NOCs vs IOCs

The first quarter of 2020 has absolutely rocked global oil markets due to COVID-19, an OPEC+ supply and price dispute as well as a global economic recession.  What happens next is still unknown, but with global storage on the brink of filling up and demand destruction nearing 20 million bpd, the global oil industry will almost certainly change forever.  IOCs (International Oil Companies) and smaller independents face particularly daunting challenges, while NOCs (National Oil Companies) look to capture more market share while putting their competition out of business.

IOCs are Western oil giants like BP, Royal Dutch Shell and Exxon Mobil, while NOCs represent the state-owned oil companies like Saudi Aramco, Rosneft or KOC.  NOC’s decisions are determined by the state, not necessarily the global oil markets.  IOC’s decisions are driven by investors and technological advancements, but this isn’t the case with NOCs.  NOCs are driven not only by financial motives, but they have significant political motives as well, which can frequently give them an advantage over IOCs.  State-backed motives have allowed NOCs to become significantly more influential players abroad as they extend their global reach.  IOCs are put at a disadvantage as they have less and less access to proven global reserves, the IEF (International Energy Forum) estimates that they only have access to about 14% of the reserves, and they only back projects that will generate income, whereas NOCs are capable of losing income if it means supporting the State’s political position.

The current situation could result in NOCs buying up smaller IOCs to capture a significant portion of non-OPEC global production.  Eliminating competition abroad would allow the cartel to have even more control over supply and global price-fixing.  Assets and shares will be purchased by NOCs with the most cash and will most likely lead to major consolidation efforts.  The next year to year and half will forever change the global oil landscape, and NOCs appear to be able to expand their global footprint and take away market share from IOCs.


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