In a survey of the oil industry's "true power brokers" published Tuesday by London's Financial Times, there are curious lacunae.  --  For one thing, there is no metion whatever of the notion of Peak Oil, unless the term "energy security" is meant to encompass it.  --  For another, there is total silence about Iraq, or indeed about any of the violence that leads Prof. Michael T. Klare of Hampshire College to say that "Ultimately, the cost of oil will be measured in blood:  the blood of American soldiers who die in combat, and the blood of the many other casualties of oil-related violence, including the victims of terrorism" (Blood and Oil: The Dangers and Consequences of America's Growing Dependency on Imported Petroleum [Metropolitan Press, 2004], p. 183).  --  Readers will no doubt note others.  --  Of the entities that Carola Hoyos calls "[t]oday's industry rule makers — or 'the New Seven Sisters' . . . Saudi Aramco, Russia's Gazprom, CNPC of China, NIOC of Iran, Venezuela's PDVSA, Brazil's Petrobras, and Petronas of Malaysia," it will come as no surprise that Saudi Aramco is the most beautiful, according to the Financial Times:  "At the top [as an international competitor] is Saudi Aramco. . . . Two factors have been instrumental to the company's success.  First, it absorbed the technical and managerial expertise needed to run its industry from the international oil companies it nationalized more than 20 years ago and it continues to invest in development and research, aided by foreigners.  Second, the house of Saud, though ultimately responsible for energy policy, has left the day-to-day running of the industry to technocrats.  This has allowed Saudi Aramco to embark on its most ambitious expansion project in a generation.  It is investing $50bn over the next 15 to 20 years, planning to bring its crude oil capacity from 10.5m barrels a day to 12m b/d by 2009 and eventually to 15m b/d.  Meanwhile, refining capacity is set to double in the next five years."[1]  --  Venezuela and Iran are the most unattractive sisters:  "Neither the Venezuelan or Iranian governments have followed Saudi Arabia's path and their national energy companies have suffered as a result.  PDVSA's production is shrinking as Hugo Chavez, Venezuela's populist president, funnels the country's oil riches away from developing its oil fields and into domestic and international social programs."  --  As for Iran, that country "has yet to properly develop the world's largest gas field, on which it sits, as it is hampered by its government's strained international relations and generous domestic fuel subsidies." ...


1.

FT report

Energy

A NEW ERA OF NATIONALISM
By Carola Hoyos

Financial Times (UK)
June 19, 2007

Original source: Financial Times (UK) (subscription required)

John Paul Getty, one of the world's first billionaires, once said: "The meek shall inherit the earth, but not its mineral rights."

Though the quip holds as true today as it did in 1916 when Mr. Getty first struck oil in Oklahoma, it is likely the oil man was thinking of his fellow industrialists as the inheritors.

Today's true power brokers are a group of state-owned oil companies that span the globe from China to Venezuela, rather than the Gettys, Rockefellers, Nobels, and Rothchilds of yesteryear.

Today's industry rule makers -- or "the New Seven Sisters" -- are: Saudi Aramco, Russia's Gazprom, CNPC of China, NIOC of Iran, Venezuela's PDVSA, Brazil's Petrobras and Petronas of Malaysia. Together, they control almost one-third of the world's oil and gas production and more than one-third of its total oil and gas reserves.

Meanwhile, the influence of the companies that emerged from Standard Oil and the old seven sisters -- ExxonMobil and Chevron of the U.S. and Europe's BP and Royal Dutch Shell -- has waned, especially in the past three years of high oil prices and renewed energy nationalism.

The new order is so difficult for the oil majors that Helmut Langanger, head of exploration and production at OMV, the Austrian energy group, wrote in a recent conference paper: "International oil companies (IOCs) will more and more change from operator to a service provider with pre-agreed reimbursement figures, thereby substantially diminishing rates of return. Reduced profitability will lead to IOCs not delivering on major performance indicators, such as annual production growth, 100 per cent reserve replacement rates and moderate finding and development costs."

Though many have been less blunt than Mr. Langanger, much has been written about the difficulties the world's biggest listed energy groups face. Less is known about those companies that are usurping them.

