| 摘要 | ABSTRACT
1. Research Purpose
In the last few years, there have been a lot of unexpected changes in the global oil market. In the wake of the Global Financial Crisis in 2008, along with drastic volatility of global oil prices, oil supply has faced difficulties due to pro-democracy movements in the Middle East and North Africa. On the other hand, there has been a decrease in oil demand among OECD countries due to the financial crisis and the euro zone fiscal crisis and the same tendency has also been identified among emerging economies. Against this backdrop, increased oil consumption has been seen in the oil-producing countries in the Middle East and Africa, compared to other regions in the world.
Such dramatic changes in the oil market have caused a major change in the global oil industry. In particular, there has been a structural change, from vertical integration between upstream and downstream sectors, originally a structure which International Oil Companies(IOCs), also referred to as oil majors, have been promoting. Thanks to the growth of National Oil Companies(NOCs), the competition in the global oil industry is fiercer than ever and the profitability of the refinery industry has declined. Against this backdrop, IOCs has carried out restructuring to reduce their downstream sectors whereas the IOCs, based on their leading technologies in oil exploration and production(E&P), are aggressively investing in unconventional oil and deep water offshore oil fields of which had not been developed until now, as they had been previously considered economically unfeasible.
There have been a lot of studies regarding business diversification of global oil companies. However, most of the research was published around the 2000s. Taking into account that vertical de-integration of IOCs has become more common and prominent since the 2008 financial crisis, a new type of study is needed, reflecting recent trends and analyzing the elements affecting diversification of oil businesses in the industry.
This study will review how IOCs have diversified within the oil industry since 2008 and analyze the elements that affect diversification. Based on this, this paper will also show the future status of IOCs in the industry and identify strategic implications with regard to the domestic oil companies in Korea.
2. Summary
From the upstream sector including oil exploration and production to downstream sector covering oil refining and sales, IOCs maintained a vertically integrated structure throughout the entire oil value chain. However, after a couple of oil shocks through 1970s, the business environment rapidly changed and they more actively started to diversify their businesses.
Various measures were taken in the upstream sector. Investment in high-risk resources such as offshore oil field was expanded and M&As were promoted to secure oil reserves in a stable manner. On the other hand, in the downstream sector, as the increased oil price and reduced oil demand deteriorated profitability of refinery businesses, more investment was made in upgrading refinery facilities to improve profitability. Moreover, they entered non-oil business fields such as mineral mining industry, manufacturing industries producing food, metal, semi-conductor, computer, fertilizer, etc. and even advanced into the retail industry.
However, development in offshore oil field and unconventional oil dwindled since oil prices plunged in the mid-1980s, and advancement into non-oil business fields also resulted in failure due to fierce competition with existing companies. As oil prices plummeted in the mid-1980s, they reduced their investment in non-oil fields, offshore oil field and unconventional oil and focused on expanding oil-related assets through M&A.
Apart from resource nationalism and the oil price plunge, the increased global oil demand and trade, weakened U.S. anti-trust policies and emergence of the International Petroleum Exchange. were the important reasons why IOCs put more effort in M&A. Such changes took places in the upstream and downstream sectors and affected each other in a complex manner, decreasing the need for vertical integration.
In the 1990s, non-OPEC emerging oil producing countries, especially Russia, aggressively bolstered their NOCs. This caused fierce competition in the upstream sector and reduced oil exploration and development opportunities of the IOCs. Furthermore, as NOCs were forced to grow through vertical integration like IOCs, entering the overseas refinery market became even less feasible. Despite such difficult conditions, the Gulf War in 1991 kept the international oil prices high and resulting sufficient cash flow allowed IOCs to expand their business to natural gas development in which they could utilize their advanced upstream technology. In addition, the deregulation of the U.S. gas network made industrial accessibility to natural gas enhanced and was one of the critical factors.
