Can you name the 12 members of OPEC?

Why do we care about OPEC oil?Who are the main players involved in

the supply?

Players• The diagram below summarises the role of some key players in the energy supply

What influences oil pricing? • 2 main determining factors-a) Price of oil on the free market (demand and supply conditions)b) Oil qualityCrude oil is the MOST TRADED COMMODITY (good) in the worldIt can be sold as a ‘futures contract' where buyer agrees to take delivery and seller

agrees to supply a fixed amount at a pre arranged price in specific locationAims to avoid price fluctuation by ensuring future demand for supply in reliant industries

(like Airlines)Crude oil comes in varieties and is proced accordingly- Brent crude from the North Sea is

the bench mark- all other oil is worth less and priced in relation to that

2008-Oil prices continuously increased supply

could not keep pace with demand (esp. from China)

OPEC worried about increasing output as then investors may feel there’s a glut on the market and drop prices, affecting OPEC economies

OPEC Members

CountryJoined OPEC Location

Algeria 1969 Africa

Angola 2007 Africa

Ecuador(**) rejoined 2007 South America

IR Iran* 1960 Middle East

Iraq* 1960 Middle East

Kuwait* 1960 Middle East

SP Libyan AJ 1962 Africa

Nigeria 1971 Africa

Qatar 1961 Middle East

Saudi Arabia* 1960 Middle East

United Arab Emirates 1967 Middle East

Venezuela* 1960 South America

*founder Members** Ecuador joined OPEC in 1973, suspended its membership from Dec. 1992-Oct. 2007

OPEC Member Countries:

‘The economics of oil’• OPEC’’s objective is to coordinate petroleum

policies amongst members• To ensure fair and stable prices for producers • An efficient economic and regular supply to

consumer nations• A far return on capital for those investing in

industry • OPEC was formed in 1960 to protect interests of oil producing countries

• At the time oil in mid east was controlled by TNCs- who raised and lowered prices as they wished to do so.

• In 1960 faced with a glut of oil prices were lowered- reducing taxes and royalties for oil producers so 5 oil producers came together and OPEC was formed-

• Some people say OPEC is a CARTEL (Association of producers or suppliers formed to monopolise the production and distribution of a product or service to control prices etc. In politics a cartel is an alliance of parties or interests created to further common aims)

What is OPEC?

• The Organization of the Petroleum Exporting Countries (OPEC) is a permanent intergovernmental organization of 12 oil-exporting developing nations

• It aims to– Protect the interests of member countries– Stabilise oil prices– Ensure efficient , economic and regular supply

of oil

OPEC’s role in energy supply:Sets oil production quotas (numbers) for members in

response to economic growth rates and demand supply conditions.

If demand suddenly rises OPEC can increase production to prevent sharp price rises

It can also be reduced to maintain price if demand falls

Aims to get fair price for members without swamping the market or restricting it (forcing price up)

At the end of 2006 had proven reserves of over 900,000 million barrels of crude oil (nearly 78% of the world’s total reserves)

They produce about 45% of the world’s crude oil and 18% of its natural gas

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Task

• Read pages 32 – 33 Oxford and page 20 OUP

• Complete the Facebook profile for OPEC

• Briefly explain why OPEC is such a powerful player in the energy game

Homework- Powerful players in the global supply of energyOPEC

1) What is OPEC? 2) What are the aims of OPEC?3) How much power does OPEC have?4) What countries are not part of OPEC and why might they have chosen

not to be a member?5) Why could it be argued that both oil producing countries, benefit and

suffer from OPEC?6) Exam style question-7) Assess the impact of OPEC on global oil supply and demand (10)

The role of energy TNC’s• Task• Build a brief fact file of an energy TNC to illustrate its

importance as an energy player. You should cover the following points:

– Country of HQ– Areas of operation– Share of market/turnover– Evidence of political power – Plans for future diversification

8. ENI• ENI or Ente Nazionale Idrocarburi is an Italian-based, government backed multinational company started

in the 1920s with the official incorporation finalized about 30 years later. With strong presence inside its country of origin and worldwide, the company is now ranked as the third largest oil refiner in Europe, behind Shell and Total. ENI’s core businesses include exploration and production, gas, power, energy, engineering, technology and construction.

Sales = $119.27 billion, profits = $13.70 billion, assets = $128.015 billion, market value = $127.38 billion.

9. Petrobras (Brazil)• Based in Rio de Janeiro, Brazil, Petrobras inception was highly credited to the country’s two-time

President, Getulio Vargas, whose political career ended with a suicide. Between 1950s up to the turn of the 20th century, Petrobras was the monopoly for the oil and gas industry in Brazil and played a big part in driving the country’s economy. Apart from its native country, the company also has significant presence in North America, South America, Africa, Europe and Asia.

Sales = $87.52 billion, profits = $11.04 billion, assets = $129.98 billion, market value = $236.67 billion.

