Download pdf - ENCYCLOPAEDIA - treccani.it ENCYCLOPAEDIA OF HYDROCARBONS PROJECT DIRECTORS Mario Beccari, Ugo Romano SCIENTIFIC CO-ORDINATING COMMITTEE Pier Federico Barnaba, Piero Bernardini, Giovanni

ENCYCLOPAEDIAOF

HYDROCARBONS

ISTITUTO DELLA

ENCICLOPEDIA ITALIANAFONDATA DA GIOVANNI TRECCANI

©ALL RIGHTS RESERVED

Copyright byISTITUTO DELLA ENCICLOPEDIA ITALIANA

FONDATA DA GIOVANNI TRECCANI S.p.A.

2007

Printed in Italy

Photolith and printing byMARCHESI GRAFICHE EDITORIALI S.p.A.

Via Flaminia, 995/997 - 00189 Roma

CHAIRMANRoberto Poli

CHIEF EXECUTIVE OFFICERPaolo Scaroni

DIRECTORSAlberto Clô, Renzo Costi, Dario Fruscio, Marco Pinto, Marco Reboa,

Mario Resca, Pierluigi Scibetta

ISTITUTO DELLA ENCICLOPEDIA ITALIANA

PRESIDENTFrancesco Paolo Casavola

BOARD OF DIRECTORS

VICE PRESIDENTCesare Geronzi

Gian Mario Anselmi, Roberto Artoni, Carlo Orazio Buora, Pierluigi Ciocca,Marcello De Cecco, Giuseppe de Vergottini, Giovanni Fiori, Ademaro Lanzara,

Federico Pepe, Giovanni Puglisi, Giuseppe Vacca

MANAGING DIRECTORFrancesco Tatò

SCIENTIFIC COUNCILCarlo Azeglio Ciampi, Francesco Cossiga, Oscar Luigi Scalfaro, Giovanni Conso,Rita Levi-Montalcini; Mario Agrimi, Adriano Alippi, Girolamo Arnaldi, BaccioBaccetti, Giuseppe Franco Bassani, Mario Beccari, Giuseppe Bedeschi, GiampioBracchi, Pietro Calissano, Luciano Canfora, Mario Caravale, Sergio Carrà, EnricoCastelnuovo, Francesco Clementi, Piero Coda, Benedetta Craveri, FrancescoD’Agostino, Giuseppe Dalla Torre, Nino Dazzi, Antonio Fazio, Domenico Fisichella,Giuseppe Galasso, Paolo Galluzzi, Emma Giammattei, Antonio Giuliano, GherardoGnoli, Augusto Graziani, Tullio Gregory, Maurizio Iaccarino, Carlo Jean,Fiorella Kostoris Padoa Schioppa, Luigi Labruna, Lucio Lanfranchi, Carlo MariaOssola, Giorgio Parisi, Giovanni Pugliese Carratelli, Gian Tommaso ScarasciaMugnozza, Pietro Scoppola, Salvatore Settis, Francesco Sicilia, Fulvio Tessitore,

Edoardo Vesentini, Vera Zamagni, Ortensio Zecchino

BOARD OF AUDITORSGianfranco Graziadei, Chairman; Mario Perrone, Saverio Signori

Luciano Pagliaro, Delegate of the State Auditor’s Department

ENCYCLOPAEDIA OF HYDROCARBONS

PROJECT DIRECTORSMario Beccari, Ugo Romano

SCIENTIFIC CO-ORDINATING COMMITTEEPier Federico Barnaba, Piero Bernardini, Giovanni Brighenti, Sergio Carrà, Alberto Clô,

Carlo Giavarini, Renzo Mazzei, Ferruccio Trifirò

EDITORIAL DEPARTMENT

Chief Editor: Carlo Amadei

Technical-Scientific Area. Supervisors: Fabio Sebastiani; Maria Teresa Amoroso. Chemistry: AndreaCiccioli, Alessandro Di Menno Di Bucchianico, Antonio Di Meo - Physics: Maria GraziaIanniello - Engineering: Lucilla Monteleone, Roberto Steindler - Biological, Geological andNatural Sciences: Francesca Beolchini, Simona Martullo, Francesca Ricci, Paola Vinesi

Legal, Economics and Historical-Geographical Area. Supervisors: Giandomenico Patrizi; Pino Bongiorno,Michela Mastroddi. Law: Fabio Di Fonzo, Fabiana Di Porto, Bianca Maria Raganelli - Economics:Chiara d’Auria, Giuseppe Smargiassi - Geography: Arianna Ballabene - History: Silvia Dionisi

