In a new working paper, PESD affiliate Peter Nolan and associate director Mark Thurber find that considerations of risk help explain why oil-rich states may choose international oil companies rather than state-controlled enterprises to find and extract oil in "frontier" territories.

Abstract

Conventional wisdom holds that oil sector nationalizations are rooted in political motives of the petroleum states, which perceive value in the direct control of resource development though a state enterprise.  State motives are inarguably important.  At the same time, we argue in this paper that constraints of risk significantly affect a state's choice of which agent to employ to extract its hydrocarbons.  Implicit in much current debate is the idea that private, international oil companies (IOCs) and the state-controlled, national oil companies (NOCs) are direct competitors, and that the former may face threats to their very existence in an era of increased state control. 

In fact, IOCs and NOCs characteristically supply very different functions to governments when it comes to managing risk.  For reasons we discuss, IOCs excel at managing risk while NOCs typically do not.  IOCs, NOCs, and a third type of player, the oil service company, will all continue to exist because their distinct talents are needed by states seeking to realize the value of their petroleum resources.  However, the relative positions of these different players have changed substantially over time, and will continue to do so, in response to the shifting needs of oil-rich states.

In the first part of this paper, we explore the nature and sources of risk in the petroleum industry, how these risks change over time, the task of managing petroleum risks, and the variable capacity of state and private companies to manage them.  In the second part, we apply qualitative and quantitative approaches to test the idea that risk significantly affects the state's choice of which agent to use for petroleum extraction.  First, we review the events leading to the cluster of nationalizations that occurred in the early 1970s and assess whether they were significantly affected by considerations of risk.  Second, we explore how well variation in risk and state capacity for risk can explain changing ownership over time within a particular oil province - the UK and Norwegian zones of the North Sea.  Third, we use data from energy research and consulting firm Wood Mackenzie to quantitatively test our hypothesis about the key role of risk, looking in particular at the case of oil and gas company exploration behavior. 

In all three cases, our observations are broadly consistent with the hypothesis that risk significantly affects the state's choice of hydrocarbon agent, although, as expected, other factors emerge as important drivers of outcomes as well.

Nathan Eagle, Founder and CEO of txteagle spoke at the weekly Liberation Technology Seminar Series on Dececember 2, 2010 about mobile phone usage in the developing world.

Although txteagle began in 2007 as a purely academic project, the current goal of the company and of its founder and CEO, Nathan Eagle, is to give one billion people a five percent raise. In his presentation, Eagle described the context for which txteagle was designed, how the company's focus has evolved over the past three years, and what steps the company is taking to move closer to achieving this goal in the future.

Eagle began by offering some background information to explain the initial impetus behind txteagle. Today, about 63% of global mobile phone usage takes place in the developing world, making airtime usage in emerging markets worth about $200 billion a year. Mobile phone users at the so-called "Base of the Pyramid" typically spend 10% of their income on mobile phone airtime. Through his experience living in emerging markets and teaching mobile application development in universities across sub-Saharan Africa, Eagle began to see that a significant opportunity space existed to reduce the cost of airtime for people at the base of the pyramid, in effect giving these people a raise.

Mobile applications developed as a part of MIT's Entrepreneurial Research on Programming and Research on Mobiles (EPROM) project offered some insights into the potential of mobile-based tools. In Rwanda, where electricity is a prepaid service, one of Eagle's former students quickly cornered a significant share of the market by creating scratch cards for crediting one's electricity bill via mobile phone. In Eastern Kenya, a program called SMS Blood Bank was created to enable real time monitoring of blood supplies at local district hospitals in Eastern Kenya. Although SMS reporting of low blood levels resolved the huge amount of latency in the system of local district hospitals (where responses to dips in supply had typically taken up to 4 weeks), the price of reporting blood levels via SMS represented a pay cut for local nurses; despite nurses' initial enthusiasm, SMS reporting tapered off within weeks. When the idea of sending about 10 cents of airtime to compensate nurses for each SMS report of blood level data proved a success, the model behind txteagle was born.

