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Nationalization of energy assets - A trend in the last decade

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Article Summary: NOCs differ significantly in terms of their governance structure in comparison to privately managed oil companies. In some states such as Norway and Brazil, the NOCs are given the freedom to pursue their commercial objectives, while others put an onus on them to pursue state policies – mass scale employment generation, medium for delivering fuel subsidiaries, serve the needs of the ruling class, and a mechanism for development in the absence of a strong institutional framework. - Jess Potts

Over the last decade, the state-owned oil companies (NOCs) are playing a prominent role in the international Oil & Gas sector. In fact, their rise is an indicator of state capitalism in several emerging markets. NOCs might suffer from a lack of state-of-the-art technologies, but they enjoy a distinct advantage in terms of low-cost capital and complete state support.

Thus, they are able to compete with privately managed western international oil firms. However, there exists an opportunity for western oil companies to collaborate with NOCs on projects of mutual benefit.

NOCs differ significantly in terms of their governance structure in comparison to privately managed oil companies. In some states such as Norway and Brazil, the NOCs are given the freedom to pursue their commercial objectives, while others put an onus on them to pursue state policies – mass scale employment generation, medium for delivering fuel subsidiaries, serve the needs of the ruling class, and a mechanism for development in the absence of a strong institutional framework.

NOCs also differ in terms of resource availability. Some have access to huge amount of energy resources, while others with limited natural resources have to pursue an aggressive policy for energy self sufficiency.

The (NOCs) control three-quarters of the global oil reserves. This has a serious ramification on many issues - from prices of gas to geopolitical scenarios.

According to recent studies, even in countries where the governments have encouraged private investments - including the international oil companies (IOCs), the NOCs have been able to hold ground. For instance, Pemex in Mexico and Saudi Aramco in Saudi Arabia, virtually enjoy a monopoly status in their domestic markets.

However, a politically weak government or any threat to energy infrastructure in the NOCs home country would disrupt energy supply in the long run, thereby pushing international oil prices upwards.

This trend of nationalization of energy assets is to stay, and would reshape global energy investments in the long term.

- Jess Potts

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