Dynamic International Oil Markets: Oil Market Developments and Structure 1860–1990

235 Pages·1991·7.497 MB·English

by  Coby van der Linde (auth.)

DYNAMIC INTERNATIONAL OIL MARKETS
Studies in Industrial Organization
Volume 15
Series Editors:
H. W. de Jong, University of Amsterdam, Amsterdam, The Netherlands
W. G. Shepherd, University of Massachusetts, Amherst, U.S.A.
Advisory Board:
W. Adams, Michigan State University, East Lansing (Mich.), U.S.A.
R. E. Caves, Harvard University, Cambridge (Mass.), U.S.A.
K. D. George, University College of Swansea, Singleton Park, U.K.
E. Heusz, Friedrich Alexander University, Erlangen-NDmberg, F.R.G.
A. P. Jacquemin, University of Louvain, Louvain, Belgium, and
Commission of the European Communities, Brussels, Belgium
E. Kantzenbach, University of Hamburg, Hamburg, F.R.G.
H. W. Lambers, Erasmus University, Rotterdam, The Netherlands
R. Prodi, University of Bologna, Bologna, Italy, and
lstituto per Ia Ricostruzione lndustriale, Bologna, Italy
F. M. Scherer, Harvard University, Cambridge (Mass.), U.S.A.
The titles published in this series are listed at the end of this volume.
Dynamic International
Oil Markets
Oil Market Developments and Structure
1860-1990
by
Coby van der Linde
Leiden University, Leiden, The Netherlands
SPRINGER-SCIENCE+BUSINESS MEDIA, B.V.
Library of Congress Cataloging-in-Publication Data
Linde, Coby van der.
Dynamic international oil markets : oil market developments and
structure, 1860-1990 I Coby van der Linde.
p. em. --<Studies in industrial organization ; v. 15)
Inc 1u des index.
ISBN 978-90-481-4102-9 ISBN 978-94-015-7913-1 (eBook)
DOI 10.1007/978-94-015-7913-1
1. Petroleum industry and trade--History. I. Title. II. Series.
HD9560.5.L565 1991
338.2'7282--dc20 91-35263
ISBN 978-90-481-4102-9
Printed on acid-free paper
All Rights Reserved
© 1991 Springer Science+Business Media Dordrecht
Originally published by Kluwer Academic Publishers in 1991
Softcover reprint of the hardcover 1st edition 1991
No part of the material protected by this copyright notice may be reproduced or
utilized in any form or by any means, electronic or mechanical,
including photocopying, recording or by any information storage and
retrieval system, without written permission from the copyright owner.
Preface
Writing this book would have been impossible without the help of certain institutions and
persons. For a gas-producing and oil-processing country like the Netherlands, there was
surprisingly very little, publicly available, research material. Public libraries' collections
contained, with a certain degree of inconsistency, little of the more specialised sources. I
would therefore like to express my gratitude towards Royal Dutch Shell, and especially the
library staff in The Hague, for allowing me to use the company's library, thanking them for
their assistance in finding and supplying the required data. I am also grateful for the financial
assistance of the 'Nederlandse organisatie voor wetenschappelijk onderzoek' (NWO) and the
Faculty of Law of the University of Leiden. They provided the financial means to work a
(crucial) month in the very well equipped library of the Oxford Institute for Energy Studies.
I am indebted to the staff of the Oxford Institute for Energy Studies, and particularly to
Robert Mabro and Jeremy Turk, for their comments, support, and friendship. After I spent
a month in the Institute in July 1989, I was able to return for two five-month periods in 1990
and 1991. For both periods, the Oxford Institute and the Leiden Law Faculty provided me
with the necessary means.
I would also like to express special gratitude to some people who have been a great
support and supplied me with valuable comments at various stages of the study. First, I
would like to mention Leigh Hancher for her helpful comments and her editing work. She
has been a true friend. I am also indebted to Jacques van Esch and Leo Biegel for their
encouragement to embark on this study, and their support to finish this book. Joseph
M•Cahery critically reviewed a draft version of the book, and his suggestions were
imperative for its completion. Furthermore, his support in the last stage was invaluable.
I was in the fortunate position to study for my doctorate degree with Prof. dr. H.W. de
Jong. His counsel and erudition has impressed me deeply. He created an open and inspiring
relationship, which helped me to develop further my ideas on the operation of the
international oil industry.
The above mentioned assistance would have been less resourceful without the continuous
encouragement, and above all the assurance of profound friendship and love, of my near and
dear ones. Without this, I would not have dared to dedicate all my time to this book. They
had to endure my antisocial behaviour, my phone calls, and also my impossible single
mindedness. It must have been awful and boring.