Designed as a means to monetize people's downtime, txteagle has grown rapidly through partnerships with over 220 mobile operators in about 80 countries around the world. In turn for helping these operators analyze their customer data, txteagle has gained access to about 2.1 billion mobile subscribers. Partnering with txteagle is a winning proposition for mobile operators, since the airtime compensation mobile subscribers receive from txteagle improves operators' Average Revenue per User (ARPU), a statistic that had been plummeting as more and more poor people became mobile phone users. By enabling people to carry out work via web browsers or SMS and compensating them via mobile money or airtime, txteagle has become a market leader at efficiently gathering data in the developing world.

Since txteagle was first created, the company has attempted to move from an outsourcing/back-office model to an emphasis on work that leverages a person's unique local knowledge and information. Typically outsourced tasks such as forms processing, audio transcription, inventory management, data cleaning, tagging, and internet search, tend to be less rewarding to the worker. By focusing on local data instead, txteagle enables unprecedented insight into emerging markets, all while optimizing engagement with local customers. Typical tasks include: maps and directions, local market prices and businesses, survey research and polling, and other forms of local knowledge gathering.

One of txteagle's central initiatives, GroundTruth, leverages this local knowledge-based model to carry out better market research. Today, global brands are already spending about $125 billion annually in emerging markets to engage the "next billion," but they typically carry out this research in a sub-optimal way. Through the txteagle platform, Eagle suggests, brands and organizations can use advertising money to design better products and services, conduct market research, and carry out brand engagement. Recent success cases include the use of txteagle to help a program of the United Nations to reach survey respondents directly and to enable the World Bank to obtain better local market price data at lower cost. 

Although txteagle's rapid growth and early successes have been encouraging, the company has ambitious goals for the next two years. The company began by focusing on outside sales through its GroundTruth market research program. Next year, the company  hopes to generate syndicated data and ultimately to create a self-source platform enabling anyone to conduct their own population-level surveys.  By continuing to focus on improving the quality of both their data and workers over time, txteagle aims to have an even greater positive impact on the incomes of the hundreds of millions of mobile phone users at the base of the pyramid.

CISAC scholars made international news in November after North Korean scientists revealed to them that they had started construction on a small light-water reactor and completed a new uranium enrichment facility. The revelation dramatically changes the security calculus in Northeast Asia. In a Foreign Affairs article, Siegfried S. Hecker argues that denuclearization remains the goal. But that will take time. Now Washington should pursue a policy that begins with what he calls "the three no's -- no more bombs, no better bombs, and no exports -- in return for one yes: Washington's willingness to seriously address North Korea's fundamental insecurity." In a piece in the Bulletin of the Atomic Scientists, Hecker said "this approach may just be enough to get Beijing to take a much more aggressive stance to help shut down Pyongyang's nuclear import and export networks."

China's coal market is now in the midst of a radical restructuring that has the potential to change how coal is produced, traded and consumed both in China and the rest of the world.  The restructuring aims to integrate the coal and power sectors at giant "coal-power bases" that combined would churn out more coal annually than all the coal produced in the entire United States. 

Coal-power integration is now a focal point of the Chinese government's energy policy, driven by the dramatic "coal-power conflict".  Coal prices are market-based, but power prices are tightly controlled by the government.  This has caused massive losses for Chinese power generators in 2008 and 2010 and triggered government intervention in the coal market with attempts to cap the price of coal.  The pervasive conflict between coal and power is now driving the Chinese government to remake these markets.

Coal-power base policy aims to establish upwards of 14 major coal-power bases, each producing over 100 mt of coal with consuming industries on-site.  The plan envisions that roughly half of China's coal production would be produced at a handful major coal-power base sites that are controlled by key state-owned enterprises (SOEs) and the central government.    

PESD's new research analyzes China's coal-power base reforms and how they will impact Chinese and global coal markets.