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ABSTRACT
Edith Penrose’s analysis of the investments of the international oil companies (IOCs) stemmed from her interest in the economics of the large international firm and its implications for developing economies. Her approach highlights the endogenous factors shaping the growth of the large firm and cautions against viewing it as a neutral technocracy where investment automatically responds to price incentives. Drawing on Penrose’s concept of a captive market in oil products, this research develops Penrose’s ideas around motive, profit, self-financing and the international firm to explain why the IOC’s institutional environment still favours investment in fossil fuels. The study collected country and firm level data on investment and production in downstream petrochemical refining. The data show a connection between the captive market and the strategies of the large oil firms in expanding refining capacity as a strategic hedge against regulatory policies to limit climate change. This locks society into a carbon intensive infrastructure, reduces the motivation for investment and adds to global CO2 emissions. The findings indicate that the oil companies need to take greater risks on green investments with their retained earnings. Governments need to direct this investment towards socially useful purposes using coordinated regulatory pressure.
JEL CLASSIFICATION:
Acknowledgments
The author would like to acknowledge the valuable comments and suggestions of the referees and editor of this journal.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1. UN Secretary-General’s video message to the Sixth Austrian World Summit 14th June, 2022
2. The IEA (Citation2018) predicted oil demand growth of 9.6mb/day from 2017–2030 with petrochemicals accounting for 3.2mb/day.
3. Penrose (Citation2009: 26–27) was clear that in making this assumption ‘there is no need to deny that other objectives are often important – power, prestige, public approval, or the mere love of the game – it need only be recognised that the attainment if these ends more often than not is associated directly with the ability to make profits’
4. These include Aramco, BP, Chevron, CNPC, Eni, Equinor, ExxonMobil, Occidental, Petrobras, Repsol, Shell and TotalEnergies. See ocgi.com.
5. In 2021 Eni announced the closure of its Porto Maghera refinery. See ‘Italy’s petrochems units face uncertain future as Porto Marghera set to close’ https://www.icis.com/explore/resources/news/2021/03/24/10621155/italy-s-petchems-units-face-uncertain-future-as-porto-marghera-set-to-close
6. U.S. Energy Information Administration, Short-Term Energy Outlook February 2018.
7. In 2021 Saudi Aramco claimed that 43% of its oil production was consumer by its downstream activities (Annual Report, 2021: 61).
9. ‘Exxon Mobil starts building $10 billion China petrochemical complex: Xinhua’ Reuters, 22nd April 2020. https://www.reuters.com/article/us-exxonmobil-china-petrochemical-idUSKCN2241DJ
10. ‘ExxonMobil Baytown Cracker Ready to Start’ 8th January 2018 https://www.chemanager-online.com/en/news/exxonmobil-baytown-cracker-ready-start
11. ‘Exxon knows its carbon future and keeps the data from view’, Bloomberg, 23rd December 2020
13. BASF breaks ground on $10bn China chemical complex Financial Times 24th November 2019
14. Shandong Yulong lets contract for proposed integrated refining megacomplex Oil and Gas Journal, 8th February, 2022.
16. Latin America grapples with lack of petrochemical investment, S&P Global Platts Insight 29th June 2016
17. Lummus technology Braskem join forces to accelerate growth green ethylene production. Sustainable Plastics 29th April 2022 https://www.sustainableplastics.com/news/lummus-technology-braskem-join-forces-accelerate-growth-green-ethylene-production