Italian language edition. Supervisor: Enrico Piccioni. Cristiana Baldazzi, Ilenia Romana Cassetta,Fabio Catino, Claudio Censori, Marina Chiarioni, Katia Furìa, Patrizia Greganti, TomásKubícek (illustrations), Enza Milanesi, Stefano Petrocchi, Tiziana Provvidera, Laura Volpe

English language edition. Co-ordination: Cosima Campagnolo. Paul Anthem, Ruth Margaret Baker,Janice Calf, Anne Colbeck, Johanna Erhardt, Mira Green, Denise Ko, Allison Elisabeth Long,Holly Ruggiero, Mary Anne Tafuri. Consultant: Peter Joseph GlendeningTranslators: Carlo Vittorio Bevilacqua Ariosti, Peter Joseph Glendening, Paula Howarth,Erika Louisa Milburn, Lisa Orlandi, Valentina Palombi, Stefano Salpietro, Sandra Sazzini,Margherita Zizi. Consultant: Walter Rodinò

Secretaries: Pasqualina Leone, Tiziana Pieretti

ART DEPARTMENT

Art Director: Gerardo Casale

Graphics: Giuseppe De GregoriIllustration sourcing: Daniele Piselli; Claudio Cigognetti; Angelo ZanniDrawings: Marina Paradisi; Giuseppina Elia, Marco Evangelista, Massimo Montelli, Anna Olivieri,Paola Salvatori (cartography)Graphics and layout: Giuseppe De Gregori (control)Quality control: Anna Rita De NardisSecretaries: Aurora Corvesi, Carla Proietti Checchi

LIBRARY

Gabriella Miggiano; Elsa Adducci, Marina Battaglini, Massimo Menna, Giuliana ScudderSecretary: Gabriella Michetti

PUBLISHING DEPARTMENT

Publishing administration: Luisa Fusé; Cecilia Rucci, Mirella AielloPlanning: Luisa Cinquina; Alessia Pagnano, Tiziana PicconiQuality control: Rosalba Lanza; Simonetta PaoluzziIndustrial production: Maria DevrushianSecretary: Eliana Naddeo

PUBLISHING DIRECTORMassimo Bray

volume iv

HYDROCARBONS:ECONOMICS, POLICIES

AND LEGISLATION

SCIENTIFIC CO-ORDINATION

Alberto Clô(Hydrocarbons: economics and policies)

Piero Bernardini(Hydrocarbons legislation)

ENCYCLOPAEDIA OF HYDROCARBONS

XV

INDEX OF VOLUME IV

HYDROCARBONS:ECONOMICS AND POLICIES

1 – MINERAL RESOURCES BETWEEN SCARCITY AND GROWTH

Alberto Quadrio Curzio, Fausta Pellizzari, Roberto Zoboli

1.1 – THE ECONOMIC THEORY OF EXHAUSTIBLE NATURAL RESOURCES 3

1.1.1 – Introduction 3

1.1.2 – Producibility and scarcity: the classical dynamics 3

1.1.3 – From natural to general scarcities: marginalists and neoclassicals 4

1.1.4 – Dynamics with and without natural scarcities: macroeconomists, structuralists, stylizers 7

Alberto Quadrio Curzio, Fausta Pellizzari, Roberto Zoboli

1.2 – TECHNOLOGICAL INNOVATION, RELATIVE SCARCITY, INVESTMENTS 11

1.2.1 – Innovation and resource use efficiency: stylized facts 11

1.2.2 – The mechanisms of technological innovation for energy and the environment 15

Peter R. Odell

1.3 – RESERVES AND RESOURCES 23

1.3.1 – Oil 23

1.3.2 – Natural gas 32

Donald W. Jones

1.4 – THE MACROECONOMIC IMPACTS OF OIL PRICE SHOCKS 43

1.4.1 – A short history of a controversial topic 43

1.4.2 – Microeconomic mechanisms that transmit oil price shocks to the macroeconomy 44