They are a diverse group, with some moving from strength to strength and others providing cautionary tales of the destructive nature of power-hungry governments. Saudi Aramco, Gazprom, of Russia, Venezuela's PDVSA, and Iran's Nioc all own vast riches of gas and oil. CNPC of China, though also endowed with large domestic resources, is Beijing's most powerful tool to ensure the country's economy has enough energy to fuel its rapid expansion.

Petrobras and Petronas are most powerful as examples of national energy groups that have managed to pick up the know-how and become competitors to the likes of BP, Royal Dutch Shell, and Chevron Texaco around the world. Petrobras is a leader in drilling oil from the world's deepest waters, while Petronas has managed to turn itself from a national natural gas provider in to an international competitor with some of the best-trained staff in a labor-tight market. At the top is Saudi Aramco. Not only does it hold 25 per cent of the world's proven oil reserves, but, unlike many of its peers, it has learned how to best exploit the riches it has inherited. Two factors have been instrumental to the company's success. First, it absorbed the technical and managerial expertise needed to run its industry from the international oil companies it nationalised more than 20 years ago and it continues to invest in development and research, aided by foreigners. Second, the house of Saud, though ultimately responsible for energy policy, has left the day-to-day running of the industry to technocrats.

This has allowed Saudi Aramco to embark on its most ambitious expansion project in a generation. It is investing $50bn over the next 15 to 20 years, planning to bring its crude oil capacity from 10.5m barrels a day to 12m b/d by 2009 and eventually to 15m b/d. Meanwhile, refining capacity is set to double in the next five years.

Neither the Venezuelan or Iranian governments have followed Saudi Arabia's path and their national energy companies have suffered as a result. PDVSA's production is shrinking as Hugo Chavez, Venezuela's populist president, funnels the country's oil riches away from developing its oil fields and into domestic and international social programs.

Meanwhile, Iran has yet to properly develop the world's largest gas field, on which it sits, as it is hampered by its government's strained international relations and generous domestic fuel subsidies. Nevertheless both companies still wield huge power as international oil and gas groups vie to be their partners, despite the ever higher hurdles set by Caracas and Tehran.

Gazprom, Russia's gas monopoly, sits somewhere in between Saudi Aramco and its less successful peers. In the past three years, as the Kremlin has moved to consolidate its power over Russia's oil and gas resources, Gazprom has been its main beneficiary. The company has a monopoly on the country's gas transport infrastructure and recently gained Royal Dutch Shell's controlling stake in Sakhalin II, its most ambitious liquefied natural gas project. But it needs to invest billions in its ageing pipelines and, with Moscow playing Europe, its biggest current customer, off against Asia, its biggest future market, analysts fear the company will not be able to meet its long-term commitments or its true potential.

Unlike Gazprom and Saudi Aramco, CNPC is not blessed with mineral wealth so vast that it can keep its energy-hungry country supplied. The power and influence of CNPC lies not in what it has, but in what its government wants: oil and gas. To that end, the company has Beijing's international diplomatic influence and deep pockets on its side. It has fanned out across the globe to controversial countries such as Sudan, where other companies fear to tread because of the murderous crisis in Darfur. In 2005, CNPC paid $4.2bn for Petrokazakhstan in China's biggest-ever foreign takeover and this year it bolstered its domestic oil coffers when PetroChina, its subsidiary, made one of the biggest discoveries of the decade in northern China. Even the achievements of ExxonMobil, the world's largest listed international energy group, pale in comparison. But the tide could turn again in favor of Exxon and the world's other big companies whose know-how and ability to access financial markets are still stronger than that of most national oil companies. For the power to shift again, however, oil prices would have to decline substantially, executives, acknowledge.

So far, few of them are betting on a collapse. But there is also a second, more gradual way the balance could shift.

As global warming and energy security creep up the list of things governments in Europe, the U.S. and Asia, worry about, nuclear, biofuels, efficiency gains and other alternatives to oil and gas are coming into focus.

As they do, the ranking of the next generation's seven sisters will be determined by which companies -- national or international -- adapt most nimbly to the changing paradigm.

www.ft.com/indepth/7sisters