Week 1 – Overview of the Global Oil and Gas Industry
Learning Outcomes
LO1: Understand and critically discuss relevance of the main conceptual paradigms and
empirical issues pertaining to oil and gas management.
LO2: Be able to demonstrate in-depth knowledge and understanding of current issues within
the subject area of oil and gas management.
LO3: Demonstrate critical awareness of oil and gas management through application of the
study’s conceptual underpinnings to analyse and synthesise industry-related problems (IC).
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Contents
1. Introduction
3
2. The Global Oil and Gas Industry in Numbers
5
3. Key Players in the Global Oil and Gas Industry
10
3.1. National Oil Companies (NOCs)
10
3.2. International Oil Companies (IOCs)
12
3.3. Hybrid Companies
14
3.4. Independent Producers
15
3.5. Service Companies
15
4. Interactions Between the Different Key Players
17
5. The Organisation of the Petroleum Exporting Countries (OPEC)
18
6. Summary
21
References
22
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1.
Introduction
Crude oil and natural gas have been the primary sources of energy throughout the world for
decades. The discovery of these resources has resulted in advances in the world economy,
spanning from industrial manufacturing to lighting and transportation (The Energy Institute,
2022). The oil and gas industry has grown to be one of the largest, most important and complex
global industries, and has been shown to have an impact on national security, geopolitics, and
international conflicts (Inkpen and Moffett, 2011). The oil and infrastructure market size
exceeded 620 billion USD in 2021, and its expected growth rate between 2022 and 2030 is
6.6% (Global Market Insights, 2022). The increasing demand of oil and gas leads to the design
and implementation of more exploration and production activities. Currently, more than 100
countries produce oil or gas, and these fuels are expected to be important in the following
decades (The Energy Institute, 2022).
The complexity of the oil and gas industry is demonstrated through the variety of different
activities and processes that comprise it (Inkpen and Moffett, 2011). These activities and
processes mutually contribute to the exploitation and transformation of underlying hydrocarbon
resources into usable end-products, while they are inherently linked with one another,
conceptually, contractually, and physically, within or across firms, and national boundaries
(Tordo et al., 2011). Understanding how value is created along the oil and gas value chain is
critical for the design of effective policies. The infrastructure of this industry includes a variety
of resources, such as pipelines, refineries, drilling platforms, terminals, storage facilities and
processing plants (Global Market Insights, 2022). Figure 1 shows the market share distribution
(in USD billion) within the oil and gas industry in 2021 between the different stakeholders
according to the activities they perform.
Overall, the global oil and gas industry comprises thousands of firms that conduct different
types of activities; these may range from specialised activities to activities spanning across
various segments of the oil and gas value chain (The Energy Institute, 2022). The key players in
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the industry include the National Oil Companies (NOCs), the International Oil Companies
(IOCs), Hybrid companies, Independent Producers, and Service Companies. Partnerships
between these players are prevalent, as oil and gas projects can become too large for a single
company, or a company does not want to have full exposure to the risks associated with
prospective projects (NGRI, 2015). In some cases, the resource owner (a country) may not have
the technology to access its oil and gas (Inkpen and Moffett, 2011). In addition, the
Organisation of Petroleum Exporting Countries (OPEC) is a powerful player in the industry, as
its member countries control around 80% of the world’s proven oil and gas reserves (NGRI,
2015).
This topic overview will provide an introduction to the global oil and gas industry. It will
discuss and analyse the key players and stakeholders involved in the industry and the
interactions between them.
Figure 1 Oil and gas infrastructure market share by category, 2021, USD billion (Global
Market Insights, 2022).
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2.
The Global Oil and Gas Industry in Numbers
Inkpen and Moffett (2011) described the oil and gas industry as one of the largest, most
complex, and important global industries, affecting global livelihood with products such as
transportation, heating, and electricity fuels, asphalt, lubricants, natural gas (methane), propane
and butane (LPG); and thousands of petrochemical products, such as plastics, detergents,
solvents, synthetic fibres, rubbers, paints, resins and many others (Speight, 2011). Furthermore,
the oil and gas industry heavily impacts national security, elections, geopolitics, and
international conflicts (Inkpen and Moffett, 2011). Hilyard (2012) suggested that the core of the
structure of the petroleum industry are the upstream processes, which are determined by the
relevant multi-national companies that search for, develop, extract and exploit oil and gas.
Figure 2 shows the general structure of the petroleum industry. Besides the upstream processes,
midstream (processing and transportation) and downstream processes (refining and marketing)
are also vital, in which different organisations are involved.