Regarding the oil sector, however, instead of expanding business, IOCs focused on saving costs through company restructuring or technology development in the downstream sector. In Doing so the companies achieved qualitative improvement such as improved ratio of operating profit to sales in the oil sector during this period.
In the early 2000s, IOCs had enhanced economies of scale through large-scale M&A and had increased operation efficiency. However, after finishing M&A, the companies increased production of crude oil and oil products to raise short term profits as theirs efforts to reduce operating costs were faced with limit.
Along with the sudden rise of China as a new emerging economy, the global trading system was turned into the WTO system in 1995 and global oil demand and trade volumes increased sharply. This prompted a rapid increase in global oil prices in the 2000s and more attention was paid to the oil upstream sector accordingly. Nevertheless, IOCs put their efforts more to develop natural gas although they were more interested in deep sea offshore oil field and unconventional oil. It was because the increased volatility of oil prices made investment in oil E&P risky and discovering promising oil reserves became more difficult. In the refinery sector, IOCs tried to improve refining margins through investment in refinery upgrading facilities instead of their capacity since it remained excessive in U.S. and Europe at the time
After the global financial crisis in 2008, they reduced the downstream sector and expanded the upstream sector. In particular, as the global oil price rebounded to USD 100 per barrel due to the 2010 pro-democratic revolution in the Middle East and North Africa, E&P activities in deep-water offshore oil field and unconventional oil were boosted.
However, since a sharp increase in shale gas production in North America widened the gap between crude oil and natural gas prices, reducing investment and selling related assets in the gas upstream sector became one of IOCs�� strategic change.
From this perspective, figuring out determinants affecting the direction of IOCs�� diversification is needed at this stage and the role of such factors including global oil prices, trade liberalization, legal framework, market concentrate ratio and production costs will be examined in this study.
Firstly, global oil prices have different effects on the upstream and downstream sectors. In the upstream sector, high oil prices induce IOCs to increase oil field exploration and production whereas they are encouraged to dispose of oil field assets with high production costs or secure oil reserves through relatively low-risk M&A when global oil prices are low. In the downstream sector, on the other hand, what are factors affecting oil prices determine the direction of IOCs�� move. In 2000, the increased oil prices due to the rise in global oil demand enhanced the production margins of refinery facilities which led to the expansion of investment in the refinery sector. However, if the prices go up due to a lack of supply, oil demand declines while crude oil procurement costs of refineries increase, thus leading to low profits and deteriorating profitability in the downstream sector.
Secondly, trade liberalization influences business diversification of IOCs, as it mitigates hold-up problems between companies in vertical relationships and thus reduces incentives of vertical integration. Taking the vertical integration mechanism into account, one may understand the recent trends of the sector where IOCs have been trying to downsize their refinery businesses by spinning off or selling their related units.
However, the fact that such clout of trade liberalization is likely to be effective in a nearly perfectly competitive industry and IOCs are still sustaining their vertical integration structure to a certain extent may indicate that oil industry is in imperfectly competitive market. This assumption may be well-proved in both upstream and downstream markets given that the Organization of Petroleum Exporting Countries (OPEC) cartel manages the supply of oil to a degree and that the oil product market concentration is relatively high in the major oil consumption countries.
Taking the current market conditions into consideration, the liberalization of oil trade may force oil companies to maintain the vertically integrated structure. Thus the recent downsizing of the downstream sector by IOCs should not be considered to be the end, but an adjusted type of vertical integration.
Thirdly, legal framework may also affect business diversification. The Sherman Act of 1890 was the first measure passed by the U.S. Congress which prohibited abusive monopolies by a single company. Consequently, until the late 1970s, it had been difficult for oil companies to expand their oil businesses through M&A. However, with the launch of Ronald Reagan administration in 1980, Robert Bork��s argument-the anti-trust laws are to protect consumers but not small businesses-gained its ground, and Horizontal Merger Guidelines were established. This weakened the effects of policies prohibiting M&A in the same industry and it may have brought a significant impact to IOCs to change their growth strategy from vertical integration to horizontal integration.
