Who are the major players supplying the world oil market?

Last Updated: March 15, 2012 (Figure 1 updated February 7, 2013)

The world oil market is complicated. Companies are often thought of as the primary actors in this market, but governments play a large role as well. To answer this question, we'll explore the role oil companies and governments play in the world oil market and their interactions.

Although international oil companies (IOCs) are often thought of as those most responsible for world oil production, it is national oil companies (NOCs) that actually control the majority of proven oil reserves (85% in 2010) and current production (at least 55% in 2010).

There are three different types of companies that currently supply crude oil to the world market. The distinctions among these three types of companies are important because each has different general operational strategies and production-related goals.

International oil companies (IOCs), including ExxonMobil, BP, and Royal Dutch Shell are entirely investor-owned and primarily seek to increase shareholder value and make investment decisions based on economic factors. These companies typically move quickly to develop and produce the oil resources available to them and sell their output in the global market. Although these producers are affected by the laws of the countries in which they produce oil, all decisions are ultimately made in the interest of the company, not a government.National oil companies (NOCs) that operate as an extension of the government or a government agency, include Saudi Aramco (Saudi Arabia), Pemex (Mexico), and PdVSA (Venezuela). These companies support their governments' programs financially and/or strategically. They often provide fuels to domestic consumers at prices lower than those in the international markets. These companies do not always have the incentive, means, or intention to develop their reserves at the same pace as the commercial companies. Due to the diverse situations and objectives of the governments of their countries, these NOCs pursue a wide variety of objectives that are not necessarily market-oriented. The objectives NOCs pursue, however, include employing citizens, furthering a government's domestic or foreign policy objectives, generating long-term revenue, and supplying inexpensive domestic energy. All NOCs of the Organization of the Petroleum Exporting Countries (OPEC) members fall into this category.NOCs with strategic and operational autonomy that function as corporate entities and do not operate as an extension of the government of their country, including Petrobas (Brazil) and Statoil (Norway). These companies often balance profit-oriented concerns and the objectives of their country with the development of their corporate strategy. While these companies may support their country's goals, they are primarily commercially driven.

OPEC is a group of some of the world's most oil-rich countries (see OPEC member countries in the Did You Know box.) Together, they control approximately 70% of the world's total proven oil reserves (shaded green in Figure 2), and they produce 41% of the world's total oil supply (Figure 3). OPEC's oil exports represent about 60% of the total petroleum traded internationally. Because of this market share, actions by OPEC member countries can influence world oil markets.

OPEC seeks to actively manage oil production of its member countries by setting production targets for each member except Iraq, for which no target is presently set. The track record of compliance with OPEC quotas is mixed, as production decisions are ultimately in the hands of the individual member countries. Each OPEC country has a NOC, but most also allow international oil companies to operate within their borders.

The difference between market demand and oil supplied by non-OPEC sources is often referred to as the "call on OPEC." Saudi Arabia, the largest oil producer within OPEC and the world's largest oil exporter, historically has had the largest share of the world's spare production capacity. In fact, the world's spare capacity for oil production is maintained entirely by OPEC. The cost of developing and maintaining idle spare production capacity is inconsistent with the IOC's business model, which includes earning a return on capital invested.

EIA defines spare capacity as the volume of oil production that can be brought on within 30 days and sustained for at least 90 days. Spare capacity can also be thought of as the difference between a country's current production capacity and maximum production capacity. Should a disruption occur, oil producers can use spare capacity to mitigate increases in world oil prices by boosting production to offset lost volumes.

In addition to influencing the operation of NOCs, governments can also dictate the terms by which other oil companies must abide in their country. Access to a country's reserves may fall into four categories (shown in Figure 4):

Full access (15% of world reserves) — All companies must abide by the laws of the government, but no domestic company is given preferential treatment. Examples include the United States, the United Kingdom, and Canada.Equity access (1% of world reserves) — A NOC exists, but does not get preferential treatment over outside oil companies. Examples include Colombia, Indonesia, and Denmark.Limited equity access (37% of world reserves) — The NOC is given priority access to reserves while outside oil companies' access may be limited through minimum domestic ownership requirements, shared production with the NOC, or other methods. Examples include China, Angola, and Russia.No equity access (47% of world reserves) — The NOC has sole access to reserves. No foreign ownership of oil fields is permitted in these countries, and any outside participation is limited to operation through a domestic affiliate. Examples include Iran, Iraq, and Saudi Arabia.

By limiting outside access and imposing targets, governments of oil-rich countries can directly affect world oil supplies. Limited access to oil can force commercially-oriented companies to change production plans or form strategic alliances with NOCs, further establishing the importance of these oil-rich countries as major players in the world oil market.

The United States has no national oil company. The largest three U.S.-based international oil companies (ExxonMobil, Chevron, and ConocoPhillips) are accountable to their shareholders, not the United States government.

