Most major oil and gas firms engage in both upstream (i.e., hydrocarbon exploration and production) and downstream (i.e., hydrocarbon refining and marketing) businesses as well as related activities such as chemicals, and their R&D activities serve the needs of these businesses. During the past decade or so, the R&D spending of oil and gas firms has generally declined. According to a DOE survey, R&D spending by major energy producers within the United States declined from $3.05 billion in 1994 to $1.33 billion in 2000. Although not true of all producers internationally, the broad global trend over the past decade or so seems to be along similar lines.
A series of annual surveys by the U.K. Department of Trade and Industry on R&D expenditures by major firms worldwide indicates a decline in the average R&D expenditures (as a percentage of sales) of major oil and gas firms worldwide, from approximately 0.75% in 1992, to 0.60% in 1996, to 0.34% in 2000—even as the cumulative sales of these firms rose approximately by 50% over the same period. A number of factors have likely contributed to this decline, including the recent consolidation within the industry, the decline of oil prices and oil prices inflation during the mid and late 1990s, and the general trend toward R&D downsizing and outsourcing within firms.
Technology developed by other firms may also be useful for the oil and gas industry. For example, many of the R&D activities of an oilfield services firm such as Schlumberger are targeted toward acquiring data for better characterization of petroleum reservoirs, optimizing oil and gas production, and improving hydrocarbon recovery—all of great value to the petroleum and gas industries. To take another example, specialty chemical firms such as Akzo Nobel develop and provide catalysts useful for petrochemical processing.
The larger the share of energy (fuels, electricity, gas, heat energy, and natural gas price) in consumption expenditures, the larger the direct impact on the CPI of a given energy price change. The impact of a change in oil prices in the energy component of the price index is not instantaneous, however. Consumer fuel prices react almost immediately, but price adjustments in gas or heat energy can take somewhat longer to occur in normal circumstances. The magnitude of direct effects is affected by the importance and structure of tax rates, because oil is heavily taxed. If the tax rate has an ad valorem structure (i.e., the tax corresponds to a fixed proportion of the final price), an increase in the cost of energy of 1% will be transmitted to the consumer also as a 1% increase. However, if the tax corresponds to a specific tax (i.e., x cents by unit of energy), an increase in the cost of energy of 1% will be transmitted to the consumer as a somewhat smaller than 1% increase, at least before any adjustment of the tax, which is not likely to coincide in time with the usual fluctuations in oil prices in the international markets. Usually, tax systems are more complex than these very simple illustrations, reflecting the existence of both ad valorem and specific components. Therefore, the direct impact of oil price changes on the energy component of the consumer price index is affected by taxes. It shows the sizable discrepancies of the tax component in unleaded gasoline prices for the G7 countries (G7 refers to the Group of Seven leading industrial nations that meet annually for economic and political discussions).
