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Overview class Economics of Oil and Gas PHD Economics and Social Science

Macroeconomics of Rich Mineral Countries, with focus on Petro States part 1

Natural rich endowment societies have their own socio-economics dynamics andinstitutions born out of their own experience, understanding them through neoclassicalmacroeconomics models and orthodox national accounting method could become, at times, afutile exercise leading to nowhere and frustration. Therefore, we need different tactics. Indeedour proposal of studying the rent is rooted in the classical tradition of Marx, Smith, Ricardo, andMalthus among others. In the past few years, we have done some descriptive research on thistopic, we want now to actualize some data on the Venezuelan case, via some graphics to updatepast works and illustrate the equation used to calculate extraordinary revenues capture by oilcountries in the world market.

Not only do mineral rich societies manage strategic mineral resources for the internationalmarket, they also -capital surplus countries- own large Sovereign Wealth Fund (SWF) ( seewww.swfinstitute.org) composed of financial and other assets such as corporate bonds, stocksfutures in the commodity markets , real state property, precious metals and so on. These fundsare for the most part the result of oil as gas surplus income or if we prefer, rent collected in theinternational market, as seen in the table kindle provided by SWF Institute. Therefore, they nowplay an important role in the world market not just suppliers of raw material, but also of lendersof money for stressed economies as the recent financial crises demonstrated. As we know, thegravity center of world geopolitical and geo-economics is changing at a fast rate from thetraditional occidental foundations to a multi-polar world , so being knowledgeable aboutemerging economies, their inner working, is vital to understand the new world that is coming ouin the horizon. Large capital surplus countries will play a significant role in that future.


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Sovereign Wealth Fund Rankings