Fourthly, according to the previous studies, market concentration affects a company��s decision whether to pursue vertical integration. The lower the market concentration is, the less motivated the company will be, while higher market concentration motivates the companies to vertically integrate.
This is related to that vertical integration changes profit margin structures from double marginalization-which is caused by vertically different firms seeking their respective margins-to single marginalization. If market concentration is low, i.e., the market is more perfectly competitive, the companies are entitled to less margin, thus, even though the companies get into single marginalization through vertical integration, decreasing the margin even lower to expand their market share may be unprofitable. In this sense, diversification activities of IOCs in the oil industry should be considered together with the market concentration of the industry.
Lastly, production costs should be considered. IOCs�� refinery costs are appreciated to be lowest whereas their marginal production costs of oil are relatively high because they are developing expensive oils such as shale oil and oil sands. If oil production cost is high and oil prices are maintained low, oil production will first decrease and investment in development of new oil fields will also be reduced. Consequently, businesses in the upstream sector will be weakened. On the contrary, the businesses in the downstream sector will benefit from its low production cost and enjoy its enhanced market dominance as low oil prices caused by the decreased oil demand due to global financial crisis in 2008, etc. will led to an early exit of refinery facilities with high production costs from the market. Thus, this advantage in refinery cost gives IOCs larger investment opportunity when the global oil demand rebounds.
The above mentioned five elements are considered quantitative factors except for legal framework. In order to systematically analyze the relationship between diversification of IOCs and those factors, this study conducted Cournot competition-based game model analysis and a panel analysis based on the global top 100 oil companies�� data provided by the Energy Intelligence. The game model analysis confirm that trade liberalization encourages businesses to expand in both upstream and downstream sectors and low concentration in the upstream market induces IOCs to reduce their businesses in the upstream sector whereas expanding businesses in the downstream sector. Additionally, higher production cost of crude oil discourages IOCs from selling the crude in the market but instead, encourage them to supply it to their refinery facilities, strengthening the level of vertical integration.
The panel analysis utilizes the operation data of 63 oil companies from 2000 to 2012 and examines correlations among the level of vertical integration, oil and petroleum product production and 24 variable factors. The result appeared to be partly corresponded to that predicted by theory model analysis.
3. Research Results and Policy Suggestions
The changes in the global oil industry since the 2008 financial crisis reflect major changes in oil supply and demand. The elements affecting the diversification strategies of IOCs are mainly (1) global oil prices, (2) trade liberalization in the oil market, (3) market concentration and (4) production costs. The implications of these factors have been verified to some extent by theory and empirical analysis. In particular, behind the continuous reduction in the refinery businesses by IOCs since the global financial crisis, there have been changes in the above elements, indicating that domestic, Korean oil companies also need to promote new changes. In this regard, business diversification in the upstream sector in which many IOCs have been heavily investing may be suggested. On the other hand, it is not easy for them to settle down in the upstream sector because existing IOCs and NOCs have already been exerting great influence. Given that oil production marginal cost of IOCs serves as the Maginot Line, however, there may be small and medium sized oil fields with relatively low production costs which Korean oil companies would be able to target and the companies may achieve positive results through a choice and concentration strategy.
In addition, the following measures should be implemented by the government to ensure the successful diversification of Korean oil companies and to maintain the domestic oil industry in a stable manner: Firstly, the Conditional Loan System should be promoted to increase backing for oil exploration. Secondly, the tax reduction and exemption system should be improved to expand the scope of tax reduction for overseas oil development activities. Thirdly, the establishment of a national research center to study and transfer E&P technology to the private sector, eventually fostering the related manpower.
Furthermore, taking the refinery industry into account, entering into free trade agreements(FTA) with Middle Eastern and African countries which face sharply rising oil consumption may be a useful measure, to protect the domestic oil industry and to achieve oil security. |
