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Dawning of a NOC era

Rates of return used to decide the feasibility of energy projects. But this is the era of the national oil company (NOC) and that is no longer necessarily a prime consideration.

The energy industries of the major oil exporters - Middle East Opec and Russia - are tightly controlled by governments. (Any hope that the chain of command in Russia's energy industry leads anywhere but to the Kremlin vanished with the auction of Yukos' Yuganskneftegaz unit in December, which went, surprise-surprise, to state-owned Rosneft. The same applies on the demand side ? to fast-growing importers China and India.

These countries' corporate representatives, the ever-more powerful NOCs, have the flexibility of operating in two guises as a profit-driven enterprise or as a state-controlled agency pursuing the national interest. And if both objectives cannot be accommodated, the national interest takes precedence, enabling them to trump profit-driven organisations. NOCs' overriding concern is how to secure safe, reliable energy supplies for their countries. For example, where ExxonMobil and Shell could not see a reasonable return in China's West-East gas pipeline, the project made perfect sense to PetroChina. Unconstrained by project profitability, states decide the location, shape and size of projects and, of course, end up with control.

Strategic partnerships between influential state-controlled energy companies, and bilateral government summits on large-scale energy co-operation are being discussed or announced with, it seems, greater frequency. India's Oil and Natural Gas Corporation is estimated to have invested $3.5bn in overseas exploration and development since 2000. That is still small beer compared with an estimated $40bn for China, whose state-owned companies have been picking up assets for years. But there is new momentum in Delhi's efforts to secure upstream access.

That reflects recognition at the highest level that the country badly needs to sort out its energy problem. With 1.065 billion inhabitants, India has over 16% of the world's population, but a mere 0.4% of its oil resources ? proved reserves are reckoned to be 5.6bn barrels by BP, which would last about 19 years at present consumption rates. With the economy expected to grow by at least 6% a year for the next two decades, India's energy-import requirements will be huge. India and Saudi Arabia have been discussing long-term, take-or-pay oil-supply contracts. India and Russia have also been discussing closer co-operation on energy matters.

Energy security carries such a high price that India is even willing to entertain the possibility of a gas pipeline across Pakistan. There is, of course, the thorny question of how major infrastructure developments, such as liquefied natural gas (LNG) import terminals and gas pipelines for onward transport, will be paid for in India.

It is a similar story with China. While China has been buying up assets for years, Beijing seems to be turning up the heat. Sinopec and PetroChina have been in talks with several investors in Canada's oil sands regarding possible equity investments, joint ventures and long-term supply contracts. And, not content with merely providing Western oil companies with competition, Chinese firms may soon turn to buying them up. CNOOC is reported to be in talks to buy Unocal, in what would constitute a ground-breaking take-over ? reflecting the growing self-confidence of the big state-owned corporations to punch their weight on the world stage. Malaysia's Petronas has also expanded rapidly abroad and Brazil's Petrobras is an emerging force. In Qatar, banks have been lapping up the opportunity to invest in state-controlled LNG ventures.

Increasing influence
The overall picture is one in which NOCs are becoming much more visible in other countries. Over the long term, they will exert increasing influence on the way energy is supplied.

Africa has the opportunity to capitalise on this blossoming trend, especially because the region is growing in importance as a supplier to the US. With Saudi Arabia looking unstable, the prospect of US attacks on Iran bubbling away beneath the surface, Iraq in crisis and Russia showing its ugly nationalistic face, African links with North America will tighten. The World Petroleum Congress, being held in Johannesburg in September, could be a launch pad for closer co-operation among African nations. Tighter regional links would increase the continent's influence as a trading bloc. Indeed, there are signs that this process is accelerating. Libya's NOC and Algeria's Sonatrach have both signalled their intention to step up regional co-operation. Late last year, meanwhile, the final investment decision was taken on the ambitious, cross-border West African Gas pipeline project.

The clarity with which NOCs seem to perceive the energy future and the way they are empowered to act on their vision does not apply to the US. Unlike China and India, the US is dithering. For example, it will shortly need to import massive amounts of gas, but obtaining authorisation for the necessary facilities is extremely difficult. Obvious energy savings could be made by enforcing greater efficiency, but the government has not so far shown that it is prepared to act decisively.

Last month, Samuel Bodman, President George Bush's nominee for energy secretary, said he would encourage clean-coal technologies, drilling in Alaska, new energy infrastructure, renewable energy sources and energy efficiency. He also emphasised the importance of being environmentally responsible in drilling and infrastructure-building. That is a laudable sentiment, but it remains to be seen whether it plays out in practice. Overhauls of US energy policy have had false dawns before.

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