1.4.3 – Monetary policy in response to oil price shocks 45

1.4.4 – What constitutes an oil price shock? 45

1.4.5 – The econometrics of oil price shocks 46

1.4.6 – Non-US evidence 46

1.4.7 – The impact of oil prices on the macroeconomy 47

2 – BASIC ECONOMICS OF THE HYDROCARBONS INDUSTRY

Carol Dahl

2.1 – OUTLINE. OIL AND OIL PRODUCT DEMAND 49

2.1.1 – Overview of global oil use 49

2.1.2 – Theoretical issues in modelling energy demand 54

2.1.3 – The effect of demand and supply on market price 57

2.1.4 – Demand elasticities and their uses 61

2.1.5 – Econometric estimates of energy demand models 63

2.1.6 – International data sources 67

2.1.7 – Survey of demand elasticities by product, region and sector 69

Morris A. Adelman

2.2 – BASIC CONDITIONS FOR CRUDE OIL PRODUCTION AND COST FUNCTIONS

IN THE SHORT AND LONG RUN 75


2.2.2 – Oil and gas supply: an industry of rising costs 77

2.2.3 – Exploration as permanent source of company/government discord 79

2.2.4 – Conclusions 82

Olivier Appert, Jean-Pierre Favennec

2.3 – ANALYSIS OF COST STRUCTURE AND FUNCTIONS IN OIL TRANSPORT AND REFINING 85

2.3.1 – Oil transport 85

2.3.2 – Oil refining 96

Oliviero Bernardini

2.4 – THE ECONOMICS OF NATURAL GAS 107


2.4.2 – The demand for natural gas 108

2.4.3 – Natural gas supply 123

2.4.4 – The production function and the costs 145

2.4.5 – From regional to global markets 149

James T. Jensen

2.5 – INTERNATIONAL TRADE AND THE LNG INDUSTRY 155

2.5.1 – Gas trade 155

2.5.2 – Economies of scale and transport costs 161

2.5.3 – International contracts 167

2.5.4 – The LNG industry 171

XVI

3 – PUBLIC POLICIES AND THE OIL INDUSTRY

Alberto Clô3.1 – STATE AND MARKET REQUIREMENTS DETERMINING OIL POLICIES 187

3.1.1 – Oil and the economy: an inextricable link 1873.1.2 – Oil and politics: the lessons of history 1903.1.3 – The philosophy of public intervention 1923.1.4 – Oil policy in the United States 1983.1.5 – European public policies 2013.1.6 – Peak and decline of public policy 2053.1.7 – Oil, social conflict, policy crises 2123.1.8 – Policies and the market: striking a balance 213

Donald W. Jones3.2 – URBANIZATION AND ENERGY USE 219

3.2.1 – Urbanization and agricultural change 2193.2.2 – From agriculture to industry 2203.2.3 – Building cities 2203.2.4 – Concentrating populations 2203.2.5 – Increasing incomes 2213.2.6 – Substituting modern energy for traditional energy 2213.2.7 – The bottom line: aggregate energy implications of urbanization 222

Enzo Di Giulio3.3 – ENVIRONMENTAL EXTERNALITIES 225

3.3.1 – The concept of externality 2253.3.2 – Regulation or the market? 2273.3.3 – Oil and gas externalities 2283.3.4 – Assessment of externalities 2323.3.5 – Climate change 236

4 – MARKET STRUCTURES AND PRICE POLICIES IN THE OIL AND GAS INDUSTRY

Philip K. Verleger Jr.4.1 – MARKET STRUCTURES AND PRICE POLICIES IN THE OIL AND GAS INDUSTRY:

THE CASE OF OIL 2394.1.1 – Introduction 2394.1.2 – Economic theories of price setting in the oil industry 2394.1.3 – The oil industry transformation: from coordination to commodity markets 2454.1.4 – Oil as an economic commodity: OPEC policies and price dynamics 2484.1.5 – Conclusion 251

Massimiliano Marzo4.2 – UNCERTAINTY AND RISK MANAGEMENT 255

4.2.1 – Introduction 2554.2.2 – Forward and futures contracts 2564.2.3 – Options 261

