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29 the national bureau of asian research nbr special report #41 | september 2012 PHILIP ANDREWS-SPEED is a Principal Fellow at the Energy Studies Institute of the National University of Singapore. He can be reached at . NOTE: The author is grateful to Clara Gillispie, Susana Moreira, and Sanghyun Lee for their comments on a draft of this essay and to John Mitchell for clarifications of important issues relating to the management of disruptions to oil markets. Do Overseas Investments by National Oil Companies Enhance Energy Security at Home? A View from Asia Philip Andrews-Speed EXECUTIVE SUMMARY This essay examines the driving forces behind the overseas investment activities of Asian national oil companies (NOC) and assesses the extent to which they enhance the energy security of their home countries. MAIN ARGUMENT The rapid expansion of overseas investment by Asian NOCs has been driven by a number of policy objectives both in these companies’ home countries and in their host countries. For Asian governments, security of energy supply is a high priority, but other priorities include industrial and diplomatic policies. The NOCs have their own priority, which is to internationalize their operations. Overseas investment by NOCs makes little direct contribution to the energy security of their home nations because oil markets and, to a lesser extent, gas markets are now much more integrated. However, the greater engagement of Asian NOCs and their governments in the hydrocarbon-rich regions of the world may still indirectly enhance the security of supply. Nonetheless, even though overseas investment yields a few benefits, it can have significant costs. POLICY IMPLICATIONS • Even if overseas investment by Asian NOCs does not significantly enhance security of energy supply, the governments of these Asian countries will likely continue to support their NOCs as long as the other objectives are also met, oil prices remain relatively high, and host governments are willing to give them preferential treatment. • Overseas investment by Asian NOCs does not undermine global security of oil and gas supplies. To the contrary, a greater number of investors and a larger flow of investment capital into the development of oil and gas fields tend to enhance security of supply. • The more proficient Asian NOCs will provide competition to international and independent oil companies from North America and Europe, and this competition may not always be fair given the level of financial and diplomatic support that Asian NOCs receive from their governments and banks. • As the political profile of Asian governments in petroleum-rich regions rises, they will increasingly seek to be involved in any diplomatic initiatives launched by North America and Europe. 31 OVERSEAS INVESTMENTS BY NATIONAL OIL COMPANIES u ANDREWS-SPEED A lthough the national oil companies (NOC) of oil-exporting states dominate global oil reserves and production, the governments of many oil-importing states regard their NOCs as making an important contribution to the national security of energy supply. The earliest example is probably the United Kingdom’s nationalization of the AngloPersian Oil Company to secure oil supplies during World War I. Italy’s Agip and Spain’s Campsa were created after this war, while World War II saw Japan nationalize the Teikoku Oil Corporation. Taiwan’s China Petroleum Corporation (CPC) came into existence in 1946. During the 1950s and 1960s, the Oil and Natural Gas Corporation (ONGC) was established in India, OMV in Austria, Elf Aquitaine in France, and the Japan Petroleum Exploration Company (JAPEX) in Japan. The oil crises of the 1970s spurred the creation of the Japan National Oil Company (JNOC) and the Korea National Oil Corporation (KNOC) in South Korea. For many of these NOCs, investment in overseas oil resources was an important function. The late 1980s and 1990s saw low oil prices; a tendency for the privatization of state-owned companies, especially among members of the Organisation for Economic Co-operation and Development (OECD); and a reduction of overseas activity by the remaining NOCs from oil-importing states such as Japan. As oil prices have risen over the last ten years, the level of international investment by Asian NOCs has soared. Chinese companies lead the way, but NOCs from Japan, South Korea, India, and Malaysia are also active. With the exception of Malaysia’s Petronas, all are from net oil- or gasimporting states. These NOCs’ home governments have provided them with considerable support, especially financial and diplomatic. The essence of the logic appears to be that if a country’s NOC has the rights to an oil or gas field overseas, then...


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