Overview of the Political and Economic Arguments in Favor of and Against the Establishment of a NOC

Abstract

Decisions regarding the creation and management of National Oil Companies (NOC) can be appreciated within the general context of government intervention in the economy. Its degree tends to change over time in response to exogenous (e.g. geopolitics, economy) and endogenous (e.g. state objectives) factors, affecting the existence and behavior of NOCs. This paper discusses the key arguments – in terms of a priori reasoning and empirical experience – in favor of and against the creation of a NOC, taking into consideration their historical context. Section 1 introduces the topic. Section 2 provides a chronological account of the emergence (and, at times, disappearance) of NOCs on the global sector map. Section 3 presents the substantive arguments put forward in favor of NOCs, and Section 4 summarizes the practical differences and setbacks experienced by and with National Oil Companies. Section 5 concludes.

This is a draft version of Chapter 2 of the Study on “National Oil Companies and Value Creation”, undertaken by the Oil, Gas and Mining Policy Division of the World Bank. It has been published to inform the public on progress and invite dialogue. A revised version of this paper will be included in the Study which is expected to be completed by June 2010.

The paper was written by Christian O. H. Wolf (Consultant), with contributions from the Task Leader of the Study, Silvana Tordo (Lead Energy Economist, Oil, Gas and Mining Division of the World Bank), and Olivier Fremond (Country Manager, Gabon, Equatorial Guinea, and Sao Tome and Principe, World Bank).

Keywords: Petroleum, oil and gas, national oil companies

JEL Classification: H80, L71, N40, N50, Q48