Largest Sovereign Wealth Funds by Assets under Management

Country Fund Name Assets

$Billion

Inception Origin Linaburg-

Maduell

Transparency

Index

UAE Abu

Dhabi

Abu Dhabi

Investment

Authority

$627 1976 Oil 3

Norway

Government

Pension Fund

Global

$512 1990 Oil 10

Saudi

Arabia

SAMA Foreign

Holdings $439.1 n/a Oil 2

ChinaSAFE Investment

Company$347.1** 1997

Non-

Commodity2

ChinaChina Investment

Corporation$332.4 2007

Non-

Commodity6

China

Hong Kong

Hong Kong

Monetary Authority

Investment

Portfolio

$259.3 1993Non-

Commodity8

Singapore

Government of

Singapore

Investment

Corporation

$247.5 1981Non-

Commodity6


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KuwaitKuwait Investment

Authority$202.8 1953 Oil 6

ChinaNational Social

Security Fund$146.5 2000

Non-

commodity5

RussiaNational Welfare

Fund$142.5* 2008 Oil 5

Singapore Temasek Holdings $133 1974Non-

Commodity10

QatarQatar Investment

Authority$85 2005 Oil 5

LibyaLibyan Investment

Authority$70 2006 Oil 2

AustraliaAustralian Future

Fund$67.2 2004

Non-

Commodity9

AlgeriaRevenue

Regulation Fund$56.7 2000 Oil 1

KazakhstanKazakhstan

National Fund $38 2000 Oil 6

South

Korea

Korea Investment

Corporation$37 2005

Non-

Commodity9

US

Alaska

Alaska Permanent

Fund$37 1976 Oil 10

IrelandNational Pensions

Reserve Fund$33 2001

Non-

Commodity10

BruneiBrunei Investment

Agency$30 1983 Oil 1

FranceStrategic

Investment Fund$28 2008

Non-

Commodityn/a


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MalaysiaKhazanah

National$25 1993

Non-

Commodity4

IranOil Stabilization

Fund$23 1999 Oil 1

Chile

Social and

Economic

Stabilization Fund

$21.8 1985 Copper 10

Azerbaijan State Oil Fund $21.7 1999 Oil 10

UAE

Dubai

Investment

Corporation of

Dubai

$19.6 2006 Oil 4

CanadaAlbertas Heritage

Fund$14.4 1976 Oil 9

UAE Abu

Dhabi

International

Petroleum

Investment

Company

$14 1984 Oil n/a

US New

Mexico

New Mexico State

Investment

Council

$13.8 1958Non-

Commodity9

UAE Abu

Dhabi

Mubadala

Development

Company

$13.3 2002 Oil 10

NewZealand

New Zealand

Superannuation

Fund

$12.1 2003 Non-Commodity

10

BahrainMumtalakat

Holding Company$9.1 2006 Oil 8

BrazilSovereign Fund of

Brazil$8.6 2009

Non-

commoditynew


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OmanState General

Reserve Fund$8.2 1980 Oil & Gas 1

Botswana Pula Fund $6.9 1994Diamonds

& Minerals1

East TimorTimor-Leste

Petroleum Fund$6.3 2005 Oil & Gas 6

Saudi

Arabia

Public Investment

Fund$5.3 2008 Oil 3

China

China-Africa

Development

Fund

$5.0 2007Non-

Commodity4

US

Wyoming

Permanent

Wyoming Mineral

Trust Fund

$4.7 1974 Minerals 9

Trinidad &

Tobago

Heritage and

Stabilization Fund$2.9 2000 Oil 5

UAE Ras

Al Khaimah

RAK Investment

Authority $1.2 2005 Oil 3

Venezuela FEM $0.8 1998 Oil 1

Vietnam

State Capital

Investment

Corporation

$0.5 2006Non-

Commodity4

NigeriaExcess Crude

Account$0.5 2004 Oil 1

Kiribati

Revenue

Equalization

Reserve Fund

$0.4 1956 Phosphates 1

IndonesiaGovernment

Investment Unit$0.3 2006

Non-

commodityn/a

Mauritania National Fund for $0.3 2006 Oil & Gas 1


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Hydrocarbon

Reserves

UAE

Federal

Emirates

InvestmentAuthority

n/a 2007 Oil 2

OmanOman Investment

Fundn/a 2006 Oil n/a

UAE Abu

Dhabi

Abu Dhabi

Investment

Council

n/a 2007 Oil n/a

Total Oil & GasRelated

$2,380.7

Total Other $1,730.1

TOTAL $4,110.8

*This includes the oil stabilization fund of Russia.**This number is best guess estimation

***All figures quoted are from official sources, or, where the institutions concerned do not issuestatistics of their assets, from other publicly available sources. Some of these figures are bestestimates as market values change day to day.Updated November 2010


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Updated November 2010

December 2009

Source: Sovereign Wealth Fund Archives

Venezuela has created some Funds beside the FEM to accumulate large surplus in currentaccount, but they are a black boxes due to our political deinstitutionalize system. We presumethat funds like Fonden and Fondo Miranda, besides being used to finance social politicallegitimizing programs and large infrastructure programs, like the 20.000 km plan railroadnetwork system are being employed to finance a costly foreign policy oriented toward exporting


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the revolution. Cuba alone is receiving from Venezuela 14% of her GDP in donations, oilsubsidies and cash transfers for non-tradable services.

At this point, our interest will shift to calculating oil rent and then examine their long-term performance in Venezuela. We prefer to use a long run approach, since we consider it moreaccurate to define the role of oil rent in the performing of the economic growth rate.

The proposed equation could be used in general for natural rich rentiers capitalisteconomies or regions: Yet we believe it can be work out to be more precise.

NRS non-oil: Normal rate of surplus non-oil economyOS non oil: Operating surplus non oil economyOS oil: Operating surplus oil economy

NRS oil: Normal rate of surplus oilSW non-oil: Salaries and wages non oil economyFCC non oil: Fixed capital consumption non oil economySW oil: Salaries and Wages oilFCC: Fixed capital consumption oil

NRS non oil = OS non oil/ (SW non oil + FCC non oil)NRS oil = (SW oil + FCC oil)* NRS non oil

Thus separating from the operating oil surplus ( excedente de explotacin), the fraction considera normal profit rate and obtaining as a residual the landowner income (State). This last one is thOIL RENT or extraordinary revenues. Hence, the payment received for the property rights(sometimes called royalty but not necessarily equal to it) on the land and subsoil where oil orothers mineral resources are being exploited. That rent logically is pay by the consumers sectorof oil importing nations, much less by consumers in oil countries since oil byproducts are

subsidized. It is not (the rent) the product of work in the rentiers economy. If we want to seethis in a microenvironment, when a vehicle user, in advance capitalist country, fills its gasolinetank, a fraction of that money he or she spends returns to the oil producer nation as a rent. In thissense, the State proprietor in the rich minerals resource country acts like a Feudal landlord.

