Petroleum and Oil

978 words 4 pages

LUKoil was one of several firms created in 1991 out of Russia’s state-owned petroleum monopoly. While both Russia and LUKoil must export to meet their economic objectives, political relations within and outside of Russia could impair LUKoil’s future ability to export. Thus, foreign investment and ties to Western oil companies are very important to the firm’s ultimate success. Controlling 19 percent of Russia’s oil production and refining capacity and employing more than 120,000 people in its operations worldwide, LUKoil has become Russia’s largest oil company. It is also the first Russian oil company to integrate from “oil wells to filling stations.” High market prices have enabled LUKoil to amass sufficient
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Otherwise, foreign competitors that can do so would be in a position not just to serve the world’s markets, but to enter the Russian market via foreign direct investment, if such action were permissible. Thus, it is critical that both LUKoil and other Russian oil companies become as efficient as the major global competitors, either by developing or acquiring the latest petroleum technology, marketing skills, and operating efficiencies that will yield the efficiencies required to effectively compete at both the global and local levels.

3. In LUKoil’s situation, what is the relationship between factor mobility and exports? Capital, technology, and skilled employees are all critical factors in the global oil industry. Even in Russia oil production and processing are capital-intensive activities that require massive amounts of highly valuable and highly specialized capital equipment manned by skilled laborers. Investment naturally flows to those sites where oil is abundant and production activities are the most efficient. Because oil is a limited resource and demand exists the world over, competitors such as LUKoil serve their global customers via production sites that are scattered across the world. Whereas LUKoil’s European customers will likely be served from its European reserves, other customers are more likely to be served by oil


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