Bridge Global Production Networks and The Extractive Sector Governing Resourcebased Development. en Journal of Economic Geography 8, 389-419.

Journal of Economic Geography 8 (2008) pp. 389–419 doi:10.
1093/jeg/lbn009
Advance Access Published on 2 April 2008
Global production networks and the extractive

sector: governing resource-based development
Gavin Bridge*
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Abstract
This article explores the opportunities a GPN approach provides for understanding the
network configurations and regional development impacts associated with extractive
industries. The article elaborates two core claims: (i) that the application of the GPN
analytical framework provides a way to make progress in a stalled policy debate
regarding the linkages between resource extraction and socio-economic development
(popularly known as the ‘resource curse thesis’); and (ii) that the encounter between
GPN and a natural resource-based sector introduces distinctive issues—associated
with the materiality and territoriality of extractive commodities—that, to date, GPN
has not considered fully. The article examines the global production network for oil as
an empirical case of how extractive industries can provide (limited) opportunities for
socio-economic development.
Keywords: natural resources, global production networks, resource curse, oil

JEL classifications: L71, N50, O13, Q32
Date submitted: 14 January 2008 Date accepted: 13 February 2008
1. Introduction
In this article I extend the GPN approach to the extractive (non-renewable) resource
sector, using the oil industry as an illustrative case. The intellectual and policy issues,
which today surround extractive industries—geographical shifts in demand, emergence
of new ‘extractive frontiers’, the entry of state-owned oil firms into the ranks of trans-
national producers, an apparent swing in the balance of power away from ‘Big Oil’ and
towards resource-holding states, increased demands from civil society for extractive
activities to contribute to broadly based development goals, calls for the increased
transparency of capital flows—are uncommonly in tune with a GPN research agenda,
which seeks to understand the spatial and temporal configuration of inter-firm
networks and their implications for regional development. To date, however, extractive
industries have not been central to the Global Commodity Chain (GCC), Global Value
Chain (GVC) or Global Production Network (GPN) intellectual projects. And, for the
most part, the extensive literature on the challenges of extractive-based forms of
regional development has largely eschewed network-based modes of analysis, which
transcend the national-scale and focus on the organization of the production chain.
This article takes an initial step towards addressing the challenge of a GPN
perspective on the extractive sector. It explores how such a perspective might move
*School of Environment and Development, University of Manchester, M13 9PL.

email 5gavin.bridge@manchester.ac.uk4
ß The Author (2008). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org
390 . Bridge
forward an immensely significant debate about the regional development effects of

extractive industries. Popularly known as the ‘resource curse thesis’, this debate has
reached something of an analytical stalemate in the past few years. The apparently
limited opportunity for further advance has contributed to the growth of a ‘post-
political’ policy discourse around extractive industries, which urges ‘good governance’
of natural resources (cf. Swyngedouw, 2007). The primary purpose of the article,
therefore, is to apply GPN’s analytical toolkit to the extractive sector as an alter-

native perspective for understanding the (limited) opportunities that transnational
extractive industries provide for the development of sustainable regional advantage.
These challenges find their most forceful expression in contemporary settings such as
the Niger Delta, Angola or western Siberia, but are also found within the external
‘extractive peripheries’ of advanced industrialized countries (for example, the Canadian
tar sands, the oil patches of Oklahoma, West Texas or Wyoming or the UK North Sea
(Hayter et al., 2003). A secondary purpose, developed in the article’s final section, is to
use the encounter staged in the article between GPN and the extractive sector to reflect
on the extent to which the tools and concepts of the GPN perspective may be applied
outside manufacturing and services without modification.
2. Extractive economies and regional development

Mineral extraction’s possibilities as an agent of regional/national development have
been an object of intellectual and policy interest for much of the post-war period. It is
an apparently simple proposition: turn an above-average endowment of natural
resources into regional gains in socio-economic development. In the case of subsurface
mineral resources an analogy is often made with ‘buried treasure’, with capital and
technology assumed to provide the essential ‘key’ to opening the national vault
(Bomsel, 1990; Bridge, 2004a). Efforts to mobilize natural resource endowments have
been common to many national development policy frameworks in the 20th century,
independent of their ideological or philosophical orientation. Natural resources were,
for example, a key component of the policies of ‘constructive imperialism’ pursued by
Britain after 1895. Initiated by Secretary of State for the Colonies Joseph Chamberlain,
these policies viewed colonial territories as ‘undeveloped estates’, the agricultural and
mineral resources of which were to be pressed more systematically into the service of
territorial development (Worboys, 1990). Mineral extraction, irrigation schemes and
agricultural plantations were no longer just commercial activities but a means for
territorial modernization, marking an important shift in the meaning of development
from an immanent process to an intentional state-centred project (Hart, 2001).
Programmes of mineral extraction, agricultural extensification, water resource develop-
ment, forestry and fisheries promotion have been central to modernization drives in
North America, Eastern Europe, Asia, Africa and Latin America, although the
chronologies in each place are different and the political contexts vary widely. In many
countries, natural resource mobilization has been an important element of continuity
across fault lines of political upheaval, such as decolonization, the embrace of autarkic
models of development, transitions from authoritarianism to formal democracy or
the imposition of structural adjustment. Oil and gas exploitation, for example, are
today central to the national/regional development imaginaries of territories as
Global production networks and the extractive sector . 391
demographically and socio-politically diverse as Alberta, Sao Tomé, Scotland, Bolivia,