Figure 2 General structure of the petroleum industry (Hilyard, 2012).
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The world proven crude oil reserves have steadily increased since 1960 (Figure 3). According
to the Organisation of Oil Producing Countries (OPEC), the total crude oil reserves in 2022
were 1564.44 billion barrels of crude oil (OPEC, 2023). The breakdown of the share of these
reserves by area is shown in Figure 4. The historical dominance of the Middle East in terms of
proven reserves through time is demonstrated in Figure 3 while, in 2022, 871.61 billion barrels
were estimated to be produced in this area, corresponding to 55.71% of the total world proven
reserves (Figure 4).
Figure 3 World proven crude oil in billion barrels of crude oil (left hand-side vertical axis)
and percentage share of total production (right hand-side vertical axis) for the period
between 1960 and 2022 (OPEC, 2023).
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Figure 4 Share of world crude oil reserves in percentage for 2022 (OPEC, 2023).
In line with the increase in the proven crude oil reserves, the production of crude oil also
showed an increase over the period 1960-2022 (Figure 5) (OPEC, 2023). In 2022, the Middle
East produced 25.09 million barrels of crude oil per day (mb/d), corresponding to a 34.47%
share in the total world production. OECD Americas followed with 14.74 mb/d, corresponding
to 20.25% of the total world production.
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Figure 5 World crude oil production in million barrels of crude oil per day (mb/d) (left
hand-side vertical axis) and percentage share of total production (right hand-side vertical
axis) for the period between 1960 and 2022 (OPEC, 2023).
In 2015, 29% of total global oil production came from offshore reserves (US Energy
Information Administration, 2016). Five countries provided 43% of total offshore oil
production, namely Saudi Arabia, Brazil, Mexico, Norway and the U.S. Offshore production
has remained fairly consistent in the last decade, and growth in deepwater and ultra-deepwater
production has been slow (US Energy Information Administration, 2016). Although
technological advancements have made these areas more accessible, deepwater and
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ultra-deepwater projects are much more expensive, so the majority of offshore production is in
shallow waters. Currently, Brazil leads the world in development of deepwater and
ultra-deepwater projects.
The most significant recent development in onshore production is the increase in shale (tight)
oil and gas production (US Energy Information Administration, 2016). This is largely a U.S.
phenomenon that has shown significant growth and is not showing signs of slowing down. To
date shale oil has been developed exclusively onshore, but development of offshore shale oil
discoveries is being contemplated. Shale oil accounted for about 64% of total U.S. crude oil
production in 2021, which corresponds to 7.23 million barrels per day, and it is expected this
share will continue to increase (US Energy Information Administration, 2022). These recent
increases in shale oil production from the U.S. have contributed to a rate of global onshore
production that has outpaced offshore production. The geographic restriction of shale oil
production to date is partly because U.S. shale projects have attracted most of the current
capital investment from oil and gas companies. Start-ups in other countries would require a
critical mass of activity and learning. However, Canada, UK and Argentina have developed
further, and it is likely that shale oil extraction will spread to other geographies.
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3.
Key Players in the Global Oil and Gas Industry
As per Hilyard (2012), the key players involved in the industry include the National Oil
Companies (NOCs), the International Oil Companies (IOCs), Hybrid Companies, Independent
Producers and Service Companies. Each of these players are defined and discussed in the
following sections.
3.1.
National Oil Companies (NOCs)
NOCs are oil and gas companies that are partially or fully owned by national governments.
NOCs were created from existing petroleum ministries or from the assets of companies
operating in the country. Some examples of NOCs are Sonatrach (Algeria), Libyan National
Oil, Saudi Arabian Oil (Saudi Aramco), Abu Dhabi National Oil, Petroliam Nasional Berhad
(Petronas, Malaysia), Petróleos de Venezuela (PdVSA), Kuwait National Petroleum and
Nigerian National Petroleum. NOCs are important players in the oil and gas industry, as they
are involved in the regulation of the industry, commodity trading, fiscal expenditures, and oil
and gas extraction activities. The structures of NOCs differ depending on whether they have a
history of exclusive rights to oil and gas operations, partner with IOCs for certain or all
ventures in their country, or choose to compete with international affiliates for oil and gas
operations (Raymond and Leffler, 2017).
