Investing in Energy: A Primer on the Economics of the Energy Industry

Hydrocarbons, a Source of Revenue

Among state-owned oil companies, a common denominator is the reliance on crude and natural gas production as a key source of revenue to its domestic economy. When crude oil or natural gas prices significantly decline, these economies are weakened. In a declining crude and natural gas price environment, national oil companies (NOCs) tend to react differently. Smaller countries have less flexibility and financial resources to withstand such economic shocks. Countries such as Ecuador and Venezuela rely on crude oil production as their economic lifeline.

As another example, Mexico has tried to increase its revenue base by increasing taxes among the corporate sector. Venezuela has been reticent to increase taxes among ...