the Falkland Islands (South Atlantic), Siberia, Qatar and the South China Sea.
The case for resource extraction as an agent of regional development is underpinned
by the classical theory of comparative advantage in international trade. Mining, oil and
gas development projects are also often justified by reference to specific theories of
modernization—such as ‘big push’ modernization or regional growth-poles—that stress
the social value (positive externalities) that can be achieved by large infrastructure

projects (Sachs and Warner, 1999). External sources of investment for extractive
projects, together with the external markets available for mineral products, provide
opportunities for a resource-rich region to ‘plug into’ the global economy and offset low
regional rates of consumption and savings. In this view, extraction is a lead sector that
creates a series of ‘spread effects’, which drive economic expansion, moving an economy
from one equilibrium (low level of development) to a new equilibrium characterized
by higher levels of socio-economic well-being (Gunton, 2003). Further support for
extractive development also comes from neo-classical resource economics, which views
subsurface resources as capital assets the value of which can be realized only by their
extraction and release into the economy. Because of the tendency to discount future
value relative to present value (as measured by the discount rate) a decision to leave
minerals in the ground—i.e. to conserve mineral stocks—is rational only when there is
an expectation that mineral prices will rise at a rate exceeding the discount rate.1 The
long-standing conventional view, then, is that in the majority of circumstances mineral
endowments should be developed rather than left in the ground and that their
extraction (and export) can initiate a virtuous cycle of economic upgrading.
2.1. The resource curse

Its apparent simplicity aside, producing long-term, broadly distributed wealth from
extractive economies remains an enduring challenge for development policy. A large
body of research now indicates that cases where resource extraction has driven broad-
based forms of regional development should be understood as important exceptions
rather than a general rule (Ross, 1999; Sachs and Warner, 1999; Watts, 2005; LeBillon,
2006; Rosser, 2006).2 Mineral extraction appears to be a ‘uniquely difficult form of
development’, a view that has made mineral resources something of a ‘pariah’ in
development economics (Davis, 1995; Ross, 2001; Humphreys et al., 2007; see also
Prebisch, 1950; Frank, 1969). The potential limits of resource extraction as a mode of
regional development were first theorized by the economic historian Harold Innis
beginning in the 1920s, based on what he regarded as a truncated form of development
in Canada attributable to the country’s role as a supplier of raw materials (furs, fish,
timber, grain, minerals) to the European metropole (Innis, 1956). Specialization around
raw material extraction, he argued, did not drive economic diversification but produced
a dependent form of development that he labelled the ‘staples trap’.
1 This is the Hotelling Rule describing the conservation of non-renewable resources and is a cornerstone of
resource economics (Hotelling, 1931).
2 Notwithstanding the intellectual pedigree of the conventional view: Douglass North, who developed the
export-base model from a study of the role of US cotton plantations in driving regional growth before
1860 (North, 1955), won the Nobel Prize for Economics in 1993.
392 . Bridge
Since Innis the surprisingly poor performance of many resource-rich economies has
been the focus of much research. This ‘counter-intuitive outcome’ so confounds the
assumption that a large endowment of natural resources is a boon for development that
it has come to be known as the ‘resource curse thesis’ (Auty, 1990, 2001b). Whether
assessed in the relatively constrained terms of the extractive sector’s stimulus to
economic growth or its contribution to industrial upgrading, or the more comprehen-
sive metric of delivering development benefits to the poor, this work questions the

contribution of extractive activities to regional development. Today work on the
‘resource curse’ draws on at least four discrete strands of argument: (i) micro-economic
assessments of the production function of firms in the staples sectors that centre on its
capital intensity and barriers to entry (Auty, 1990); (ii) macro-economic studies of the
impact of resource booms on the sectoral distribution of investment and labour, and the
impact windfall rents have on exchange rates and competitiveness of non-staple exports
(the so-called ‘Dutch Disease’, a form of resource-induced de-industrialization, e.g.
Corden and Neary, 1982; Gelb, 1988; Gylfason, 2004); (iii) empirical correlations
between rates of economic growth and dependence on resource exports (Sachs and
Warner, 1995; Ross, 2001; Mehlum et al., 2006) and (iv) assessments of the factional,
predatory and/or delusional political structures that arise in the rentier economies of
resource abundant states (Karl, 1997; Auty, 2001a; Kaldor et al., 2007).3 This is a rich
and complex tradition of enquiry that proponents of mineral development often dismiss
as ‘an anti-mining bias’ (Davis, 1995). It is significant that many of the specific and
contextual arguments in this body of work have been lost in the contemporary policy
debate over extractive industries, which has become polarized over explanations for the
under-performance of many mineral economies.
2.2. The need for an alternative perspective