The Natural Resource Governance Institute (NRGI) has compiled the National Oil Company
Database. This provides the largest set of data reported by the various NOCs around the world,
and enables the direct comparison of the performance of NOCs based on several key indicators
(National Oil Company Database, 2023). Some of these indicators include oil and gas
exploration and production, revenues, transfers to government, expenditures, cash flows,
operational and financial performance. For instance, data collected from company reports
indicated that Saudi Aramco was the largest oil and gas producing NOC in 2021, with a total of
12,300,000 barrels of oil equivalent per day (boe/day) (Table 1). As shown in Table 1, many of
the NOCs are categorised as internationalized operators (for example Saudi Aramco, Gazprom,
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PetroChina, etc.), or International National Oil Companies (INOCs). Other NOCs are
considered large, medium or small domestic producers, for example Pemex, Petrobangla (not
shown in Table 1) and ETAP (not shown in Table 1), respectively.
Table 1 Oil and gas production by National Oil Companies in 2021. Production values in
barrels of oil equivalent per day (boe/day) (National Oil Company Database, 2023).
Company
Country
Production Group
2021
Saudi Aramco
Saudi Arabia
Large domestic producers
12,300,000
Gazprom
Russia
Internationalized operators
9,605,643
CNPC
China
Internationalized operators
6,331,326
Rosneft
Russia
Internationalized operators
4,900,000
PetroChina
China
Internationalized operators
4,454,904
Sonatrach
Algeria
Large domestic producers
3,471,612
Petrobras
Brazil
Internationalized operators
2,774,000
Pemex
Mexico
Large domestic producers
2,515,674
Petronas
Malaysia
Internationalized operators
2,275,000
Equinor
Norway
Internationalized operators
1,932,000
Sinopec Group
China
Internationalized operators
1,927,672
CNOOC Limited
China
Internationalized operators
1,569,560
Sinopec Corp
China
Internationalized operators
1,186,400
Pertamina
Indonesia
Large domestic producers
897,000
ONGC
India
Internationalized operators
785,418
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3.2.
International Oil Companies (IOCs)
IOCs constitute the world’s largest corporations in terms of revenue, with global operations that
define the entire oil and gas value chain. Initially (in the mid 60s), the global oil and gas trade
was dominated by the Seven Sisters, seven publicly owned companies, namely. Esso, Socony,
Socal, Gulf Oil, Texaco, Royal Dutch Shell and Anglo-Persian Oil Company. Eni joined this
club at a later stage, while during the last half of the 20th century, mergers and acquisitions
transformed the above companies included in the Seven Sisters group into the companies
known today as ExxonMobil, Chevron, Royal Dutch Shell and BP. Nowadays, IOCs are
described as major or supermajor players, while several of them are today private companies.
Although IOCs are significant players, they control a significantly smaller part of the oil and
gas reserves compared to NOCs. For example, Figures 6a and 6b show the distribution of oil
and gas reserves, respectively, across NOCs, IOCs, majors and independents in 2018 (IEA,
2020). Majors counted 12.3% and 13.9% of oil production (Figure 6a), as well as 13.5% of gas
reserves and 15.3% of gas production (Figure 6b). These shares are significantly lower than
those of the NOCs.
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Figure 6a: Share of oil reserves, oil production and oil upstream investment by (moving
from bottom to top of the bar charts) National Oil Companies (NOCs), International Oil
Companies (INOCs), Independents and Majors, 2018 (IEA, 2020).
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Figure 6b: Share of oil reserves, oil production and oil upstream investment by (moving
from bottom to top of the bar charts) National Oil Companies (NOCs), International Oil
Companies (INOCs), Independents and Majors, 2018 (IEA, 2020).
3.3.
Hybrid Companies
Hybrid Companies are partly public and partly government-owned companies (hence their
name), created in the early 2000’s, and they are also referred to as government-sponsored
enterprises (GSE) (some of these companies may appear in Table 1). Some examples of such
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companies are Petroleo Brasileiro SA (Petrobras), OMV Petrom (Romania) and Statoil-Hydro
(Norway, now known as Statoil). Chinese companies on the other hand, operate with a high
degree of independence from the government, while they already have control over the
disposition of their share production in 20 of the 31 countries where they operate. Since Hybrid
Companies are controlled by both investors and governments, they must be profitable and serve
national interests (securing national energy imports and reserves) at the same time.
3.4.
Independent Producers
Independent Producers are smaller players gaining revenues mostly from production at the
wellhead, and they play a significant role in the upstream oil and gas processes operating
mainly in the United States, but in other countries as well. However, independent producers do
not engage a lot in marketing or refining activities. Independent producers in the USA, for
example, are considered those that refine less than 75,000 barrels per day or have retail sales
less than 5 million USD per year. Through interactions with Petroleum Technology Transfer
Council (PTTC) and other research organisations, independent producers have contributed in
developing and evaluating new technologies, including horizontal drilling and hydraulic
fracturing, leading to a more cost-effective oil and gas production. It has also accelerated shale
oil and gas production.