Oxford, Summer 1991 Coby van der Linde
Table of Contents
Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
Figures ................................................ x
Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Chapter One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Market Conditions, Developments and Structure . . . . . . . . . . . . . . . . . . . . . 6
1. Theory ............................................ 6
2. The growth-decline paradigm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3. Oil industry growth cycles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4. Cartels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5. Upstream market conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6. Downstream market conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Chapter Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Market Developments in the United States 1860-1940 . . . . . . . . . . . . . . . . . . 45
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2. Development of energy consumption . . . . . . . . . . . . . . . . . . . . . . . . . 47
3. Development of oil production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4. Prices; 1880-1940 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5. The dominance of the US oil industry in the world; 1880-1940 . . . . . . . . . 63
6. Government intervention in the 1920s . . . . . . . . . . . . . . . . . . . . . . . . 66
7. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Chapter Three . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
International Market Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
2. World production and consumption after 1945 . . . . . . . . . . . . . . . . . . . 73
3. Development of production and consumption excluding CPE's . . . . . . . . . 77
4. The balance between supply and demand . . . . . . . . . . . . . . . . . . . . . . 80
5. Development of consumption in the main consumer markets . . . . . . . . . . . 84
6. Oil prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
7. Trade movements 1967-1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
8. Diversification to source after 1973 . . . . . . . . . . . . . . . . . . . . . . . . . . 99
9. Geographic diversification of oil production. . . . . . . . . . . . . . . . . . . . 105
10. OPEC production and the importance of the Middle East . . . . . . . . . . . 109
11. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
viii
Chapter Four . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Development of the Middle East Oil Resources . . . . . . . . . . . . . . . . . . . . . 116
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
2. The Consortia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
3. Price administration by the oil companies . . . . . . . . . . . . . . . . . . . . . 122
4. The tax reference prices or posted oil prices and the producing countries . . 124
5. US Government intervention in the 1950s . . . . . . . . . . . . . . . . . . . . . 129
6. The impact of US isolation on control of the eastern hemisphere market . . 133
7. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Chapter Five . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
The Organization of the Petroleum Exporting Countries. . . . . . . . . . . . . . . 145
1. The founding of the Organization of the Petroleum Exporting Countries . . 145
2. Policy-making in the 1970s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
3. The cohesion of OPEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
3.1 Dependency on oil exports . . . . . . . . . . . . . . . . . . . . . . . . . . 156
3.2 Proven reserves and production capacity . . . . . . . . . . . . . . . . . 160
3.3 Absorption capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
3.4 Downstream development . . . . . . . . . . . . . . . . . . . . . . . . . . 166
3.5 Political friction among the member states . . . . . . . . . . . . . . . . 168
4. Conflicts on pricing and output . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
5. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
Chapter Six . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
The Major Oil Companies in the 1970s and 1980s . . . . . . . . . . . . . . . . . . . 179
1. Segmentation of the international oil industry . . . . . . . . . . . . . . . . . . . 179
2. Exploration and production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
3. Refining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
4. Revenue and net income of the majors . . . . . . . . . . . . . . . . . . . . . . . 196
5. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
Chapter Seven . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Market Process and Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
1. Market cycles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
2. Growth cycles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206
3. Market structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
4. Government intervention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
Tables
Table 1.1 Composition of oil product demand in percentages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table 1.2 Refinery capacity in 1978, 1984 and 1990 . . . . . . . . • . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Table 2.1 US total energy consumption, oil and coal consumption; 1880-1955 . . . . . . . . . . . . . . . . . . 47
Table 2.2 US Indexes of energy consumption per unit of GNP; 1880- 1955 . . . . . . . . . . . . . . . . . . . . 49
Table 2.3 US Energy and oil consumption and efficiency 1929-1988 . . . . . . . . . . . . . . . . . . . . . . . . 51
Table 2.4 US Percentage change of energy consumption and efficiency . . . . . . . . . . . . . . . . . . . . . . . 53
Table 2.5 US total energy production, oil and coal production 1880-1955 . . . . . . . . . . . . . . . . . . . . . 54
Table 2.6 Avemge annual growth mtes of US consumption and production 1860-1990 . . . . . . . . . . . . 57
Table 2.7 US oil production, consumption, and tmde balance; 1938-1990 . . . . . . . . . . . . . . . . . . . . . 60
Table 2.8 Comparison of US coal, oil and gas prices and price indexes; 1880-1955 . . . . . . . . . . . . . . 62