High mineral prices, together with an intensification of civil society concerns about
corruption, human rights and environmental degradation have renewed scrutiny of the
regional development impacts of extractive industries in the last few years. Policy
papers, governmental and non-governmental initiatives and a series of editorials in
leading newspapers attest to elevated levels of public concern around extractive
industries (Ross, 2001; Surowiecki, 2001; John, 2003; Palley, 2003; Humphreys et al.,
2007; Rosenberg, 2007a; UNCTAD, 2007). The arguments, however, appear to have
reached a stalemate: Gunton (2003, p. 71) sums up the contemporary situation as an
‘interplay between the pessimism of the dependency tradition that staples have a
pathological disorder that leads inevitably to crisis and the qualified optimism of the
comparative-advantage tradition that staples are an important asset in the development
process’. Each of the camps has its intellectual traditions, set of models and portfolio of
exemplary cases. For the proponents of resource-based development, the historical
reference cases are California, Germany, Sweden or Canada and present-day exemplars
Australia, Botswana, Norway or Chile. For critics of extractive enterprises as agents of
development, the cases in point are Bolivia, Guyana, Angola, Zambia, Zaire, Guinea,
3 ‘Delusional’ here refers to work on the ‘economics of the rear-view mirror’ (Power, 1996) and the
‘conspiracy of optimism’ that produces over-optimistic forecasts of mineral wealth (Clapp, 1998).
Papua New Guinea, Sierra Leone, Burma or ‘internal peripheries’ such as Appalachia,
South Wales or the Northern Territory of Australia.
On both sides of the debate there is a default to national-scale modes of analysis
that pushes questions about the transnational organization of production into the
background. The fixation with national scale analyses runs deeper than the trading
of successful and unsuccessful country cases. To the proponents and detractors of
extractive development alike, cases of underperformance are due primarily to state

failure. The difference of opinion is over whether these failures of the state are structural
and necessary, or contextual and contingent. Gunton (2003) neatly summarizes this
position in his assessment that while natural resource-based development is challenging,
many of the negative effects are due to inadequate governmental management such as
over-estimating demand or the building of excess capacity (see also Davis and Tilton,
2005). The emerging policy consensus is that a state’s institutional capacities and
effectiveness exert a critical influence over whether extractive economies work in the
interests of development. The policy debate over the developmental consequences of
extractive industries, then, is increasingly framed as a question of ‘good (national)
governance’. Extractive industries and development have entered a ‘post-political’ mode
of consensus politics (Swyngedouw, 2007) that highlights questions of state competency
and efficiency while obscuring significant divergences of interest between firms, states
and consumers that influence the structure of the production network, and its capacity
to contribute to the development of regional advantage.
What is missing from the current policy debate over extractive industries and
development is a sense of the relational way in which production is organized via inter-
firm networks that massively exceed the boundaries of the nation–state, and a mode of
analysis, which is time and space sensitive (Coe et al., this volume). It is also apparent
that the debate over the developmental impacts of fossil fuel extraction are largely
disconnected from concerns over the environmental effects of hydrocarbon consump-
tion: although fused via abstractions such as ‘sustainable development’, the ‘old’ (fossil
fuel) and ‘new’ (sequestering and offsetting) carbon economies remain quite separate
concerns from the perspective of the development of regional advantage. There is
certainly scope, then, for considering what a GPN-approach to the extractive sector
would look like and how it might understand regional development impacts as a
‘dynamic outcome of the complex interaction between territorialized relational
networks and production networks within the context of changing regional governance
structures’ (Coe et al., 2004, p. 469). Earlier work in the dependency-theory tradition
that emphasized external control and foreign ownership of extractive industries
provides a point of departure. In particular the extensive work by Richard Auty (1983,
1990, 1995, 2001b) on extractive economies provides a bridge to a GPN approach
because of its attention to the organizational and spatial rigidities in the sector,
temporal and spatial variation in corporate/state relations and the implications of these
characteristics for development outcomes.4 Auty’s work shows, for instance, how ‘the
roots of the mineral economies’ under-performance . . .. lie in the mining sector’s pro-
duction function (i.e. ratio of capital to labour), domestic linkages and deployment of
4 ‘The case for a re-appraisal of staple export-led growth remains strong,. . .. . .the increasingly varied forms
of corporate/host partnership improve the potential stimulus to regional growth from foreign investment
in mines and plantations’ (Auty, 1983, p. 17).
394 . Bridge
mineral rents’ (Auty, 1990, p. 3). Yet, even here firms are seen primarily as bundles of
capital and technology with relatively little attention to the geographical organization
of production on a world-scale or to the influence of the materiality of oil on the
structure of the production network.
3. An extractive global production network: the case of oil