3.5.
Service Companies
Service companies typically specialise in building and operating drilling rigs, while some others
provide equipment, such as pumps, heat exchanges etc, expertise and tools to assess well
performance, maintenance services, provide lubricants, working fluids, spare parts etc.
Examples of service companies include Halliburton and Transocean (NGRI, 2015). Service
companies have gradually become the centre of gravity for innovation and technological
development, as they undertook many of the processes that were initially conducted by
companies specialised in exploration and production (Raymond and Leffler, 2017). As the oil
and gas prices increase, the demand for field services increases too, which makes such
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companies vital with large market value. Indicatively, Table 2 shows eight service companies
operating in the global petroleum industry that penetrated the annual list of the world’s biggest
companies in the period from 2010 to 2011 (FT Global 500).
Table 2 Petroleum industry service companies that entered the annual list of the
world’s biggest companies (FT Global 500) and their market value (Hilyard, 2012).
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4.
Interactions Between the Different Key Players
As explained earlier, IOCs control a small percentage of global oil and gas reserves today,
whereas it is well acknowledged that NOCs currently control a significantly larger percentage
of such reserves (Figures 6a and 6b). Therefore, varying relationships between IOCs and NOCs
have developed through the years. Some NOCs and IOCs compete with each other, thus
complicating the dynamics in the field, while, at the same time, other players, including service
companies, private equity firms, wealth funds and third-party energy marketers, have taken a
share from IOCs (Hilyard, 2012).
An assessment by Ernst and Young (2009), stated that this new reality has shifted the dynamics
of the global petroleum industry, and now IOCs have to convince NOCs and governments that
they can provide value in multiple sectors, such as in planning and execution of exploitation
and exploration projects, besides just oil and gas production. According to Ernst and Young
(2009) this might include the offering to address the needs of IOCs, such as the training and
employment of local workforce, developing new processes, making available infrastructure,
and assisting with economic development efforts.
As per the Oxford Institute for Energy Studies (2009), NOCs have broadened their activities
over the past 20 years, increasing in this way their influence on countries' resources, which is
the main reason why the relationships between NOCs and IOCs have changed. A representative
example of this change is that NOCs can now choose which IOCs should participate in
Liquified Natural Gas (LNG) projects, while IOCs are trying to meet the new requirements.
Most of the NOCs have nowadays developed the ability to fully implement LNG projects,
including economic, organisational and physical development, which results in less IOC
involvement along the LNG chain. However, this greater involvement comes with a greater
risk, which some government companies are not willing to take. Therefore, there are still NOCs
that seek cooperation with IOCs.
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5.
The Organisation of the Petroleum Exporting Countries (OPEC)
The OPEC is a permanent, intergovernmental organisation, created at the Baghdad conference
in 1960 by five founding members, namely Iran, Iraq, Kuwait, Saudi Arabia and Venezuela
(OPEC, 2023). Subsequently, several countries joined OPEC, including Qatar (1961), Indonesia
(1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Gabon
(1975), Angola (2007), Equatorial Guinea (2017), and Congo (2018). Gabon terminated its
membership in January 1995 but rejoined the Organisation in July 2016. Some other countries,
such as Qatar and Indonesia, terminated their memberships. Currently, the OPEC counts 13
members (OPEC, 2023).
OPEC is a major force in the global trade of crude oil and meets twice per year to assess current
and projected world oil supply, demand and prices, and coordinate accordingly its members
(Hilyard, 2012). As per the OPEC webpage (2023), its mission is “to coordinate and unify
petroleum policies among Member Countries, in order to secure fair and stable prices for
petroleum producers; an efficient, economic and regular supply of petroleum to consuming
nations; and a fair return on capital to those investing in the industry”. Historically, OPEC has
controlled the market by regulating pricing and production parameters in order to achieve its
goals (Hilyard, 2012). According to data for 2022, 79.49% of the world's proven oil reserves
(over 1243 billion barrels) were located in OPEC Member Countries (OPEC Annual Statistical
Bulletin, 2023). The historical increase in the OPEC members crude oil reserves are shown in
Figure 7). Notable is the increase that occurred in 2018, after which a minimal change has been
observed in the reserves estimated for each OPEC member through to 2022.
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Figure 7 OPEC Members’ proven crude oil reserves in billion barrels for the period from
1960 to 2022 (OPEC Annual Statistical Bulletin, 2023).
