The National Oil Company as a Tool of Canadian Energy Policy

EMD-82-5: Published: Oct 15, 1981. Publicly Released: Oct 15, 1981.

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Because of similarities between American energy needs and the needs of industrial countries having national oil companies, along with the recurring interest in the proper U.S. Government role in oil activities, GAO reviewed the responsibilities and functions of an existing national oil company to determine what lessons might be learned and applied to the U.S. energy situation. Of the numerous government-owned companies, the Canadian national oil company, Petro-Canada was the most logical candidate for review because of the similarities in the energy and economic situations of the United States and Canada. GAO reviewed the four principal functions assigned to Petro-Canada: (1) to act as a source of information on the oil industry by participating in various oil activities to provide Federal energy policymakers and regulators with reliable information and first-hand operating experience to regulate the industry more effectively; (2) to act as a social benefit company by accelerating the development of high-risk and high-cost energy resources which the private sector could not reasonably be expected to develop in large quantities; (3) to act as a trading company by purchasing oil for Canada directly from foreign producer countries; and (4) to produce more oil, both domestically and internationally.

The review showed that a national oil company cannot act as an effective yardstick for determining the true costs of exploring for and producing oil and, thereby, serving as a measure against which the Canadian Government could judge private companies' performance. However, it can act as an effective window into the industry to provide the Government with more general industry information and specific information for those projects in which it participates as a joint venture partner, and to supply the Government with operating expertise to help it interpret and evaluate information on industry trends and activities. Petro-Canada's experience indicates that it is possible for a national oil company to fulfill a social benefit function by accelerating the pace of exploration and development activities in high-cost and high-risk areas where private company activity may be insufficient and currently uneconomical. No evidence shows that the Petro-Canada experience has resulted in any net increase of conventional oil and gas for Canada. It is too early to determine whether Petro-Canada is a more or less effective trader than private companies. It may have been successful in diversifying supply sources in at least one instance, but at terms which were probably about the same as those which the private sector would have negotiated.

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