Oil & Gas Business: Balls, Barrels and the Balance of power

The eyes of much of the world this week have been on Geneva as executives from world football governing body Fifa voted on where the World Cup will be played in 8 and 12 years respectively.

In awarding the 2018 and 2022 tournaments to Russia and Qatar, with the expectation that the 2026 tournament will go to China, Fifa indicated a decisive shift Eastwards, in the process delivering a very public snub to countries such as England and the US, who had hoped to win the right to host the tournament themselves.

Amidst all of the celebrations and recriminations, what was most interesting for me is that what took place in Geneva last week is mirroring what has been happening in the global oil and gas business for decades.

Specifically, the dynamics of an Eastward shift in sport that so surprised observers has actually been in effect in our industry from the moment oil-producing countries nationalised their resources en masse at the expense of the international oil companies operating at the time.

More recently, insulated from the boom and bust of a fluctuating oil price, and protected from having to make gestures to shareholders and stock exchanges, National Oil Companies such as Qatar Petroleum and Rosneft (continuing the Qatar/Russia theme) have been able to accelerate their own growth at the expense of some of their Western rivals.

On a more micro level, we have been researching the subject of capability development in the oil and gas business for an upcoming online event (watch this space), many of the people we’ve been speaking to have reflected the fact that even in the battle for talent, the sums of money on offer, added to the reduced risk of redundancy is making the prospect of working for an NOC an increasingly attractive proposition.

Whilst IOCs – accountable to shareholders and stock exchanges – have been forced to lose top talent in recent years, NOCs have been able to absorb the impact of the falling oil price to retain a more stable workforce (and to retain the knowledge that has left their IOC rivals). As a consequence, a shift in the balance of power which was already evident before the price fall has accelerated.

In joint ventures around the world, the terms of every negotiation are based around the NOC having the natural resources, and the IOC having the expertise to help extract them. With an increasing migration of talent from IOC to NOC, will that negotiating position be weakened as operating agreements – such as those due to expire in Abu Dhabi in the next few years – come to be renegotiated.

Will talent and expertise continue to migrate from IOCs to NOCs? Will the day ever come where NOCs no longer need their IOC counterparts? Has the balance of power already decisively shifted in the energy business? What role will IOCs play in this new world order?

I don’t have the answers – my best guess is that the challenge of access to oil and gas will grow increasingly difficult, but there is too much at stake for the IOCs to not find new ways to retain their competitive edge, but one thing I do know, it’s going to be fascinating to find out.

by Gareth Pearce

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