Very Important Final Paper-7pages

The  Extractive  Industries: Mining  and  Oil  Production

7.1  INTS  2370

Definition  and  Structure Natural  resources: • An  element  or  material  occurring  in  nature • The  key  ones  at  present  are  non-­‐renewable • Only  a  resource  if  defined  as  such  by  users  

(socially  constructed) • Locationally specific • This  affects  the  nature  and  development  of  the  

extractive  industries

Definition  and  Structure Characteristics  of  the  extractive  industries: • A  mix  of  private  firms  (TNCs)  and  state-­‐owned   enterprises  (SOEs)

• Production  circuits  are  capital-­‐ and  technology-­‐ intensive

• Market  for  extractive  industries  is  very  volatile • Are  more  sensitive  to  general  state  of  the   economy  than  many  other  sectors

The  Extractive  Cycle • Sequence  of  stages:  exploration,  development,   extraction,  processing,  distribution,  consumption

• Challenges  for  firms:  finding  new  sources,  obtaining   high  yields,  and  bring  to  market

• The  time  and  investment  needed  to  develop  a  new   resource  can  be  long – Exploration,  processing  and  distribution  involve   high  sunk  costs

– Transience  of  resource  booms – Rise  in  the  influence  of  specialist  services  firms

Role  of  the  State • State  acts  as  a  regulator  and  an  operator   (i.e.  producer)  of  resources

• Outside  investment  means  loss  of  control • Usually  initial  development  is  outside   investment  dependent,  then  once  it’s  going   strong  it  is  nationalized

• Varies  by  sector

Power  Relations • Power  relationships  between  states  and  firms  are   dynamic  and  contingent

• States  have  potentially  enormous  power  over   resource  exploitation,  though  how  much  in   practice  depends  on  the  state’s  strength  and   political  orientation

• Once  private  capital  is  sunk,  advantage  moves  to   the  state  which  controls  access  to  the  resource

• State—firm  rivalry  exists,  also  state—state  rivalry

Key  Commodities:  Oil • Twelve  countries  account  for  68  per  cent  of  world   total  production

• Emphasis  is  on  supply  diversity,  security,  and   development  of  regional  availabilities

• More  complex  oil  map  today  than  before  1970 • Nationalization  enables  oil  producing  countries  to   control  production  thus  prices

• OPEC  — founded  1960s,  to  ‘defend’  oil  prices • Capital  intensity  of  the  industry  also  reinforces   position  of  major  companies

Oil  Production

Shell  and  Human  Rights

• 1930s  – pro-­‐Nazi  CEO • 1970s  – broke  

economic  sanctions   with  Rhodesia

• 1980s  – supported   apartheid  in  South   Africa

• 1990s  – supported   Nigerian  execution  of   Ogoni indigenous   leader  Ken  Saro-­‐Wiwa

Key  Commodities:  Copper • Crucial  for  electrical  use  and  thus   telecommunication

• World  copper  production  has  increased  more   rapidly  than  oil  in  past  20  years

• Polarized  between  large  established  mining  TNCs   and  small  exploration  companies  with  no   production

• Mid-­‐tier  has  few  participants  and  is  underserved • Continued  consolidation  of  TNCs

Industry  Consolidation Glencore: • Founded  by  Marc  Rich • Glencore merged  with  Xstrata  in  2013 • 10th  largest  firm • Proposed  merger  with  Rio-­‐Tinto  for  $160B

AND • Indicted  for  tax  evasion,  made  it  to  the  FBI’s  10  

most  wanted  list • Accused  of  making  oil  deals  with  Iran  during  

hostage  crisis • Pardoned  by  Bill  Clinton  on  last  day  of  office

The  End  of  the  Extractive  Industries?

• Two  views  of  the  future:   – Malthusian  view   – Optimistic  view

• Environmental  vs.  energy  considerations

The  McKelvey Box

Wattenberg  Gas/  Oil  Field

Man  Camps  in  Williston,  ND