Table 2.9 US replacement ratios 1920-1929 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Table 3.1 World oil production and consumption 1938-1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Table 3.2 Energy and Oil intensity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Table 3.3 Posted, Official Government, and Spot Oil Prices; 1938-1990 . . . . . . . . . . . . . . . . . . . . . . 94
Table 3.4 Regional percentage shares in world production and consumption . . . . . . . . . . . . . . . . . . 108
Table 4.1 Percentage shares of the major oil companies in the Gulf Consortia . . . . . . . . . . . . . . . . . 120
Table 4.2 Government revenue calculation: royalty expensed versus royalty credited . . . . . . . . . . . . 126
Table 4.3 Government oil revenue of Venezuela and Saudi Ambia 1953-1962 . . . . . . . . . . . . . . . . . 128
Table 4.4 Concentmtion ratios for the US industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Table 4.5 Company percentage shares in NCW production and refining capacity . . . . . . . . . . . . . . . 134
Table 4.6 Percentage share of operations outside the US of oil companies 1953-1972 . . . . . . . . . . . . 137
Table 5.1 Price differentials among OPEC crudes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
Table 5.2 OPEC proven reserves, and production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Table 5.3 GNP per Capita in US$ of OPEC member states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Table 5.4 OPEC Refmery production, consumption and exports . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Table 5.5 OPEC production quota 1982-1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Table 6.1 Large oil company oil production and processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Table 6.2 Company capital expenditure on exploration and production 1980-1989 . . . . . . . . . . . . . . 191
Table 6.3 Total capital and exploration expenditure in 1986 and 1987 . . . . . . . . . . . . . . . . . . . . . . . 192
Table 6.4 Gross revenue of major oil companies 1980-1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
Table 6.5 Total revenue and net revenue of group of selected companies in 1987 . . . . . . . . . . . . . . . 197
Table 6.6 The majors' net income as a percentage of total revenue 1980-1989 . . . . . . . . . . . . . . . . . 199
Figures
Figure 1.1 Refinery Capacity 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Figure 2.1 Oil Prices 1860-1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Figure 2.2 Oil Production 1860-1920 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Figure 2.3 Oil Production 1915-1960 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Figure 3.1 Oil Production 1938-1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Figure 3.2 Oil Consumption 1938-1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Figure 3.3 Oil Production and Consumption 1938-1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Figure 3.4 Oil Consumption of Major Consuming Countries 1965-1987 . . . . . . . . . . . . . . . . . . . . . . 85
Figure 3.5 US Oil Balance 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Figure 3.6 West European Oil Balance 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Figure 3.7 LDC Oil Balance 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Figure 3.8 Oil Trade; exports 1975-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Figure 3.9 Oil Trade; imports 1975-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Figure 3.10 OECD Energy Consumption 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Figure 3.11 USSR Energy Consumption 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Figure 3.12 World Energy Consumption 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Figure 3.13 US Energy Consumption 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Figure 3.14 Energy Consumption West Europe 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Figure 3.15 Energy Consumption Japan 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Figure 3.16 Oil Production by Region 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Figure 3.17 Oil Production Major Producing Regions 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Figure 3.18 Oil Production OPEC, Middle East, Saudi Arabia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Figure 3.19 Oil Production Major Middle East producers 1965-1987 . . . . . . . . . . . . . . . . . . . . . . . . Ill
Figure 5.1 Value Petroleum Exports of OPEC and Saudi Arabia . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Figure 5.2 Value Petroleum Exports OPEC Member States (1) . . . . . . . • . . . . . . . . . . . . . . . . . . . 158
Figure 5.3 Value Petroleum Exports OPEC Member States (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Figure 6.1 Oil Production Major Oil Companies 1962-1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Figure 7.1 Average Annual Growth Rates of Production and Consumption 1860-1988 . . . . . . . . . . . 207
Abbreviations
API American Petroleum Institute
ARAMCO Arabian American Oil Company
b/d barrels per day
BPSR British Petroleum Statistical Review of World Energy
BTU British Thermal Unit
cif cost, insurance, freight
CMEA Council for Mutual Economic Assistance
CPE Centrally Planned Economies
EC European Communities
ECA European Co-Operation Administration
fob free-on-board
GCC Gulf Co-operation Council
GDP Gross Domestic Product
GNP Gross National Product
IMF International Monetary Fund
IPC Iraq Petroleum Company
kg kilogram me
KOC Kuwait Oil Company
LDC Less Developed Countries
MOICP Mandatory Oil Import Control Program
mtoe million tonnes of oil equivalent
NCW Non-Communist World
NOPEC Non-Organization of the Petroleum Exporting Countries
o.e. oil equiv:ilent
OAPEC Organization of the Arab Petroleum Exporting Countries
OECD Organization for Economic Co-operation and Development
OPEC Organization of the Petroleum Exporting Countries
r/p reserves to production ratio
t.o.e. tonnes of oil equivalent
UNCTAD United Nations Conference on Trade and Development
UN United Nations
us United States
USSR Union of Soviet Socialist Republics