Over the past decade the significant revival of commodity prices, the inflating price of petroleum resources, and the growing political instability in many of the oil producing regions of the world, has led to a renewed interest in the exploitation of natural resources, with energy security at the forefront of many international political agendas. The oil and gas industries are expected to remain the dominant fuel suppliers worldwide for the next thirty years, and currently supplies 62 percent of the worlds energy demand. This percentage is expected to increase to around 67 percent by 2030, despite a move towards renewable resources, as the increase in demand continues to grow at pace [Schriffin and Bisat 2004, pp 267]. Trans National Corporations (TNCs) are investing heavily in these energy industries, and there is great potential for underdeveloped nations to capitalise on the new economic opportunities and development prospects that oil and gas exploration may bring. The increased export revenues and an opening to worldwide markets, as well as increased employment, education, and even the modernisation of infrastructure can help a nation grow and expand and break free of a subsistence existence. Despite these opportunities, these nations must also ensure that they are also increasingly aware of the potential adverse effects associated with resource extraction [UN World Investment Report 2007, pp 81]. The oil and gas sector is the premier capitalistic industry, and investment and policy decisions are absolutely crucial to ensure that any development is beneficial on all fronts. This is vital in ensuring that the long term future of the host nature is assured and secure, and that there are no long lasting negative effects [Babusiaux 2007, pp 219]. TNC exploration and exploitation of oil and gas resources can have positive effects, and any complete assessment needs to take into account the potential implication of involving TNCs in the process across a wide range of factors.
Economic impacts:
There are various economic impacts from TNC involvement in developing oil and gas reserves in an underdeveloped nation. In developing their own natural resources, underdeveloped countries can face constraints with respect to things like capital and foreign exchange, technical and managerial capabilities, and access to markets and distribution channels [UN World Investment Report 2007, pp 129]. The involvement of TNCs can sometimes be a way for developing nations to overcome these constraints. The other argument is that TNC involvement only exacerbates these problems. In trying to effectively assessing these arguments we need to thoroughly evaluate both direct and indirect economic factors that are produced as a result of TNC investments.
Direct Economic Impacts:
When TNCs invest in oil and gas development, they are investing in an industry that requires participation throughout the supply chain. At a national level building the foundations of a successful oil and gas industry can cost billions and billions of dollars (investment in local projects such as the Minera Escondida in Northern Chile totalled $4 billion between 1991 andn 2004, and Petrobras' planned investments in offshore oil fields in the Gulf of Mexico are expected to amount to $15 billion) [UN World Investment Report 2007, pp 131]. This level of investment from TNCs can lead to a direct injection of money into a national economy (which can also be felt at local and regional levels), and can have a significant and sometimes lasting effect on the overall macroeconomic performance of a host country, as well as the more direct microeconomic benefits. TNC's can help create value in the host economy directly through various equity or non-equity forms of involvement.
One of the greatest direct economic impacts that a TNC can make to an underdevelopment nature, is to improve the technological capabilities of the host nation. TNC participation in oil and gas exploration and exploitation can help to transfer technology and enhance technological capabilities. Underdeveloped nations are technologically limited, and oil and gas exploration is dependent on external entrepreneurial initiatives [Ariweriokuma 2008, pp 1]. Many market liberals believe that investment in these industries from foreign TNCs is more likely to see the transfer of cleaner extraction and exploration technologies. They argue that even in the oil and gas industries TNCs are more likely than domestic firms to use more sustainable technologies as they provide a competitive advantage in production - being generally more efficient and producing a higher quality end product [Clapp and Dauvergne 2008, pp 164]. The development of oil and gas industries can also help to stimulate employment in impoverished regions. The problem is that the contribution of the oil and gas industry to total national employment is generally very small. In Saudi Arabia, for example, less than 1.5% of the working population are employed in the oil and gas industries, despite the fact that they account for 90% of the country's GDP [UN World Investment Report 2007, pp 133].
Indirect Economic Impacts:
Investment by TNCs in oil and gas development in can help to stimulate economic growth via indirect spillovers such as infrastructure improvements, and the development of associated service industries. In the oil and gas industry, oilfield services now account for the bulk of the total cost of oil production. The size of oilfield services in Africa alone has been estimated at about $30 billion a year. This suggests a high potential for enhancing the participation of local contractors in the supply chain, and developing a network of business and industrial growth, stimulated by the oil and gas industry [UN World Investment Report 2007, pp 141]. In the oil and gas industry, TNCs have helped countries such as Angola, Argentina, Azerbaijan, Ecuador, Indonesia, Kazakhstand increased production and exports over the long term.
Oil and Gas Industry Supervision and Regulation
Industrial Development
The increase in services that energy provides is necessary for economic growth, improved living standards, and to provide for increased human populations [Congress of the United States Office of Technology Assessment 1991, pp 3].
