NCPA - National Center for Policy Analysis


August 11, 2006

Big Oil is pretty small next to the industry's true giants: the national oil companies (NOCs) owned or controlled by the governments of oil-rich countries, which manage over 90 percent of the world's oil, depending on how you count.  Of the 20 biggest oil firms, in terms of reserves of oil and gas, 16 are NOCs.  Saudi Aramco, the biggest, has more than ten times the reserves that Exxon does.

But if the amount of oil at state oil companies' disposal is not much of a worry, the way they manage it certainly is, says the Economist:  

  • NOCs are prone to the sort of inefficiencies found at most state-owned firms including overstaffing, underinvestment and control by politics. 
  • The result hurts everyone because producers are not able to profit from increases in efficiency, and as a result, consumers must pay more for oil to help recover the cost of production.

The easiest way to improve performance, says the Economist, would be to subject state oil to the market:

  • Privatization would be best, allowing them to concentrate on maximizing their oil revenue through taxes and royalties.
  • Governments should at least subject their NOCs to competition, either by encouraging them to expand abroad or by allowing foreign firms some access to their home territory.
  • At minimum, they should grant NOCs operational autonomy, and allow them to retain and invest some portion of their earnings.

Source: Editorial, "Really Big Oil," Economist, August 10, 2006


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