I.C.T& Value Migration In Arab Oil By Fareed R. ELNaggar; Ph. D. Professor & Consultant 24 April 2005 (1)

I.C.T& Value Migration In Arab Oil

By

Fareed R. ELNaggar; Ph. D.

Professor & Consultant

24 April 2005

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I.C.T& Value Migration In Arab Oil

ByFareed R. ELNaggar, Ph.

D.An Abstract

Arab oil value added had been migrating to other countries (1939-1973). The 10th of Ramadan war has switched the oil equation when Arab States to redirect value creation of oil to Arab. Economies. Since then (1973), Multinational oil companies started to change directions of oil value added from Arab countries to foreign countries through : (a) Mergers (b) Acquisitions (c) higher salaries of spatriated (d) training budgets (e) consultancy fees (f) Oil & Gaz exploration (g) Pressures on oil prices & production levels and (h) Oil Wars.

This paper is exploring energy models and proposing V.M.O modeling for future strategy and planning.

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List of ContentsList of Contents

1.Typical energy issues in the 21th century.

•Oil Demand Forecasting.•Oil Market Share Analysis.•Energy Replacement Market Behavior.•Oil & gas Supply – Economic Methodology.

2. Some Oil Models in Action :

3.a. Environmental Impact of Energy consumption.b. Environmental Control Cycle.

4. TERA Model.

5. V.M.O. Percentages.6. The Process of Oil Value Migration.7. The Mechanism of Oil Value Migration.8. New Oil sources of Economic Discontinuity.

9. Reengineering of Arab Oil Companies.(3)

1- Typical Energy Policy Issues in the 21th century 1.Wellhead Price Controls.

2.Off – Shore Leasing Policies.3.Depletion allowances.4.Power plant sitting.5.Thermal pollution.6.Air pollution controls.7.Rate of return Regulations.8.Export regulations.9.End use controls.10.Strip mining.11.Off-shore oil spills.12.Oil wars.13.Oil games.14.Oil negotiation (OAPEC/ OPEC-OIC).

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2- Some Oil Models

E = F ( P , I , Q1 , Q2 )

Where :

E = Energy consumption.

P = Index of energy prices.

I = Vector Defining factors affecting energy consumption.

Q1 = Function defining policy constraints

Q2 = Function defining supply constraints.

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MSi = Ui

j Uj

Where : Ui = Utility of fuel iMsi = Market share of fuel i

Example :Ui = 0 + 1 P1 + I I +

Where : Pi = cost of fuel i to user = rector of other factors affecting fuel choice , = derived constraints = elasticity of the market share with prices of

individual fuels

Prices of Oil Cost PerUtility of each fuel

MKTShare

=Fuel “utility”Total utility

Conversion to heat

Pollution Cost

MartSharePer

Fuel

Technology(6)

GASUsers

ElectricityUsers

OilUsers

SolarEnergy

Major TransitionsMinor Transitions

3- Energy Replacement Market Behavior

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4- Energy Market Share Analysis

** Cross Sectional Analysis **

FuelSolarEnergyOilGasElectricity

SolarEnergy

Oil

Gas

Electricity** Uses of Fuel in The industrial Sector **

LightingSpace Heating

Raw Materials

Process Energy

Process Mechanical

Energy

ElectricityXXX

SolarXX

OilXXX

GazXXX(8)

Selection of Specific Fuel Uses

IndustryGrowthForecast

IndustryGrowthForecast

IndustryDemand ByFuel Type

Database

MarketShareModel

TrendAnalysis

TechnologicalChanges

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Oil & Gas Supply – Economic Methodology

Finding RateBard / Foot

Feed DrilledOil

Secondary & Tertiary

Reserve Adds

OilReserve

Additions

Existing OilReserves

OilReserves

% ReservesProduced Annually

OilProduction

Oil SupplyOil Supply

Existing GasReserves

GasReserves

% ReservesProduced Annually

GasProduction

Gas SupplyGas Supply

Finding RatePer Food

Feed Drilled(Gas)

GasReserve Additions

EconomicsEconomics1. Net fixed

Assets.