10. PetroChina (China)• One of the most profitable companies in Asia, PetroChina was also ranked by Forbes as the largest

company in China, and 55th in the overall worldwide ranking. Through prudent management and operation, the company has been presented with a string of awards by international magazines that include the best company in dividend payout policy, best investor relation, and best corporate governance. PetroChina is publicly traded in a few major stock exchanges including New York, Hong Kong and Shanghai.

• Sales = $88.24 billion, profits = $18.21 billion, assets = $111.70 billion, market value = $546.14 billion.

5. Chevron (United States)

• Chevron is also another spin-off from the Standard Oil company, and made its mark after discovering the world’s largest oil field in Saudi Arabia in the 50s. Chevron has commercial interests in pretty much everything related to oil and gas - exploration, production, transportation, logistics, marketing and trading, manufacturing, polymer, chemicals and power. The company operates in more than 80 countries worldwide, providing employment to more than 50,000 people across all major continents.

• Sales = $203.97 billion, profits = $18.69 billion, assets = $148.79 billion, market value = $179.97 billion.

6. Gazprom (Russia)• Gazprom is Russia’s largest company, and controls as much as 90% of the country’s overall production of

gas. Its overall capacity also accounts for more than 15% market share of the world’s gas reserve. On top of that, the company boasts its presence by owning a gas pipeline network stretching some 150 thousand kilometers in length, currently the longest pipeline in the world. Apart from oil and gas, Gazprom also has business interests in finance, insurance, banking, communication, media, agriculture and construction.

• Sales = $81.76 billion, profits = $23.30 billion, assets = $201.72 billion, market value = $306.79 billion.

7. ConocoPhillips (United States)

• ConocoPhillips is listed among the Six Supermajors alongside ExxonMobil, Shell, BP, Chevron and Total. The Supermajor refers to the world’s largest non-state owned energy companies. As of today, the company operates in close to 40 countries worldwide, with its headquarter located in Texas, United States, and employing more than 30,000 staff. Conoco runs service stations under different brand names such as ProJET (Malaysia), COOP (Switzerland) and Turkpetrol (Turkey).

• Sales = $171.50 billion, profits = $11.89 billion, assets = $177.76 billion, market value = $129.15 billion.

2. Royal Dutch Shell (Netherlands) • Two companies - Royal Dutch Petroleum of Netherlands and Shell Transport and Trading Company of

United Kingdom decided to merge their operations in the early 20th century. The result is the formation of The Royal Dutch Shell Group with 2 main offices, one in The Hague (Netherlands), and another in London (United Kingdom). The formation of the new entity also signaled the group’s intention to compete with the then dominant Standard Oil company. After more than a century, seems like it is doing well.

• Sales = $355.78 billion, profits = $31.33 billion, assets = $266.22 billion, market value = $221.09 billion.3. BP (United Kingdom) • The founding of BP was almost concurrent with the formation of the Shell Group, but it had to endure

a path full of controversies and complexity. BP’s history is always linked to the middle east oil struggle, America’s CIA agents, and the coup of the Iranian’s power to protect the company’s commercial interest in the country. After merging with Amoco, the group was known as BP Amoco albeit for only a while before reverting back to BP. While BP originally denotes British Petroleum, the company is transitioning its name to Beyond Petroleum to reflect its global reach and operation.

• Sales = $281.03 billion, profits = $20.60 billion, assets = $236.08 billion, market value = $204.94 billion.4. Total (France) • The French government was once approached by the Shell Group to be part of the company, but

instead of agreeing for a partnership deal, the then Prime Minister, Raymond Poincare decided to form something original, and something French. Under his directive, a company by the name of Compagnie francaise des petroles, or CFP was founded in 1924 which was also made as a commercial tool in case of war. A number of mergers and acquisition ensued in the next few decades, before the company settling with its new name Total.

• Sales = $199.74 billion, profits = $19.24 billion, assets = $165.75 billion, market value = $181.80 billion.

Largest1. ExxonMobil (United States)• • The history of ExxonMobil stretches back all the way to the 19th century,

through the inception of Standard Oil company founded by John D. Rockefeller.

• From a small outfit, Standard Oil grew enormously until it was considered a monopoly, forcing the authority to split the company to 34 different companies. Exxon and Mobil are two of the resulting new entities, which in 1999 decided to merge in a so-called the biggest merger in history. Fortune also named ExxonMobil as the world’s most profitable company, ahead of Shell and General Electric.

• Sales = $358.6 billion, profits = $40.61 billion, assets = $242.08 billion, market value = $465.51 billion.

Lesson summary

• Energy TNCs, OPEC countries and other large producers are increasingly powerful players in the global supply of energy.

Task for lessons 5 and 6

• Get into 3’s • Each will do a facebook profile- but for

different key players• Russian Gas Giant Gazprom• OPEC• A named TNC (Exxon, BP, Shell)

1 2 3

Aneesha Amardeep Roxanne

Ummar Aphrodite Usman

Shahir Oliver Demola

Kiran Mariya Josh

Charles Billy Shanpreet

Grace Chris