XVII

4.2.4 – OTC instruments 266

4.2.5 – Exchanges for physicals 271


5 – KEY ACTORS IN THE HYDROCARBONS INDUSTRYAND COMPANY STRATEGIES

Alberto Clô

5.1 – THE OIL INDUSTRY: ITS PLAYERS AND STRUCTURE FROM ITS ORIGINS

TO THE OIL SHOCKS OF THE NINETEEN SEVENTIES 275

5.1.1 – The players 275

5.1.2 – From the pioneers to the American oil industry 279

5.1.3 – From American to international industry 282

5.1.4 – An exceptional period 292

5.1.5 – Towards a new equilibrium 297

Robert Grant

5.2 – OIL COMPANY STRATEGIES FROM 1970 TO THE PRESENT 301

5.2.1 – Driving forces of industry change 301

5.2.2 – The oil and gas majors: the traditional model 304

5.2.3 – Diversification and the quest for reserves (1974-1984) 305

5.2.4 – Internal restructuring for efficiency and flexibility (1985-1994) 307

5.2.5 – Changes in organizational structure 310

5.2.6 – Consolidation: the wave of mergers (1995-2002) 312

5.2.7 – Current directions in strategy 315

5.2.8 – Adapting to an uncertain future 320

6 – THE NATURAL GAS INDUSTRY FROM MONOPOLY TO COMPETITION

Carlo Scarpa

6.1 – ECONOMIC ASPECTS 323

6.1.1 – The segments of the gas sector 323

6.1.2 – Redrawing the boundaries of the monopoly 327

6.1.3 – Structural choices and drivers of change 328

6.1.4 – Potential structure and regulation of the gas industry 332

6.1.5 – Regulatory reform in the European Union 334

6.1.6 – Regulation in Italy before the reform 339

6.1.7 – Regulatory reform in Italy 340

6.1.8 – Conclusions: the public interest, monopolies and competition 348

David Bardey, Amedeo Piolatto

6.2 – THE REGULATION THEORY AND ITS PROSPECTS 351


6.2.2 – Why regulate? 351

6.2.3 – Regulation under complete information 353

6.2.4 – Regulation under asymmetric information 356

XVIII

6.2.5 – Capturing 3616.2.6 – Privatization 3636.2.7 – Conclusions 364

7 – GEOPOLITICS AND SECURITY

Gawdat Bahgat7.1 – THE AMERICAN POINT OF VIEW 367

7.1.1 – Introduction 3677.1.2 – The Strategic Petroleum Reserve 3697.1.3 – The Arctic National Wildlife Refuge 3697.1.4 – The Gulf of Mexico 3707.1.5 – Natural gas 3717.1.6 – Coal 3737.1.7 – Nuclear energy 3737.1.8 – Russia’s oil potential: myth or reality? 3757.1.9 – The Caspian Sea: a new frontier 377

7.1.10 – Africa: security and political challenges 3797.1.11 – The Middle East: opportunities and risks 3807.1.12 – Conclusion 382

Jean-Marie Martin-Amouroux7.2 – THE EUROPEAN POINT OF VIEW 385

7.2.1 – The difficulties of geopolitics and lessons learned from insecurity 3867.2.2 – Instruments for managing oil crises 3877.2.3 – Construction of more resilient energy systems for the long term 3907.2.4 – Diversification of imports and cooperation with exporting countries 3937.2.5 – Market liberalization and supply security 3967.2.6 – Results, limitations and uncertainties of the European approach 397

8 – PRODUCER-EXPORTER COUNTRIES

Jean-Marie Chevalier, Marie-Claire Aoun8.1 – GEOPOLITICS OF OIL AND GAS EXPORTING COUNTRIES 401

8.1.1 – Oil and gas revenues 4018.1.2 – The Middle East and Far East 4068.1.3 – Africa: oil curse with a ray of light 4138.1.4 – Latin America: between strong government control and a competitive market 416

Bülent Gökay8.2 – OIL AND GEOPOLITICS IN THE CASPIAN SEA BASIN 423

8.2.1 – Geopolitics of Caspian oil 4248.2.2 – Oil pipelines 4258.2.3 – NATO’s bombing of Yugoslavia and Caspian oil 426

Øystein Noreng8.3 – ISLAM AND OIL 431

8.3.1 – Religion and petroleum 431

XIX

8.3.2 – The present predicament 4318.3.3 – The historical background 4338.3.4 – Islam’s economic principles 4358.3.5 – Oil and Islamic economic principles 4388.3.6 – Clash of civilizations or clash of interests? 443

9 – FUTURE SCENARIOS

Fatih Birol9.1 – THE FUTURE OF HYDROCARBONS 447

9.1.1 – The global outlook for oil and gas 4479.1.2 – Demand 4489.1.3 – Production and trade 4499.1.4 – Environmental implications 4519.1.5 – Investment needs and financing 4519.1.6 – Major uncertainties 4529.1.7 – Towards a sustainable energy future 455

Peter R. Odell9.2 – FUTURE OUTLOOK: THE QUALITATIVE ASPECTS 457

9.2.1 – Oil 4579.2.2 – Natural gas 4639.2.3 – Oil and gas as renewable resources 470

The Scientific Co-ordinator expresses his warmest appreciation for the precious collaboration provided by Dr. Lisa Orlandi