2. Investment Royalties.

3. ROI

RevenueRequired

Average Oil Price

Average Gas Price

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3.a Environmental Impact Of Energy Consumption3.a Environmental Impact Of Energy ConsumptionMillion Tons Per YearMillion Tons Per Year

SectorSulfur Oxides

Nitrogen Oxides

Hydro carbonates

Carbon MonoxideParticulatesTotal

Transportation

Industrial

Electric Power Generation

Space heating

Refuse Burning

Total

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3.b Environmental Control Cycle3.b Environmental Control Cycle

IncreasingIncreasingEnergyEnergyDemandDemand

Fuel UseFuel UsePatternsPatterns

IncreasingIncreasingEnergyEnergyDemandDemand

Fuel UseFuel UsePatternsPatterns

PollutionPollutionLevelLevel

1122334455

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4. TERA Model4. TERA Model( The Total Energy Resource Analysis )( The Total Energy Resource Analysis )

DemandDemandForecastingForecasting

RegulationsRegulations& Policies& Policies

SupplySupplyForecastingForecasting

Energy Energy Market ShareMarket Share

PricePriceStructureStructure

SupplySupplyDemandDemand

InteractionInteraction

TeraTeraDatabaseDatabase

EvaluationEvaluationOf OutputsOf Outputs

Gas IndustryGas IndustryModelsModels

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5. V.M.O. Percentages in Arab countries5. V.M.O. Percentages in Arab countries

التحويلية اإلنتاجاإلنتاجالتنقيبالتنقيب التحويلية العمليات العملياتالتصنيع التصنيع

البتروكيماوياتالبتروكيماويات

اللوجستياتاللوجستيات/ التخزين/ المناولة /النقل التخزين/ المناولة النقل

سالسل سالسل إدارة إدارةSCMSCMالتوريد التوريد

الوسيط الوسيط اإلستهالك اإلستهالك

التلوث التلوث مراقبة مراقبة

التدريـــبالتدريـــب

التسويقالتسويق

التوزيعالتوزيع

اإلستهالك اإلستهالك النهائىالنهائى

الصيانةالصيانةاإلحاللاإلحالل

االعتماديةاالعتمادية

السالمةالسالمةالمهنية المهنية

100%100%

80%80%

75%75%

70%70%

75%75%

75%75%

90%90%

50%50%

60%60%

80%80%

صناعةصناعةالتكريرالتكرير

100%100%

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6. The Phase of Oil Value Migration6. The Phase of Oil Value Migration

1- Value Outflow :1- Value Outflow :Foreign oil companies started to absorb value Foreign oil companies started to absorb value from Arab oil companies.from Arab oil companies.

2- Competitiveness :2- Competitiveness :Foreign oil companies started to create values out Foreign oil companies started to create values out Of designs, technologies and competitive Of designs, technologies and competitive Advantages.Advantages.

3- Value Switching :3- Value Switching :Values started to more away from local oil companiesValues started to more away from local oil companiesTo foreign companies via acquisition and mergers.To foreign companies via acquisition and mergers.

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Oil Value MigrationOil Value Migration

FromFrom ToTo

RevenueRevenue

Share of MarketShare of Market

Product PowerProduct Power

TechnologyTechnology

ProfitProfit

Share of MarketShare of MarketValueValue

Customer PowerCustomer Power

Business DesignBusiness Design

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7. The Mechanism of Oil Value 7. The Mechanism of Oil Value Migration (MOVM)Migration (MOVM)

GlobalOil

CompaniesStrategies

NewPriorities

ChangingArab OilPositions

WealthProfit Migration

ControllingDesigns,

R & DAnd Technologies

Concept OfAbsorbingCapacities

-Lowering Prices.-Maximizing Output.-Increasing Cost.-Technologies.-High Dependence.

Oil Value Migration driven byTechnology or by new Designs.Lack of economic Power.

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8. New Oil Sources Of Economic 8. New Oil Sources Of Economic DiscontinuityDiscontinuity

1- Inferior Logistics & Execution.1- Inferior Logistics & Execution.