This section maps out a GPN approach to the resource production–consumption chain
using oil as an example. It establishes the structure of the ‘hydrocarbon commodity
chain’, outlines key actors and relations that constitute the global production network
for oil, and identifies three imperatives that influence the structure of the production
network and which distinguish it from other economic sectors. The core point is to lay
the ground to show—in the following section—how a GPN approach that prioritizes
inter-firm relations and firm–state relations opens up a different way of thinking about
extractive industries and development to that which characterizes the ‘resource curse’
debate. Like Hudson (this volume), the analysis of the global oil production network
recognizes production as a comprehensive term that encompasses all activities in the
circuit of production. It explicitly includes, therefore, the production and exchange (i.e.
the metabolism) of non-traded by-products (i.e. pollutants), with a particular emphasis
on carbon dioxide. This catholic view of production is consciously experimental
and designed to explore the ways in which the materiality of oil—its variation in quality
and ease of recovery (and hence economic return) and the entropic (and in many
applications, irreversible) nature of its conversion during consumption—exerts an
influence on the development opportunities associated with the global oil production
network.
3.1. Characterizing the production network

Oil is generally considered to be a mature industrial sector: the basic technologies and
infrastructures for extracting, transporting, refining and consuming oil are in the public
domain having been developed over many years, and growth in oil’s share of the global
energy market has substantially slowed after rapid growth in the mid-20th century as oil
replaced coal and successful R&D initiatives produced a range of new oil-based pro-
ducts (e.g. nylon, plastics, fertilizers) that substituted for other materials (Geiser, 2001;
Smil, 2003; Podobnik, 2005). With the exception of specialty chemicals at the refining
stage, oil is a commodity produced for a general market rather than a specialized
product tailored to the specific needs of individual consumers. It is defined by the
producer, produced in bulk and sold in markets that may be volatile but, which,
nevertheless, are relatively predictable given the large number of consumers of a
standardized product (Storper and Salais, 1997). On the whole oil, like most extractive
industries, is a classic ‘producer-driven’ chain in which the key production units are
large firms and a high degree of ‘control (is) exercised by the administrative
headquarters of the TNC (or state-owned enterprises)’ over the production process
(Gereffi, 1994, p. 97).
The oil industry is one of substantial global extent and a high level of geographical
integration. Oil extraction activities are geographically widespread—49 countries
produced at least 55,000 barrels a day in 2006 (BP Statistical Review, 2007). The
production of crude occurs in socio-economic contexts that, as critics of the resource
curse argument like to point out, range from Angola (ranked 162nd in the 2007 UN
Human Development Index) to Norway (ranked 2nd). The current pattern of
production reflects a geographical dispersion of extractive activities and a diversifica-
tion of supply outside OPEC countries after the 1970s, so that the ‘world is now a
patchwork of oil producing areas’ (Odell, 1997, p. 321). The re-negotiation of
concessions and the nationalization of production in the Middle East (and elsewhere)
in the 1970s produced a new geography of oil production that was substantially

