Financial Times: Oil nationalism: “This "reaffirmation of the coercive power of the state" - as Shell puts it in a report this week - is rapidly turning into a headache for international companies.”: Wednesday 8 June 2005

By Brian Groom

Published: June 8 2005

There is a flip side to high oil prices - even for the Seven Sisters. For if crude at above $50 a barrel continues to sustain the profitability of all the oil majors, it is steadily reinforcing nationalistic instincts among producing countries.

This "reaffirmation of the coercive power of the state" - as Shell puts it in a report this week - is rapidly turning into a headache for international companies. And this trend is not only confined to Saudi Arabia and Russia, the world's two largest producers, but spreading elsewhere.

The reaction of oil producers is hardly surprising. High oil prices give them little incentive to open up new fields or to encourage international companies to take stakes in their national energy groups. Indeed, oil producers tend to turn to foreign investors only when prices are low.

Take Russia. Washington is worried about the way its two-year effort to develop energy co-operation with Moscow is stalling. Total, the French major, is also increasingly frustrated with what appear to be blatant delaying tactics to prevent it acquiring a 25 per cent stake in independent Russian gas producer Novatek. Gazprom is now finalising a strategic deal with Novatek designed by all accounts as a spoiler to the French.

All this could have serious implications. Between 1999 and 2003, private oil companies were responsible for two-thirds of all new discoveries but controlled only 20 per cent of world reserves. If national oil companies, which own the rest, continue to disregard new investments, the consequences are obvious.

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