In 2010, the world's top three national oil companies (NOCs) by share of world production were: Saudi Aramco (12%), National Iranian Oil Company (NIOC) (5%), and PdVSA (Venezuela) (4%).

The top three international oil companies (IOCs) by share of world production were: Exxon Mobil (3%), BP (3%), and Royal Dutch Shell (2%).

OPEC members held over 70% of proven world oil reserves as of 2010

Each OPEC country has a national oil company (NOC).

Ecuador and Venezuela are the two members of OPEC in the Western Hemisphere.

OPEC members produced 41% of the world's total oil supply in 2010

"OPEC" and "Persian Gulf" countries are not the same.

The Organization of the Petroleum Exporting Countries, or OPEC, was organized in 1960 for the purpose of negotiating with oil companies on matters of oil production, prices, and future concession rights. Of the 12 countries currently in OPEC, only 6 of them are in the Persian Gulf.

Iran
Iraq
Kuwait
Saudi Arabia
Qatar
United Arab Emirates
Algeria
Angola
Ecuador
Libya
Nigeria
VenezuelaIran
Iraq
Kuwait
Saudi Arabia
Qatar
United Arab Emirates
Bahrain

Outside oil companies have limited or no access to most of the world's proven oil reserves.

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Why Hawaii Just Became An Even Better Market For Solar

(Forbes.com)  Already one of the most attractive markets for solar power in the United States, Hawaii recently made it easier for underserved residents to invest in clean energy. Last month, Gov. Neil Abercrombie signed a bill authorizing the state Energy Office to establish a green infrastructure financing program.

Central to the program is the use of on-bill financing, which will enable property owners and renters in Hawaii to install energy-saving improvements without the upfront costs that are a burden for those without deep pockets.

Hawaii is an ideal market for solar power. There is the abundant sunshine, of course, but also important are the economic drivers. Because Hawaii burns expensive imported oil to generate over 75% of its electricity, residential customers pay the highest average retail electricity rates in the country ($0.37 per kilowatt-hour), double the rates in Alaska ($0.185/kWh), the runner-up.

The average monthly residential electricity bill in Hawaii, $203, is the nation’s highest. Because of the high retail electricity prices, Hawaii residents can install solar, without incentives, for less than the cost of grid electricity.

Combine the ample sun, high energy costs, state and federal tax incentives, and general U.S. market shift from solar ownership to leasing and it’s no wonder Hawaii ranks No.3 nationally for cumulative solar electricity capacity per capita.

But the solar bounty hasn’t been harvested equally. Some 40% of Hawaii residents are renters who have no incentive to purchase a PV system for a home likely to be left within a few years. Low-income homeowners may not be able to qualify for a conventional loan to invest in solar. And non-profits aren’t directly eligible to take advantage of solar tax credits.

Senate Bill 1087, which Gov. Abercrombie signed on June 27, makes solar photovoltaic systems, as well as solar thermal water heaters and big-ticket energy efficiency upgrades, available to all these underserved customers by eliminating the thorny issue of the upfront costs.

On-bill financing enables residential or commercial property owners or renters to avoid the initial out-of-pocket expense to install energy improvements. Upgrades are instead financed with loans paid back via a line item on the customer’s monthly utility bill. If the property is sold or transferred, the loan stays with the meter and would be taken over by the new property owner or tenant.

The Hawaii on-bill financing program, as with a South Carolina program I wrote about earlier this week, is designed to be “bill neutral” – that is, the monthly energy savings should at least match, and usually exceed, loan payments. Participants in the South Carolina program are saving an average of nearly $300 annually after loan payments now, and will pocket more than $1,100 on average each year after loans are repaid.

“GEMS’ [Green Energy Market Securitization] objective is to make clean energy improvements accessible and affordable,” Noreen Kam, Communications Officer, Hawaii State Energy Office, told me in an e-mail. “In the first phase, we will target financing for distributed solar, especially in the underserved markets (low to moderate income, renters, nonprofits), to bring cost savings to consumers and to contribute to the state’s clean energy goals.” Hawaii expects to meet 70% of its electricity demand with clean energy (40% renewables, 30% energy efficiency) by 2030.

When Hawaii’s on-bill financing program launches next year, interested customers will hire certified contractors to install energy-saving equipment. The projects will be paid for by private investors who have purchased state-issued bonds. Bondholders are repaid via the monthly loan payments collected from the utility bills of participating customers. This Blue Planet Foundation flowchart helpfully explains the on-bill financing framework.

To be sure, the steep upfront cost is not the only barrier preventing Hawaii residents from installing solar. In a recent report, John Farrell, a researcher with the Institute for Self-Reliance, described other barriers, including required electrical upgrades and interconnection study costs. But, if on-bill financing launches as expected next year, lack of means need not prevent Hawaiians from investing in solar power.

The Hawaii Public Utilities Commission must sign off on the GEMS program, said Kam, but the state expects to launch on-bill financing after the first quarter of 2014.

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