different to that which developed between 1955 and 1975 where, driven by the
‘attractive economics of Middle Eastern oil production, relative to oil production
elsewhere . . . (and) assisted by a relative decline in the cost of moving crude to markets
over long distances’ production converged on the Middle East (Odell, 1997). Growth of
production and export capacity in the UK, Norway (North Sea), Nigeria, the Gulf of
Mexico, Angola and Russia, for example, have reduced the dominance in production
that the Middle East had in the 1970s. Although geographically diversified by historical
standards, global production is dominated by huge formations in Saudi Arabia, other
parts of the Middle East, Nigeria and Russia. Reserves, however, remain concentrated
in the Middle East and its unit costs of production remain consistently lower than
elsewhere (Frost and Sullivan, 2003).
Figure 1 illustrates the broad geography of production. It shows considerable
imbalances in regional consumption and production that produce net outflows from the
Middle East, North and West Africa, Latin America and Russia, and net inflows into
East Asia, Europe and the United States. Despite the broad geographical distribution
of production—much wider than that of many other major minerals such as bauxite,
iron ore, nickel or zinc—oil is the largest internationally traded commodity by both
volume and value.5 From heating oil and jet fuel to fertilizers and plastics, the industry
produces a standardized set of products that, essential to modern life, are widely
distributed via market exchange and consumed in some measure across nearly all
demographic groups. Although physical flows of oil have a strong regional dimension—
a function of increasing transportation costs with time/distance, modified by the
particularities of regional market demands6—evidence of price convergence indicates
the market for oil is global rather than regional, as prices in different regions for the
same quality crude tend to move up and down together (Gülen, 1999).
If conceptualized as a linear production chain—with materials transformation and
product flow at the centre of analysis—the oil industry may be divided into six
sequential work processes: exploration, extraction/production, refining, distribution,
consumption and carbon capture (Figure 2). We can think of this as a ‘hydrocarbon
commodity chain’, the end points of which are rooted in the natural environment. At
the start of the chain hydrocarbons are ‘captured’ from the environment, commodified
and shunted into the economy via the extraction and production of crude oil and
natural gas. Hydrocarbons are then processed, refined and geographically proliferated
throughout the global economy as a profusion of commodities and mobilities that have
5 The NYMEX Division light sweet crude is the world’s largest-volume futures contract trading on a
physical commodity: daily trading amounts to 150,000 contracts equivalent to 150 million barrels (Gülen,
1999).
6 For example, demand for low sulphur oil in East Asia has encouraged increasing imports of low-sulphur
oil from West African fields that have traditionally been in the ‘Atlantic’ (i.e. Europe, North America)
market basin (Weston et al., 1999).
396 . Bridge
Leading oil producing and oil consuming countries 2006, based on data in BP Statistical Review (2007).
Figure 1.

Figure 2. The hydrocarbon commodity chain.
come to define modern life in the 20th century. At the end of the chain hydrocarbons
are de-commodified: through their consumption, dissociation and disposal they
accumulate in the natural environment as, for example, urban air pollution, pesticide
residues, plastics in landfills or rising atmospheric stocks of carbon dioxide. In the past
few years, efforts to manage the effects of carbon dioxide accumulation in the
atmosphere have focussed on re-commodifying the carbon released by hydrocarbon
consumption in the form of tradable rights for carbon that can be bought and sold.
Institutional and physical carbon capture is part of a broader effort to reduce emissions
and/or steer a greater proportion of the carbon flux away from the atmosphere and
towards sequestration in terrestrial stocks. A sixth link in the hydrocarbon commodity
chain, then, is currently emerging, which introduces several non-traditional actors and
spaces into the governance of the chain.
The ‘global’ integration of the oil production network arises not only via the
‘shallow’ mechanism of a well-established, inter-regional trade in crude oil, but also via
the dominant role of large, multi-locational firms in the upstream sector.7 The pro-
duction chain is conventionally divided into upstream (exploration and production/
extraction), midstream (processing and transportation) and downstream (refining,
retailing) phases. There are no technical reasons for these divisions to be integrated
within a single structure and so the organization of production is a function of
historically and relationally specific conditions. Variation in the extent to which
upstream, midstream and downstream activities are integrated produces a basic
typology of four different classes of ‘oil firms’:
. Vertically integrated oil companies in which all stages from exploration to retailing
take place within the structure of the firm. This category includes the publicly
owned, international oil companies (the ‘majors/super-majors’ or ‘Big Oil’, such as
7 The first wave of internationalization by US oil-firms was market-oriented rather than resource-seeking,
and investments in overseas production were initially to secure regional markets rather than supply US
demand. The pattern of internationalization in the early 20th century was rather different for European
oil firms: limited domestic resources meant that extraction was internationalized from the outset.
398 . Bridge
ExxonMobil, Chevron, LukOil, Repsol and Total) and state-owned oil firms (such
as Saudi ARAMCO or Venezuela’s PdVSA).
. Independent producers, focussed on upstream activities with very limited involve-
ment downstream (e.g. Apache, Devon Energy, Noble Energy).
. Independent transporters, refiners and distributors, focussed on midstream and/or
downstream activities and, with no upstream assets, no obligation to move or refine
so-called ‘equity crude’ (e.g. Valero in the US, Petroplus in Europe).

