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The Need of hour- Better Risk Management for Oil & Gas Industry

The Oil and Gas industry is facing new challenges due to several reasons like shrinking reserves, lack of skilled manpower, global warming, call for clean green energy options, commodity market volatility etc. Effective handling of these challenges requires making informed decisions at the right time and managing risks before they become too big to handle. Better Risk Management is going to play a major role in shaping this industry in the coming decades and allowing it to make the better-informed decisions that are needed for its survival.

 

February 07, 2011

Exporting the Norwegian Model - How oil rich countries are trying to avoid the resource curse

I recently came across two interesting working papers from Stanford University that you may like to read when free. I am giving short summaries: 1. Exporting Norwegian Model: Limits of Institutional Design Many countries across the world having rich oil reserves get affected by what is called " Resource curse". Access to easy oil and overdependence on oil revenues reduces the overall competitiveness of the country's economy and increases corruption, internal strife etc., which causes an overall low development of the country. Possible examples are- Nigeria, Sudan, Venezuela etc. Norway is an exception, which despite depending for over 40% of its exports on Oil and Gas, has avoided this oil curse. The Norwegian model consists of following 2 constructs: 1.Separate the commercial activities of the country's National Oil Company (Statoil in case of Norway) from Oil policy making and Complaince Regulation. In short, have three separate bodies- one that makes policies, one that ensures complaince to policies and one that is run as a commercial entity 2. Divide petroleum revenue into three pools – budget, heritage and stabilization funds. Any excess revenues due to oil price rise go into heritage and stablisation funds. Many oil rich countries across the globe (e.g. Kuwait) have tried to adopt the Norwegian model, but with varying levels of success. http://pesd.stanford.edu/publications/the_limits_of_institutional_design_in_oil_sector_governance_exporting_the_norwegian_model/ 2. Risk Management and Frontier of Petroleum industry: The paper discusses how risks change for upstream oil sector as fields become more mature, why IOCs are better equiped to manage risks, when NOCs need to partner with them and when they can avoid them. 1. Exploration and production risks are very high when the field is developed, become low when the production starts and then again become very high when production starts falling and advanced techniques are needed to get more production. (e.g. Kuwait is now slowly moving to third phase) 2. NOCs need to partner with IOCs in first and third phase 3. Oil services companies (e.g. Schlumberger etc) have given NOCs an upper hand when negotiating with IOCs. http://pesd.stanford.edu/publications/on_the_states_choice_of_oil_company_risk_management_and_the_frontier_of_the_petroleum_industry/ Hope you will enjoy these. Please let me know your views.

Posted by apandey at 06:30 AM | Comments (0)