XX

HYDROCARBONS LEGISLATION

10 – INTERNATIONAL LAW

Paolo Mengozzi10.1 – THE SOVEREIGNTY OF STATES OVER THEIR NATURAL RESOURCES 477

10.1.1 – The end of the Second World War and the tendency of states to extend their sovereignty 47710.1.2 – The powers of coastal states 47710.1.3 – Oil concession contracts and stabilization clauses 47810.1.4 – The principle of permanent sovereignty of states over their natural resources

and developing countries 48010.1.5 – The pacta sunt servanda principle in western literature and in arbitral case law 48110.1.6 – The need for a link between the pacta sunt servanda principle

and the rebus sic stantibus rule 48410.1.7 – Bilateral joint exploitation agreements concluded between coastal states with reference

to common oilfields or awaiting definitive delimitation of the continental shelves 48510.1.8 – Cooperation among states: the Reformulated and Conventional Gasoline case 486

Tullio Treves10.2 – INTERNATIONAL LAW OF THE SEA AND EXPLOITATION OF THE SEA’S RESOURCES 491

10.2.1 – The various maritime zones and their evolution 49110.2.2 – Marine resources in light of the 1982 Convention on the Law of the Sea

and of other international rules 49310.2.3 – Outer limits and delimitation of the zones under national jurisdiction 49410.2.4 – Mineral resources in zones under national jurisdiction: the exploration and exploitation

regime 49710.2.5 – Artificial islands, installations and structures 49810.2.6 – Cables and pipelines 50010.2.7 – The regime of mineral resources of the international seabed 50010.2.8 – Non-mineral resources in the economic zone and on the high seas 50310.2.9 – Dispute settlement 503

Sergei Vinogradov10.3 – ENVIRONMENTAL PROTECTION IN THE PETROLEUM INDUSTRY 507

10.3.1 – Introduction 50710.3.2 – Environmental impact of the petroleum industry 50710.3.3 – International environmental legal frameworks relevant to the petroleum industry 50910.3.4 – Soft law relevant to the petroleum industry 51910.3.5 – National legal frameworks 52010.3.6 – Environmental management tools 52110.3.7 – Conclusions 522

Sergio Maria Carbone10.4 – CIVIL LIABILITY FOR OIL POLLUTION DAMAGE TO THE MARINE ENVIRONMENT 525

10.4.1 – The evolution of international rules. The 1969-71 Convention system 525

XXI

10.4.2 – The updating of the Convention system 526

10.4.3 – Criticism of the Convention system and the relevance of insurance coverage 528

10.4.4 – The progressive confirmation of the criterion of the shipowner’s strict liability

and its limits 530

10.4.5 – The concepts of compensable damage and ship for the purposes of the application

of the international rules 532

10.4.6 – The Bunker Convention 533

10.4.7 – The relationship between the Bunker Convention and the rules on limitation

of liability for maritime claims 535

10.4.8 – Conclusions and prospects for the evolution of the system 536

Andrea Giardina

10.5 – BILATERAL INVESTMENT TREATIES AND THE NORTH AMERICAN FREE TRADE

AGREEMENT 539


10.5.2 – Bilateral investment promotion and protection treaties 539

10.5.3 – The North American Free Trade Agreement (NAFTA) 545

Andrea Giardina

10.6 – THE ENERGY CHARTER TREATY OF 1994 551


10.6.2 – Trade, transit, the environment and energy efficiency, and competition 551

10.6.3 – Investment promotion and protection 553

10.6.4 – Dispute settlements between investors and states and between states 555

Thomas W. Wälde

10.7 – ORGANIZATION OF THE PETROLEUM EXPORTING COUNTRIES (OPEC) 559

10.7.1 – Introduction and background 559

10.7.2 – History and structure of OPEC 560

10.7.3 – OPEC and the international oil market 563

10.7.4 – OPEC and international energy law 564


Thomas W. Wälde

10.8 – THE INTERNATIONAL ENERGY AGENCY (IEA) 575

10.8.1 – Overall profile 575

10.8.2 – Origin 577

10.8.3 – Autonomy or integration: IEA relations with the OECD 577

10.8.4 – Budget 578

10.8.5 – Governance 578

10.8.6 – Membership 579

10.8.7 – Accession 581

10.8.8 – Emergency response mechanisms in the IEA 581

10.8.9 – External relations (relation with “non-member countries”) 584

10.8.10 – Policy and technical research and consultation 585

10.8.11 – Energy research and technology 586

10.8.12 – Conclusion 586

XXII

11 – SUPRANATIONAL LAW

Peter D. Cameron11.1 – EUROPEAN UNION AND THE LIBERALIZATION OF THE ENERGY MARKET 591

11.1.1 – Introduction 59111.1.2 – Hydrocarbons licensing 59111.1.3 – Gas 59511.1.4 – The complementary role of competition law 60911.1.5 – Conclusions 611

