The competitive advantage of the international oil companies (IOCs) has been traditionally based on their great experience in the sector, on great investor muscle and on advanced technological development. However, forty years ago the IOCs had access to over 85% of the global reserves and they negotiated almost lifelong concessions with the governments of producer countries.
Nowadays, the IOCs have access to only 14% of the proven global reserves and they are finding increasing difficulties in acquiring new oil and natural gas reserves. This new reality is translated into low reserve replacement ratios (RRRs).
It is clear that the IOCs are seeing that their entry into projects with great potential is limited. It is also true that the national oil companies (NOCs) have developed sufficient financing capacity in order to expand their business in the domestic and international markets, but what is important is not to overlook the fact that both the IOCs and the NOCs are facing a common challenge of great dimensions.
This challenge is the growing demand from emerging countries, a new environment that affects two-thirds of the world's population.
The size of the population concerned means that the availability of resources through exploration and the development of reserves is a crucial subject for the sector and for the world.
The world's oil needs can only be covered by investment. The magnitude of the challenge needs all of the capital sources, of both the NOCs and the IOCs.
It is true that it has historically been the IOCs that have carried out over 70% of the global investments in both upstream and downstream, but both the dynamic of restricting access of the IOCs to the resources and the greater financial muscle of the NOCs determine the need to re-double the investments by everyone.
We must all be aware that the investment capacity is being limited by the new environment of price increases of metals and due to the lack of capacity in industry in both machinery and skilled manpower. It is worth setting out one example. The wholesale price indices related to the oil industry underwent an increase of higher than 160% between 2004 and 2007. This produces a situation in which the nominal increase in investments only makes it possible to cover the increase in inflation, while the real investments continues being at a rate below what is necessary to meet the challenge of growing global demand.
It is possible that the current environment of growing prices has led to a lack of confidence and difference in opinions between some parties and others but the challenge is common and unique for everyone. Mutual trust is of the utmost importance and the IEFS can contribute to this goal. Also, it would be very appropriate to carry out joint IOCs-NOCs projects that generate production increases in the short term at the lowest possible cost with the aim of not increasing the bottlenecks of the system even further. This joint effort entails giving the best of each one: the NOCs having access to the reserves and their growing financial capacity and the capacity to run large projects and to adapt to the technological and regulatory change of the IOCs.