. Oil field service companies, which do not produce oil on their own account but
which provide drilling, interpretation and logistical services to producers
(e.g. Schlumberger, Baker Hughes, Diamond Offshore).
At the upstream end, oil production is organizationally concentrated with 10 firms
accounting for over 40% of world output (UNCTAD, 2007). The simultaneous geo-
graphical diversity and organizational concentration of production reflects the central
role of multi-locational firms. The classic transnational oil majors—still the largest oil
firms in terms of foreign assets—are not the only firms in this category. Independent
producers have had a substantial international presence for many years—for example,
U.S. policy actively encouraged the entry of independents into Saudi Arabia in the
1950s to work alongside Aramco (a consortium of four US majors, see Yergin, 1991).
An increasing number of independent producers, however, are now active in several
‘frontier’ oil provinces at the same time, following the liberalization of mineral invest-
ment regimes in the 1990s. In addition, a handful of East Asian state-owned oil firms—
Petronas (Malaysia), KNOC (Korea), OGNC (India), CNOOC, CNPC and Sinopec
(China)—have adopted transnational strategies of investment since the late 1990s aimed
at securing new oil reserves.8 As demonstrated by the struggle between Chevron and
CNOCC for Unocal in 2005, the emergence of transnational state-owned oil producers
has changed the dynamics of competition among the traditional international oil majors
(and raised the price) for access to oil reserves.
Figure 3 expands the hydrocarbon commodity chain into a global production
network of inter-firm and firm–state relations that link nationalized oil companies,
resource-holding states and publicly traded, transnational oil firms. It reveals a number
of lateral/horizontal relations not captured by the linear commodity chain. The oil
GPN is not especially long in organizational terms (although oil may travel huge
distances between the point of extraction and the point of consumption, the basic
commodity chain has relatively few links). The network is sparsely populated when
compared, say, with the dense networks of garment manufacturing or auto-parts
manufacture where many subcontractors supply a single manufacturer. However, the
density of the oil production network decreases towards the middle and its structure is
noticeably ‘waisted’ in the midstream section of transportation and refining (i.e. there is
a greater density of actors at the extreme upstream and downstream ends). The oil
network can also be quite deep, with cascading inter-firm linkages. At the upstream
end, for example, extractive operations often have complex ecologies that extend well
8 Although private international oil firms (classic ‘Big Oil’) continue to have the largest foreign assets, the
scale of the growth in overseas production by ‘national champions’ is striking: the ‘combined overseas
production of CNOOC, CNPC, Sinopec (all China), LukOil (Russian Federation), ONGC (India),
Petrobras (Brazil) and Petronas (Malaysia) exceeded 525 million barrels of oil equivalent in 2005, up from
only 22 million barrels 10 years earlier’ (UNCTAD, 2007, p. 21).
399
A generalized global production network for oil. Figure 3.

.
Global production networks and the extractive sector
400 . Bridge
beyond a single firm so that oil exploration and production activities are best con-
ceptualized as ‘hollow’ or networked projects.9 Large upstream operations often
involve more than one equity partner (to spread risk) and comprise a number of
specialist firms to whom different work processes are outsourced. A large-scale drilling
operation managed by BP, Exxon or Shell, for example, may have one or more equity
partners to reduce exposure to geological and financial risk. Drilling operations
are often outsourced to a contract drilling company who may also provide the rig or

drill-ship (e.g. Parker Drilling), and who undertakes to crew the rig. Drilling tool supply
may be contracted to a specialist tool company (e.g. Baker Hughes), with data logging,
data analysis and well-maintenance contracted to another firm (e.g. Schlumberger).
For many large projects, engineering, design and project management functions
may also be outsourced (e.g. AMEC). These specialist upstream oil service companies
operate on a global scale, with patterns of inter-firm relations developed in one
geographical setting (e.g. Gulf of Mexico) often replicated in other regional contexts
(e.g. offshore West Africa or the North Sea). In contrast to the global scale organization
of the specialist oil service companies, lower value fabrication, construction, main-
tenance and support activities are often contracted to regional or local firms (often
to meet local content requirements attached to concessions). While these firms may
have contracts with several different extractive operations within the region, their
geographical reach is often limited: rarely are these particular inter-firm relations
replicated in other settings.
Figure 3 also illustrates how the global production network for extractive industries
incorporates the state as an actor in a number of distinctive ways. First, the state is the
primary resource-holder in nearly all jurisdictions and establishes the terms by which
other parties may have access to the resource. Not only does this provide a much
greater degree of territorial embeddedness to the oil production network than for other
commodities, but also it potentially provides states with a much greater degree of
governance over the upstream phase. Second, states are major operators in the global
oil industry: of the top 50 oil and gas companies by volume of production, over half
are majority state owned; the top 10 reserve holders—accounting for 77% of global
reserves—are all national oil companies headquartered in developing economies
(UNCTAD, 2007). Third, states exert a significant regulatory function at each stage of
the chain. These encompass occupational health, safety and environmental regulations
and extend to decisions over the taxation of carbon-intensive fuels or the formulation of
oil products (e.g. reformulated gasoline to meet air quality legislation). Fourth, states
also play an unusually prominent role at the consumption end of the chain too. This is
because of the way oil, and particularly fuels, are an important source of taxation
revenue for national governments, and because the security of oil supply and the price
of oil are critical determinants of national rates of economic growth. States, then, are
key actors in both the upstream and downstream phases of the oil production network.
In this way, oil exemplifies how production networks are ‘discontinuously territorial’
(Coe et al., 2004, p. 471), although the intensity of the state’s engagement around oil
introduces a much stronger geo-political element to the shaping of the network than
for other commodities.
9 Thanks to Michael Bradshaw for this observation.