Already the PODE inform of the Venezuelan Ministry of Energy used this equation tocalculate the rent contribution to the national economy in 2006. The Central Bank still uses theold methodological approach of petroleum GDP and non-petroleum GDP but in the internationa


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standard national accounting framework. Therefore, from the Central Bank procedures isimpossible to obtain the oil rent, but we can get the necessary basic information to calculate itThe World Bank also produces some figure on natural capital depletation and oil rent, but forVenezuela, we think, both are overestimated. This equation could be improved, for example, bychanging NRS non-oil for the average profit rate before taxes of largest multinational energycorporations given thus a more precise nature of oil industry performance; deducting thisnormal profit rate from the operational surplus of oil exploitation under specific property rightconditions mention. This equation could also be used with advantages in different that oil,mineral resources rich countries; adjusting it to the economic sector in question.

Using the above equation, we calculated the Venezuelan oil rent and its relation withGDP in the long term as can be seen in the following figures. For that purpose, we used data from

the Anuarios Estadsticos, Series Estadsticas de Venezuela de los ltimos Cincuenta Aos, LaEconoma Venezolana en los ltimos Treinta Aos of the Central Bank, Petrleo y otros DatosEconmicos (Pode) from the Ministry of Energy and Mines. All graphs refer to VenezuelaFigure 1

GDP and Oil Rent Per Capita 1936-2009International dollars 1990

0

500

1,000

1,500

2,0002,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

10,000

10,500

1 9 3 6

1 9 3 9

1 9 4 2

1 9 4 5

1 9 4 8

1 9 5 1

1 9 5 4

1 9 5 7

1 9 6 0

1 9 6 3

1 9 6 6

1 9 6 9

1 9 7 2

1 9 7 5

1 9 7 8

1 9 8 1

1 9 8 4

1 9 8 7

1 9 9 0

1 9 9 3

1 9 9 6

1 9 9 9

2 0 0 2

2 0 0 5

2 0 0 8

U S A

d o

l l a r s

GDP per capita Oil Rent per capita

Sources: Central Bank of Venezuela (BCV), Ministry of Energy and Mines and authorscalculation


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Figure 2

GDP and International Oil Rent growth 1936-2009Index 1936=100

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0800.0

900.0

1000.0

1100.0

1200.0

1300.0

1400.0

1500.0

1600.0

1700.0

1800.0

1900.0

2000.0

1 9 3 6

1 9 3 9

1 9 4 2

1 9 4 5

1 9 4 8

1 9 5 1

1 9 5 4

1 9 5 7

1 9 6 0

1 9 6 3

1 9 6 6

1 9 6 9

1 9 7 2

1 9 7 5

1 9 7 8

1 9 8 1

1 9 8 4

1 9 8 7

1 9 9 0

1 9 9 3

1 9 9 6

1 9 9 9

2 0 0 2

2 0 0 5

2 0 0 8

Oil Rent Per Capita GDP per Capita



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Figure 3

GDP Standard and GDP minus International Oil Rent 1936-2009International Dollar 1990