12 – NATIONAL REGULATION OF THE HYDROCARBONS INDUSTRY

Ernest E. Smith12.1 – UNITED STATES OF AMERICA AND CANADA 613

12.1.1 – Preliminary remarks 61312.1.2 – Ownership of hydrocarbon resources 61312.1.3 – State participation and state companies 61812.1.4 – Form and nature of exploration and development agreements 61812.1.5 – Investment protection 62512.1.6 – Fiscal and currency regulation 62712.1.7 – Operating conditions 62812.1.8 – Environmental issues 63212.1.9 – Dispute settlement 638


Elizabeth Bastida, Carlos Valiente Noailles12.2 – ARGENTINA, BRAZIL, MEXICO AND VENEZUELA 641

12.2.1 – Introduction 64112.2.2 – Argentina 64212.2.3 – Brazil 64812.2.4 – Mexico 65412.2.5 – Venezuela 659

Elena V. Novikova12.3 – RUSSIAN FEDERATION 671

12.3.1 – Sovereignty 67112.3.2 – Ownership and title to the underground petroleum resources 67112.3.3 – Structure of the petroleum legislation 67212.3.4 – Operating conditions 67512.3.5 – State control and participation 67612.3.6 – The price of oil and gas 67612.3.7 – Contracting for goods and services 67712.3.8 – Investment protection 67812.3.9 – Environmental protection 678

12.3.10 – Currency regulation 67912.3.11 – Applicable law 68012.3.12 – Dispute settlement 680

XXIII

Gulmira Utegenova

12.4 – KAZAKHSTAN 683


12.4.2 – Petroleum legislation 683

12.4.3 – The subsoil use contract 684

12.4.4 – State participation and key regulatory agencies 686

12.4.5 – Contract duration 687

12.4.6 – General structure of a subsoil use contract 687

12.4.7 – Tax regime of hydrocarbon contracts 688

12.4.8 – Environmental protection 692

12.4.9 – Insurance, governing law, stabilization 693

12.4.10 – Suspension and termination of subsoil use contracts 694

12.4.11 – Dispute settlement 695

12.4.12 – Protection of investments under international treaties 695

12.4.13 – Currency regulations 695

Mette Gravdahl Agerup

12.5 – NORWAY 697

12.5.1 – Sovereignty over the petroleum resources 697

12.5.2 – Ownership and title to the underground petroleum resources 697

12.5.3 – Structure of the petroleum regulation 698

12.5.4 – Operating conditions 701

12.5.5 – State participation through a state oil company or otherwise 702

12.5.6 – Fixing the price of oil or gas for tax and other purposes 703

12.5.7 – Fiscal structure 703

12.5.8 – The petroleum contract and the parties thereto 704

12.5.9 – Applicable law 705

12.5.10 – Dispute settlement 705

Michael Taylor

12.6 – UNITED KINGDOM 707


12.6.2 – The structure of petroleum regulation 708

12.6.3 – Operating conditions 710

12.6.4 – Pipelines 712

12.6.5 – UK oil and gas taxation regime 713

12.6.6 – Joint venture management 714

12.6.7 – Safety at work 715

12.6.8 – Environmental regulation 715

12.6.9 – Transfer of interest: licence assignments 716

12.6.10 – Abandonment and decommissioning 717

Mohammed Chemloul

12.7 – ALGERIA, LIBYA AND TUNISIA 721

12.7.1 – Algeria 721

12.7.2 – Libya 727

12.7.3 – Tunisia 735

XXIV

Sherif El Atfy, Mohamed M. Badran12.8 – EGYPT 745

12.8.1 – Introduction 74512.8.2 – Sovereignty over petroleum resources 74512.8.3 – Ownership and title to underground petroleum resources 74512.8.4 – The right to explore, develop, produce and dispose of petroleum resources 74612.8.5 – Exploration and production terms, and expenditure commitments and bonuses 74712.8.6 – State participation in the Egyptian Concession Agreement 74812.8.7 – Pricing oil and gas under the Egyptian Concession Agreement 74912.8.8 – The fiscal structure under the Egyptian Concession Agreement 75012.8.9 – The parties of the Egyptian Concession Agreement 752

12.8.10 – Investment protection for exploration, development, and production operations in Egypt 75212.8.11 – Environmental protection 75412.8.12 – Applicable law to the Egyptian Concession Agreement 75412.8.13 – Dispute settlement under the Egyptian Concessions Agreement 755