3.2. Restructuring of the oil GPN since the 1990s

Oil, like many extractive industries, has experienced significant shifts in the temporal
and spatial organization of production since late 1980s (Bridge, 2004b). The form and
direction of these shifts does not readily fit the characterization of a ‘metamorphosis’ in
the organization of production that dominated debates over geographies of manufac-
turing in the early 1990s. These debates focussed scholarly attention on the ‘development
of longer, more decentralised and more flexible commodity chains’ in manufacturing

(Gereffi et al., 1994, p. 8), explained emerging spatialities by reference to the labour
intensity of production, and highlighted the ways in which an increased organiza-
tional flexibility in manufacturing often went hand-in-hand with spatial inflexibility
(Schoenberger, 1993). Although extractive industries also face some clear limitations to
spatial flexibility—such as the reliance of extraction on the physical geography of
resource occurrence—the restructuring of oil production networks does not readily fit
the ‘flexible specialisation’ model. Organizational restructuring has involved some
unbundling of upstream work processes by the majors and an associated increase in
outsourcing to oil service providers. There has also been intensive organizational
rationalization (primarily via mergers and acquisitions, leading to an increased
geographical concentration of knowledge-intensive phases of the network), and a
simultaneous geographical extensification of the network via a spatial expansion of
investment both upstream (resource-seeking) and downstream (market-seeking).
The spatiality of the global oil production network is, therefore, characterized by a
complex interaction between the geographical extensification of some activities and
the simultaneous localization of others. The Houston ‘super-node’, for example, has
assumed increased importance as a global centre of exploration and production expertise
at the same time as there has been a rapid expansion of extractive activity into new
frontiers like the deepwater Gulf, Russian Far East or central Africa, and a re-orientation
of product flows towards rapidly growing, oil-poor economies in East Asia.
Sharp fluctuations in the price of oil have exerted a significant influence on the balance
of power in the network. Low oil prices during the 1990s eroded margins for many
producers, drove processes of rationalization and the pursuit of organizational scale-
economies, and encouraged under-investment in exploration and reserves replacement
(in a cautious environment, efforts were made to mitigate the risks associated with
reserves replacement via exploration by expanding reserves through acquisition).
Reserves replacement, for example, has consistently lagged behind production since the
mid-1990s: for example, in 2006 oil firms registered in the United States replaced only
59% of production (Energy Information Administration, 2007). Within the upstream
sector, low oil prices shifted the balance of power from resource-holders to holders of
capital and technology and, as a consequence the 1990s saw an expansion of investment
into those states which liberalised their mineral investment regimes on very favourable
terms. The under-investment in capacity, coinciding with buoyant demand, has
contributed to currently high oil prices. High prices have in turn shifted the balance of
power back in favour of resource-holders, and have underpinned the renegotiation by
resource-holding states such as Venezuela and Russia of the terms of access for Big Oil.
3.3. Summary
The foregoing analysis suggests there are two defining tensions in the oil production
network that influence its organizational structure and geographies. The first is the
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tension between resource-holding states and resource-seeking firms. We will see in

the following section how this tension has provided much of dynamism shaping the
organization and geography of the oil production network, since the emergence of an
international oil industry at the beginning of the 20th century. The second is the
distribution of value between producers (both states and firms) and consumers. This
distribution is a function of the relative power of different actors, and is significantly
affected by changes in the price of oil. Swings in price cause value to ‘slosh’ back and

