial goals, while others burden them with substantial non-commercial objectives in support of government goals.  NOCs can serve, for example, as vehicles for delivering costly but politically popular fuel subsidies, as providers of employment, as sources of patronage for favored elites, or as de facto development agencies when other government institutions are weak.  NOCs also vary in their geological gifts.  Some are endowed with prodigious quantities of "easy" oil while others face significantly more geological uncertainty and must apply advanced technologies on their home turf or invest abroad.  Some NOCs have sought to develop gas, which requires different skills and market orientation than oil, while others stay focused on liquids.

A major PESD study is in progress to explore whether these factors explain the wide variation in performance of the world's most important NOCs.  We also aim to explain the link between these kinds of factors and the business strategies of NOCs, in particular their approaches  in engaging with outside firms such as IOCs and field service companies.  The NOCs research project, which is currently being developed into a book to be published by Cambridge University Press, includes case studies of 15 NOCs which together control about 56% of world oil reserves and 46% of world gas reserves.  The study also features cross-cutting analyses of key drivers of NOC formation and functioning, including political factors, geological and market risk, and the administrative mechanisms states use to govern their oil sectors.  Several of these analyses apply quantitative statistical tests of important hypotheses to complement the detailed NOC case work. 

In future work, PESD researchers will study how the respective incentives for state-controlled and private firms impact world oil and natural gas prices and the rate of exploration and development of new sources of hydrocarbons.   We will also focus on understanding the changing role of IOCs in a world where NOCs own the majority of known oil and natural gas reserves.

NOC research in progress (password protected)