Adedolapo Akinrele12.9 – NIGERIA 757

12.9.1 – Introduction 75712.9.2 – Development of Nigerian oil and gas law 75812.9.3 – Current structure of the Nigerian oil and gas sector 76112.9.4 – State participation 76212.9.5 – The impact of the law of the sea on Nigerian oil and gas law 76412.9.6 – The licensing of oil and gas exploration and production 76512.9.7 – Impact of environmental protection laws 76712.9.8 – Development of natural gas 76912.9.9 – Taxation of oil and gas 770

Atef Suleiman12.10 – THE UNITED ARAB EMIRATES 773

12.10.1 – Introduction 77312.10.2 – Sovereignty over petroleum resources 77312.10.3 – Ownership and title to underground petroleum resources 77412.10.4 – The structure of petroleum regulations and the operating conditions 77412.10.5 – State participation through a state oil company or otherwise 77712.10.6 – The price of oil and gas 77812.10.7 – Fiscal structure 78112.10.8 – The petroleum contract and the parties thereto 78112.10.9 – Investment protection 782

12.10.10 – Environmental protection 78212.10.11 – Currency regulation 78212.10.12 – Applicable law 78212.10.13 – Settlement of disputes 783

Msoud Vafakish Sistani12.11 – IRAN 785

12.11.1 – Introduction 78512.11.2 – Sovereignty over petroleum resources 78612.11.3 – Ownership and title to underground petroleum resources 786

XXV

12.11.4 – The structure of petroleum regulations: the right to prospect, explore, develop, produceand dispose of petroleum resources 787

12.11.5 – State participation through a state oil company or otherwise 78712.11.6 – Buy-back agreements 78812.11.7 – Investment protection 79012.11.8 – Environmental protection 79112.11.9 – Currency regulation 792

12.11.10 – Applicable law and settlement of disputes 792

Michael A.G. Bunter12.12 – IRAQ 795

12.12.1 – Introduction 79512.12.2 – The Islamic law and the early petroleum concessions in the Middle East 79512.12.3 – Sovereignty over, and the ownership of petroleum resources and reserves 79612.12.4 – Iraqi petroleum rights 79712.12.5 – The Iraq Petroleum Company (IPC) concessions 79912.12.6 – Modern geopolitics and the legal situation of Iraqi oil 80112.12.7 – State participation and the nationalizations of the 1970s 80212.12.8 – The Iraqi legal system 80312.12.9 – The Iraqi legal framework of the petroleum sector 805

12.12.10 – Modern Iraqi draft petroleum agreements and contracts 80612.12.11 – Arbitration in Iraqi law 80812.12.12 – The legal status of the petroleum transactions negotiated by the Saddam regime 80912.12.13 – Future developments 81012.12.14 – The elections of 30 January 2005 811

Sultan M. Al-Abdulla12.13 – QATAR 815

12.13.1 – Introduction 81512.13.2 – Petroleum legislation 81512.13.3 – Structure of operating conditions 81612.13.4 – Petroleum operations with government participation 818

William L. MacBride Jr., Dana L. Hupp, Zhang Chunhe12.14 – CHINA 821

12.14.1 – Sovereignty over petroleum resources 82112.14.2 – Ownership and title to the underground petroleum resources 82212.14.3 – Structure of the petroleum regulation 82212.14.4 – Operating conditions 82412.14.5 – State participation through a state oil company or otherwise 82512.14.6 – Fiscal structure 82712.14.7 – The Petroleum Contract and the parties thereto 82812.14.8 – Investment protection 82812.14.9 – Environmental protection 829

12.14.10 – Currency regulations 83012.14.11 – Applicable law and the settlement of disputes 830

Mark Newbery12.15 – INDONESIA 833


XXVI

12.15.2 – Indonesian legal system: an overview 83312.15.3 – Supervision of the oil and gas sector 83412.15.4 – Upstream business activities 83412.15.5 – Enviromental law and regional autonomy 83912.15.6 – Downstream business activities 84112.15.7 – Settlement of legal disputes 84312.15.8 – Currency controls 844

13 – CONTRACTUAL REGULATION AND SETTLEMENT OF DISPUTES

Piero Bernardini13.1 – CONTRACTUAL REGULATION WITH RESPECT TO EXPLORATION FOR

AND PRODUCTION OF HYDROCARBONS 84713.1.1 – The oil contract 84713.1.2 – Legal regulation 84713.1.3 – Contractual regulation 84813.1.4 – The evolution of the oil contract 85013.1.5 – Conclusions 857

Paul Griffin, Silke Muter Goldberg13.2 – IMPORT CONTRACTS AND TRANSPORT OF GAS 859