Training and eduction
Environmental Impact
Oil and gas production carries with it the potential for devastating environmental impacts, and the nature of this pollution and degradation can take many forms. Oil spills, damaged land, accident and fire and incidents of air and water pollution have all been recorded at various times and places [UNEP Technical Publication 1997, pp 3]. Offshore oil spills have vast potential for environmental impact, as shown by the Gulf Oil Spill in 2010, which was discharging 5000 barrels of oil per day over a month after the initial fire, and devastated local wildlife and ecosystems. As well as these one-off environmental disasters, there is also a responsibility, particularly for developing nations, to address the cumulative effects of oil and gas development. Though a spillage from an individual tanker may be considered small, and perhaps inconsequential, a number of spills accumulate to constitute a threat to the environment [Ariweriokuma 2008, pp 259]. On land, run off from pipelines and wells can pollute groundwater and surface water, there are associated risks of exposure, and the pollutants can contaminated local soil and devastate local crop supplies. There is a considerable amount of research showing that the effects of oil on marine life from offshore exploration and drilling, or on leaks from damaged transport vessels, can be devastating, especially in the short term. The oil itself can coat and contaminate marine life, its toxic components can bioaccumulate up the food chain, affecting animals, plants and even humans via the consumption of filter-feeders. Cleanup efforts can also damage the environment when certain types of chemicals are used, or surrounding reefs and the ocean floor are disturbed [Vaughn 2007, pp 82].
In the Niger Delta there has been widespread environmental devastation as a result of oil exploration and exploitation in the region. This degradation has been caused by gas flaring, above-ground pipe leakage, oil waste dumping, and oil spills. Prior to May 2000, approximately 75% of the gas produced annually was flared, causing considerable and lasting ecological damage to the surrounding land, groundwater, surface water, vegetation and wildlife [Manwaring, pp 66]. The devastation has been so extreme that the area is now undergoing a massive UN orientated mitigation and monitoring programme in an attempt to clean up the region.
Despite the above examples, it should be said that some oil and gas exporting countries in the developing world, such as Malaysia and Oman have not encountered the same negatives.
Any positives...........
That being said the overall picture for developing countries is nevertheless rather bleak. That so much of the cost is often borne by local communities, including indigenous people, and so much of the revenue goes to the national governments is a major source of dissatisfaction. While this is true for most natural resources, oil and to a lesser extent gas have, in addition, adverse global environmental effects as a carbon-based fuel that gives off significant emissions of greenhouse gases, with the most important of these being carbon dioxide.[Vaughn 2007Page 267]
Political Consequences for the nations society
Local
Regional
National
Where local financial resources and capabilities for undertaking the investment are lacking, TNC production represents a direct addition to output and income for the host economy; the significance of this depends on the size and nature of TNCs local value-creating activities and their positioning along the value chain [UN World Investment Report 2007, pp 130]. The problem is that foreign participation implies that part of the total income generated will be capture by the TNCs involved and, in some cases, their relatively strong bargaining power enables them to receive a significant share of this income via contractural negotiations [UN World Investment Report 2007, pp 131].
International
Strategic Options
In order to effectively and responsibly define the available strategic options for the host nation is obvious that we need to ensure that there is an excellent level of understanding about the environment in which the company will be operating - over social, environmental and economic fields. Thus, any department in charge of this strategy must ensure that they constantly monitor and analyse the markets for crude price behaviour, the relationship between participants, and the political and environmental risks [Babusiaux 2007, pp 219].
This question that arises, then, is what governments and companies can do to repair or avoid these negative consequences and encourage the more positive aspects of oil and gas production. Ideally, the extra revenues from hydrocarbons could improve living standards for the broader population, while still assuring that the interests of groups most immediately affected by the industry are met.
[Schiffrin and Bisat 2004, pp 266].
TNC participation can increase financial resources for investment, improve management, transfer technology and enhance technological capabilities, generate employment and skills, and increase production and income in the host economy.
Accelerate modernisation and enhance the competitiveness of domestic industries.
It is important to consider the long-term financial security of the host nation, and that nation should ensure that it is not economically dependent on oil and gas exploration. Though revenue may be large, oil and gas TNCs deal with global markets on incredibly vast scales (such as the EU, Japan and the United States). The financial implications of the developing world being too reliant on a single resource and industry, can lead to TNC's simply swamping the economy. Oil prices on the global markets are highly unstable, and the over reliance on oil revenues can drives a boom and bust cycle in the domestic economy, contributing to increasing levels of external debt as well as rises in poverty rates [pp 172.
Conclusions:
Page 82
There are two primary problems that have led to conflicts worldwide: the environmental impact of exploration, drilling, and transporting oil and gas, and the effects of foreign governments and companies on a country's political, economic, and social structure - what researchers call the 'human dimension' of environmental policy, especially in developing countries dependent upon petroleum and gas product for economic survival [Vaughn 2007, pp 81].
In addition, TNCs may contribute to higher levels of efficiency, productivity and innovation in the industries concerned [UN World Investment Report 2007, pp 121].
There are two principal reasons for the world's continued reliance on oil and gas. First, there are currently no alternatives to these fuels in transportation. Although a number of the world's major energy companies are pushing to advance research on hydrogen-driven fuel cells, this is unlikely to have a significant impact on petroleum demand over the next thirty years. Second, natural gas is likely to continue its rapid ascent as the world's favourite fuel because of its advantages in generated electricity [Schriffin and Bisat 2004, pp 267].
It is difficult to make generalizations about the economic impacts. They depend on the characteristics of the TNCs involved [UN World Investment Report 2007, pp 131]