The effective operation of the OPEC can be hindered by the unknown and varying demand in
oil and gas, the access in non-OPEC sources (refer to Table 3), due to the impact caused by
price changes which could take place after several years, as well as the non-alignment of the
members’ interests due to population differences, oil reserves capacities and the distribution of
the revenues to cover local social and development needs (Hilyard, 2012). Some members
prefer to maximise their revenues through taxes, supporting higher oil prices, whereas other
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members prefer more modest prices so that they do not damage an already weak global
economy and dampen oil and gas demand.
Table 3 OPEC and non-OPEC crude oil and liquid fuels supply at a global level (Hilyard,
2012).
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6.
Summary
An overview of the global petroleum industry, the key players and stakeholders involved in
the industry and the interactions between them were discussed in this topic overview. The
evolution of the industry in terms of both proven crude oil reserves and oil production over
the past 60 years has been presented, highlighting the share distribution of the oil resources
and the power of the OPEC member countries in the global oil production.
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References
Ernst and Young (2009) The 2009 Ernst & Young business risk report, Oxford Analytica.
Available at: https://www.criticaleye.com/inspiring/insights-servfile.cfm?id=861&view=1
(Accessed: 5 February 2023).
Global Market Insights (2022) Oil & Gas Infrastructure Market Size By Category (Surface and
Lease Equipment, Gathering & Processing, Oil, Gas & NGL Pipelines, Oil & Gas Storage,
Refining & Oil Products Transport, Export Terminals), COVID-19 Impact Analysis, Regional
Outlook, Growth Potential, Competitive Market Share & Forecast, 2022 – 2030. Available at:
https://www.gminsights.com/industry-analysis/oil-and-gas-infrastructure-market (Accessed: 5
February 2023).
Hilyard, J. F. (2012) The Oil & Gas Industry: A Non-Technical Guide, PennWell Corporation,
Oklahoma, USA.
Inkpen, A. and Moffett, M. H. (2011) The Global Oil & Gas Industry Management, Strategy &
Finance, PennWell Corporation, Oklahoma, USA.
International Energy Agency (IEA) (2020) The Oil and Gas Industry in Energy Transitions:
World Energy Outlook special report. Available at:
https://www.iea.org/reports/the-oil-and-gas-industry-in-energy-transitions (Accessed: 9
September 2023).
Natural Resource Governance Institute (NGRI) (2015). NRGI Reader, The Oil and Gas
Industry: Overview and Trends. Available at:
https://resourcegovernance.org/sites/default/files/documents/nrgi_primer_oil-and-gasindustry.p
df (Accessed: 9 September 2023),
Oxford Institute for Energy Studies (2009) The Changing Relationship between NOCs and
IOCs in the LNG Chain. Available at:
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https://www.oxfordenergy.org/publications/the-changing-relationship-between-nocs-and-iocs-in
-the-lng-chain/.
Organisation of the Petroleum Exporting Countries (2023) Brief History. Available at:
https://www.opec.org/opec_web/en/about_us/24.htm (Accessed: 6 February 2023).
Organisation of the Petroleum Exporting Countries (2023) Annual Statistical Bulletin 2023.
Available at: https://www.opec.org/opec_web/en/about_us/24.htm (Accessed: 17 September
2023).
Raymond, M.S. and Leffler, W.L. (2017) Oil and Gas Production in Nontechnical Language.
PennWell Books, LLC.
Speight, J. G. (2011) Handbook of Industrial Hydrocarbon Processes. Elsevier.
Statista (2023) Crude oil refinery capacity worldwide in 2010 and 2021, by major country.
Available at:
https://www.statista.com/statistics/273579/countries-with-the-largest-oil-refinery-capacity/
(Accessed: 6 February 2023).
The Energy Institute (2022) Oil and natural gas remain the world's leading fuels, accounting
for nearly 55% of global energy consumption. Available at:
https://www.energyinst.org/exploring-energy/topic/oil-and-gas (Accessed: 12 September 2023).
Tordo, S., Tracy, B. S. and Arfaa, N (2011) National Oil Companies and Value Creation, A
World Bank Working Paper Series No.218, The International Bank for Reconstruction and
Development, Washington DC, USA.
US Energy Information Administration (2016) Offshore production nearly 30% of global crude
oil output in 2015. Available at: https://www.eia.gov/todayinenergy/detail.php?id=28492,
(Accessed: 6 February 2023).
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US Energy Information Administration (2022) How much shale (tight) oil is produced in the
United States? Available at: https://www.eia.gov/tools/faqs/faq.php?id=847&t=6 (Accessed: 6
February 2023).
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