Friday, January 07, 2005

Turning the Table
A few weeks ago I wrote about the changing "ecology" of the oil industry (see postings of 11/17/04 and 11/18/04), as the traditional relationships between the international majors and national oil companies shift. Today's headline concerning the possible acquisition of Unocal by China National Offshore Oil Co. (CNOOC) provides a concrete example of this trend.

Unocal has had an interesting history. It began as a regional west coast integrated producer/refiner/marketer and gradually acquired global interests. In the 1990s it changed direction dramatically, selling its US refining and marketing assets to Tosco, although it retained its valuable (and unusually acquired) patents for reformulated gasoline (RFG). It also shifted its focus to emphasize the international upstream, which was seen as being more profitable and less bound up by regulations. Unocal has come in for a lot of criticism and legal challenges for its operations in Burma.

There would be multiple ironies involved if CNOOC were to acquire Unocal, not the least being how well Unocal's strategy of disentangling itself from refining and marketing in the US has lowered the regulatory barriers to acquisition by a non-US company.

On further reflection, it is inconceivable that a foreign government should collect royalties on most of the gasoline designed to reduce air pollution in this country. As an absolute prerequisite of any transaction between Unocal and CNOOC, the FTC should require that the RFG patents be transferred to the Department of Energy, with the royalties used to fund renewable energy research. Granting them in the first place was questionable and contrary to the public interest, but they have survived legal challenges and probably cannot be revoked. That does not mean they should end up in the hands of one of our country's greatest potential commercial rivals.

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