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

1 9 3 6

1 9 3 8

1 9 4 0

1 9 4 2

1 9 4 4

1 9 4 6

1 9 4 8

1 9 5 0

1 9 5 2

1 9 5 4

1 9 5 6

1 9 5 8

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

U S A

D o

l l a r

GDP per capita minus Oil Rent GDP per capita Standard



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Figure 4

Oil Rent Per capita and Population Growth Index Numbers 1936-20091936=100

0

200

400

600

800

1000

1200

1400

1600

1800

2000

1 9 3 6

1 9 3 8

1 9 4 0

1 9 4 2

1 9 4 4

1 9 4 6

1 9 4 8

1 9 5 0

1 9 5 2

1 9 5 4

1 9 5 6

1 9 5 8

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

Oil Rent Per Capita Population Growth



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Figure 5

GDP per Capita Growth and Population 1936-2009Index 1936=100

0

100

200

300

400

500

600

700

800

900

1 9 3 6

1 9 3 8

1 9 4 0

1 9 4 2

1 9 4 4

1 9 4 6

1 9 4 8

1 9 5 0

1 9 5 2

1 9 5 4

1 9 5 6

1 9 5 8

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

population growth GDP Growth per capita



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Figure 6

GDP and International Oil Rent growth 1936-2009Index 1936=100

0

100

200

300

400

500600

700

800

900

1000

1100

1200

1300

1400

1500

1600

1700

18001900

2000

1 9 3 6

1 9 3 8

1 9 4 0

1 9 4 2

1 9 4 4

1 9 4 6

1 9 4 8

1 9 5 0

1 9 5 2

1 9 5 4

1 9 5 6

1 9 5 8

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

Oil Rent Per Capita GDP per Capita



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Figure 7

Oil Rent growth and Oil Prices real terms 1936-1990Index 1936=100

0

100

200

300

400

500

600

700

1 9 3 6

1 9 3 8

1 9 4 0

1 9 4 2

1 9 4 4

1 9 4 6

1 9 4 8

1 9 5 0

1 9 5 2

1 9 5 4

1 9 5 6

1 9 5 8

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

Oil rent Oil Prices



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Figure 8

GDP Standard and International Rent Per Capita 1936-2009International Dollar 1990

0

2,000

4,000

6,000

8,000

10,000

12,000

1 9 3 6

1 9 3 8

1 9 4 0

1 9 4 2

1 9 4 4

1 9 4 6

1 9 4 8

1 9 5 0

1 9 5 2

1 9 5 4

1 9 5 6

1 9 5 8

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

U S A

D o

l l a r s

0

500

1,000

1,500

2,000

2,500

3,000

U S A

D o

l l a r s

GDP Per Capita Oil Rent per Capita



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Figure 9

International Oil Rent Per Capita 1936-2009International Dollar 1990

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

1 9 3 6

1 9 3 8

1 9 4 0

1 9 4 2

1 9 4 4

1 9 4 6

1 9 4 8

1 9 5 0

1 9 5 2

1 9 5 4

1 9 5 6

1 9 5 8

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

U s a

d o

l l a r s

International Oil Rent



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Figure 10

International Oil Rent as a % of GDP 1936-2009International Dollar 1990

0

5

10

15

20

25

30

1 9 3 6

1 9 3 8

1 9 4 0

1 9 4 2

1 9 4 4

1 9 4 6

1 9 4 8

1 9 5 0

1 9 5 2

1 9 5 4

1 9 5 6

1 9 5 8

1 9 6 0

1 9 6 2

1 9 6 4

1 9 6 6

1 9 6 8

1 9 7 0

1 9 7 2

1 9 7 4

1 9 7 6

1 9 7 8

1 9 8 0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

2 0 0 6

2 0 0 8

p e r c e n

t

International Oil Rent



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Figure 11

Prices of Venezuelan Oil 1936-2009CPI Usa dollars 1990

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

55.00

1 9 3 6

1 9 4 0

1 9 4 4

1 9 4 8

1 9 5 2

1 9 5 6

1 9 6 0

1 9 6 4

1 9 6 8

1 9 7 2

1 9 7 6

1 9 8 0

1 9 8 4

1 9 8 8

1 9 9 2

1 9 9 6

2 0 0 0

2 0 0 4

2 0 0 8

U S D o

l l a r s

Prices of Venezuelan Oil Basket



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Figure 12

Average GDP and Oil Rent 1936-2009International Dollars 1990

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Average GDP Average Oil Rent

Average GDP 2347.88 3869.75 5865 7307.25 8344.5 8933.25 7427.38 7638.63 7531.9

Average Oil Rent 109.5 149.5 387.5 622.62 907 1070.88 705.62 886.25 1596.3

1936-43 1944-51 1952-59 1960-67 1968-75 1976-83 1984-91 1992-99 2000-09

Sources: BCV, Ministry of Energy and Mines and authors calculation


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Bibliography

Anuarios Estadsticos Ministerio de Fomento, varios aos.Memorias Ministerio de Hacienda, varios aos.De Corso G (1999) The Falling Oil Rent and Venezuelas Economics Decline: A QuantitativeAnalysisBCV Anuarios Estadsticos hasta el 2006BCV pagina WEB, y Series Estadsticas de Venezuela de los ltimos Cincuenta AosBCV. 1971. La Economa Venezolana en los ltimos Treinta y Cinco Aos Caracas.CEPAL-Ministerio de Fomento. 1957. El Desarrollo reciente de la economa venezolanaPetrleo y otros Datos Econmicos antiguo Ministerio de Energa y minas varios aos y actualMinisterio del Poder Popular Para la Energa y el Petrleo

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