2- Inferior IT & Telecom.2- Inferior IT & Telecom.

3- High Cost Production.3- High Cost Production.

4- High – cost distribution.4- High – cost distribution.

5- Lock of SCM.5- Lock of SCM.

6- Slow Product Development.6- Slow Product Development.

7- Lack of People Satisfaction 7- Lack of People Satisfaction (Internal & External Clients).(Internal & External Clients).

All Call for Value MigrationAll Call for Value Migration(18)

9. Reengineering of Arab Oil companies9. Reengineering of Arab Oil companiesFromFrom ToTo

1- Product – Focused1- Product – Focused2- rigid System2- rigid System3- Backward integration3- Backward integration4- Scale Derive Value4- Scale Derive Value5- The is Only one way5- The is Only one way to do businessto do business6- Monopoly6- Monopoly7- quality control7- quality control8- Traditional Oil8- Traditional Oil CompanyCompany9- Trial & Error9- Trial & Error10- Loosing Values10- Loosing Values

TraditionalTraditionalOil companiesOil companies

ModernModernOil companiesOil companies

Customer – FocusedCustomer – FocusedFlexibleFlexibleSpecializationSpecializationDesign Create ValueDesign Create ValueInvocative ImprovementInvocative ImprovementIs PossibleIs PossibleTime competitionTime competitionTQMTQMDigital Oil CompanyDigital Oil Company

Optimal ModelOptimal ModelValue Recapture Value Recapture

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L.E.L.E.

High Growth High Growth High High

ProfitalailityProfitalaility

Stable MarketStable Market

Share &Share &

Stable Stable MarginsMargins Talent, Talent,

ResourcesResources

Leare at anLeare at an

AcceleratingAccelerating

RateRate

OilOilValueValueInflowInflow

StabilityStability OilOilValueValue

OutflowOutflow

TimeTime

Oil Value Creation DistributionOil Value Creation Distribution(20)

Arab Oil Design ProcessArab Oil Design Process

Economics Changing Strategy Technology

What are the new assumptions & economicsWhat are the new assumptions & economics

What is Important to Arab StatesWhat is Important to Arab States

How Can Value be CreatedHow Can Value be Created

What dimensions matter the mostWhat dimensions matter the most

What are the future choicesWhat are the future choices

Which ones are the best ?Which ones are the best ?

Are the best choices integrated ?Are the best choices integrated ?

What is the best oil design ?What is the best oil design ?

How lone will the design be valid ?How lone will the design be valid ?

How can we prepare for future designsHow can we prepare for future designs(21)

22)المراجعالمراجع)

1.1. M. Coult,M. Coult, (2003) (2003) , , Energy Conservation Through Energy Conservation Through The Use of Gas TechnologyThe Use of Gas Technology, Shell Centre, London, , Shell Centre, London, UK.UK.

2.2. B. Indyk & R. Wiolson, B. Indyk & R. Wiolson, (2003)(2003) , , Energy Saving by Energy Saving by New Concepts in the Design of EquipmentNew Concepts in the Design of Equipment, Univ. Of , Univ. Of Strathclyde Glasgow, UK.Strathclyde Glasgow, UK.

3.3. J. Broder, J. Broder, (2002)(2002), , Energy consumption & Efficiency Energy consumption & Efficiency in the USA, University of Georgia, Athens, GA, USA.in the USA, University of Georgia, Athens, GA, USA.

4.4. D. Limaya, D. Limaya, (2001)(2001), , Advanced Energy TechnologiesAdvanced Energy Technologies; ; Synergetic Resources Inc., Philadelphice, Synergetic Resources Inc., Philadelphice, Pennsylvania. Pennsylvania.

ــرر) ، 5.5. ــار (المحـ ــد النجـ ــرر) ، فريـ ــار (المحـ ــد النجـ إدارة شـــركات إدارة شـــركات ، ، ))20042004((فريـ00 ، بيت اإلدارة ، القاهرة ، بيت اإلدارة ، القاهرةالبترول والطاقةالبترول والطاقة