13.2.1 – Introduction 85913.2.2 – Review of pipeline and LNG projects 86013.2.3 – Structure of pipeline projects 86013.2.4 – Some legal issues in relation to pipeline projects 86113.2.5 – Allocation and attribution 86313.2.6 – Structure of LNG projects 86513.2.7 – Matters of general application 86713.2.8 – Conclusion 877

Ahmed El Kosheri13.3 – INTERNATIONAL ARBITRATION AND PETROLEUM CONTRACTS 879

13.3.1 – Introduction 87913.3.2 – The arbitration precedents pertaining to the interpretation of the classical colonial type

of concession agreements 88013.3.3 – The different solutions provided for under the arbitral awards rendered in absentia against

an expropriating host state 88213.3.4 – Case law concerning disputes emerging under the second generation of petroleum

agreements 88613.3.5 – The new rules conceived by the arbitral Tribunals 890

XXVII

XXIX

NOTES

UNITS OF MEASUREMENT

The units of measurement generally adopted are those of the Système International (SI), with corresponding mul-tiples and submultiples. Only in particular contexts, typically connected with the petroleum industry, certain non-SI units of current use have been maintained.

Main units of measurement adopted

TERMINOLOGY AND SPELLING

In the sectors of petroleum engineering and chemistry, of the petrochemical industry and of the earth sciences,specific terms, acronyms and expressions are frequently used. The criterion adopted in this work is based on theirfrequency of use, i.e. given two possible terms, the more common one has been used. This criterion has also beenused for economics and law.British spelling, according to the most authoritative reference works, has been adopted.

ampere Aangstrom Åatomic mass unit ubar barbarrel bblbecquerel BqBritish thermal unit Btucalorie calcandela cdcoulomb Cdarcy Dday ddecibel dBdegree Celsius °Cdegree Fahrenheit °Fdegree (sexagesimal) °electron volt eVfarad Ffoot ' (ft)gram ggray Gyhectare ha

henry Hhertz Hzhorse-power hphour hinch '' (in)joule Jkelvin Kkilogram kgkilowatt-hour kWh litre llumen lmlux lxmetre msquare metre m2

cubic metre m3

minute (angle) minute (time) minmole molnewton Nnit ntohm Ωparts per million ppm

pascal Papoise Ppound lbpounds per square inch psiradian radsecond (angle)

second (time) ssiemens Ssievert Svstandard cubic foot scf or SCF or sft3

steradian srstock tank barrel stb stokes Sttesla Ttonne ttonnes of oil equivalent toevolt Vwatt Wweber Wbyard ydyear yr

XXX

CHEMICAL NOMENCLATURE

In the nomenclature of simple compounds, the rules of IUPAC (International Union of Pure and Applied Chemistry)have been adopted as far as possible, traditional names being limited to the cases admitted by IUPAC. When thereare two or more names admitted, the commonest one is adopted.Two principal exceptions to the above rule have been applied in this work:• For organic compounds used in the petrochemical industry, the name adopted is that listed in: Wells G.M.

(1999) Handbook of petrochemicals and processes, Aldershot, Ashgate; Brookfield (VT), Gower.• The British English spelling of sulphur and sulphur containing compounds is adopted.

FOOTNOTE AND CITATION OF LEGISLATIVE TEXTS

Given the specialized terms used in economics and law regarding hydrocarbons, footnotes have been included thatprovide information, observations, and comments that may also include references to the bibliography. Referencesto legal aspects and internet sites have also been included in the footnotes.For the United States and Canada, there are some special cases regarding the citation of legislative texts. For Uni-ted States and Canadian Acts, the Act has been named followed by the year. Where appropriate, such references havebeen integrated, in the footnotes, using the standard citation models adopted by both countries.Reference to the cases can be seen by the italics separated by v. (abbreviation of versus) in roman type, followed bythe year, the court and other references. If, however, a general reference is being dealt with, only the court, numberand date are supplied.

TRANSLITERATIONS

In writing names belonging to other languages with an alphabet other than the Latin alphabet, the RomanizationTables compiled by the Library of Congress of Washington have been applied, introducing however certain modificationsintended to reduce to a minimum the number of diacritical marks, and – in particular in the case of Arabic and Persian –adopting a number of transliterations by now accepted in local and international usage.

Opposite page:Offshore platforms for the production of hydrocarbons in the Gulf of Suez (Egypt). The Belaym field is operated by the companyPetrobel, a joint venture in which Eni has a 50% share, through the company Ieoc, and Egpc, an Egyptian state company, hasthe other 50%.Eni’s presence in this country dates back to the 50s.