Big Oil Faces Global Competition From National Oil Companies

Until recently, nationalized oil companies (NOCs) posed a competitive threat to international oil companies (IOCs) only in their home countries. However, a number of factors have now converged to prompt once-isolated NOCs to expand their reach on a global scale.

This emerging threat will force IOCs to devise new strategies to compete in the worldwide marketplace against nationalized companies, for which profits and shareholder satisfaction are not the only motivating factors.

The role of the state has declined steadily in nearly every sector of world economic activity. However, the pattern in hydrocarbons is very different. For better or worse, NOCs remain firmly in control of the vast majority of the world’s hydrocarbon resources. The run up in energy prices in 2007 and 2008 has encouraged governments to shelve or postpone plans to open up their hydrocarbon reserves to outside exploration and development.

Beyond Borders
In the past, most NOCs have been content to do business in-country and mostly dealt in low-grade, low-priced lubricant products. More recently, however, as oil prices increased and emerging economies flourished, increased oil consumption fueled a significant up tick in financial earnings at some NOCs. They’re becoming more secure and financially stable—particularly in developing nations where reserves are plentiful and labor costs are relatively low.

This financial security has enabled the growth of in-house R&D and the procurement of advanced technologies to develop more sophisticated production processes and products. Coupled with a growing knowledge of global markets and managers who have been educated and trained abroad, this has enticed many NOCs to look beyond their borders. With worldwide lubricant demand at around 35 million metric tons in 2009, the global market is tempting, particularly in the Asia-Pacific region, which now accounts for more than one-third of global demand.

Signs Of Expansion
The potential for growing competition from NOCs is of grave concern to multinational suppliers who see the ambitions of nationalized companies as a major threat to their global leadership. We’re already seeing signs of global expansion from several NOC brands, as discussed below:

• PETRONAS has made a bold expansion by acquiring Italian FL Selenia, which has significantly expanded their lubricants business in Europe and Brazil.
• Petrobras has acquired Chevron’s lubricant business in Chile, including a blend plant in Santiago.
• TOTAL has purchased the lubricants business of ExxonMobil in Vietnam, Ultramar in Canada, and Chevron in Uganda and Kenya.

In 2009, many NOCs make the list of Kline’s top 15 leading global lubricant marketers (by volume) including China’s PetroChina and Sinopec, France’s TOTAL, Brazil’s Petrobras, Malaysia’s PETRONAS, India’s Indian Oil, and many others that have setup offices in foreign lands or explicitly expressed their intent to expand outside their home markets.