forth from one end of the chain to the other: a rise in oil prices will distribute value
away from consumers and towards producers, while a fall in prices drives value away
from producers and towards consumers. The ability of producers to actively raise prices
depends on their ability to control the flow of oil onto the market either directly
(in the form of quotas or voluntary restrictions) or indirectly (via under-investment in
extractive capacity). For example, the concentration of production in OPEC countries
enabled the cartel to significantly raise oil prices (extract monopoly rents) after 1973.
The decision by Saudi Arabia, the leading producer, to relinquish its role as a ‘swing
producer’ in 1986 and release more oil onto the market drove prices down. Together
with the effect of policies to diversify oil supplies and a significant increase in Russian
exports after 1991, the balance of power shifted in favour of consumers for much of
the 1990s. The emergence of carbon taxation, trading and offsetting promises to
redistribute value to the governments of major oil consuming countries, and to a new
class of actors (those holding carbon credits). And, depending on the carbon price and
its effect on oil demand, this could constitute a substantial transfer of value from
producing country governments to the governments of consuming countries.
The foregoing analysis also suggests there are two significant differences about the oil
GPN that distinguish it from other, non-extractive networks, and which have
implications for the capacity of oil production to contribute to regional development.
These differences relate to the two end points where economic processes interface
with the natural environment via processes of commodification and enclosure. The first
is that significant value can be captured at the very beginning of the chain via
the assigning of rights to the mineral resource: much competitive strategy in the oil
industry, therefore, relates to control over resource access and the capture (and
allocation) of rents from low-cost, high quality reserves. The second is that the
enclosure and trading of carbon provides another moment for rapid creation and
capture of value, particularly for the owners of land/resources that provide carbon
sequestration services.10 The connection of these activities with the conventional
hydrocarbon chain has the potential to redistribute power in the production network
and, as a result, it has significant implications for development over and above those
associated with extraction. These are discussed in the next section.
4. The regional development opportunities of oil: a GPN approach

The purpose of this section is to flesh out the different perspective that a GPN provides
on the regional development opportunities provided by extractive industries.
10 Lohmann (1999) highlights the social and ecological dislocations that can occur via the ‘new enclosure
movement’ of offsetting: ‘the community evicted by oil drillers today may find itself displaced by carbon
‘‘offset’’ plantations tomorrow’.
Network and chain approaches were initially developed as an explicit response to the
failure of previous explanatory paradigms of national development to cope with the
changing geographies of production: thus, Gereffi et al. (1994, p. 2) argue that global
commodity chain analysis shows how ‘production, distribution, and consumption are
shaped by the social relations . . . that characterize the sequential stages of input
acquisition, manufacturing, distribution, marketing, and consumption . . .. (and that it)
promotes a nuanced analysis of world-economic spatial inequalities in terms of

differential access to markets and resources’. Global commodity chain analysis, for
example, seeks to counter the state-centricity of modernization and dependency theory
by showing how the nation–state is not the primary locus of capital accumulation
(Gereffi et al., 1994, p. 13). Coe et al. (2004, p. 476) build on this tradition in advocating
an approach to regional development that does not rely on endogenous growth factors,
and which enables one to see how regional development effects ‘materialize in one
region but not another region . . .. how other regions with similar growth factors either
fail to develop or evolve through drastically different trajectories’. As noted earlier, the
contemporary resource curse debate—notwithstanding an earlier tradition of staples
theory—is heavily invested in national paradigms of development. The transnational,
networked character of the GPN approach, therefore, offers an alternative perspective.
In what follows three structural ‘imperatives’ of the global oil production network are
identified. While there is a diversity of organizational possibilities, these imperatives
give shape to the network by influencing the extent and form of competition. The
development implications of these imperatives are elaborated.
4.1. The resource (access) imperative

As an industry based on the extraction of a non-renewable resource, firms in the oil
production network face the challenge of managing a depleting asset. Oil producers,
therefore, confront a ‘resource imperative’ of replacing reserves. Reserves replacement
and reserves growth are a central axis of competition, with firms in the upstream oil
sector differentiate themselves from each other by the size (and growth) of the reserves
they hold, the volume (and growth) of production they control and their costs of finding
and lifting oil. Reserve replacement ratios, for example, are a key performance metric
by which publicly traded firms compare their competitive position (Brashear, 1997).11
New reserves are found only in specific locations, which imposes some limits on the
spatial flexibility of upstream end of the production chain. These limits derive not so
much from the macro-spatiality of oil reserves—at the global scale petroliferous regions
are widespread (Rees, 1991)—but from variations in the physical and chemical
properties of oil, reserve size and the relative ease with which oil can be extracted/lifted
and connected to the existing network. Significant material differences are the depth
from surface and flow characteristics of the reservoir (which influence lifting costs), and
the size of the oil reserve and its location relative to markets and existing infrastructure
(which influence the ability to capture economies of scale). Variations in the quality of
crude include its density (lighter grades—indicated by a higher American Petroleum
Institute gravity measurement—are more highly valued than heavier grades because
11 Although reserves replacement (or reserves growth) is critical for long-term viability, short-term financial
performance may mean pursuing profitability by strategies of asset liquidation—i.e. maximizing profits
while not replacing reserves as fast as they are being depleted (Brashear, 1997).
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they contain a higher gasoline and kerosene fraction), the lack of sulphur compounds
(a ‘sweet’ oil is more highly valued than a ‘sour’ oil because sulphur compounds require
additional ‘cleaning’ for transportation and refining), the pouring point (related to the
wax or bitumen content) and the presence of salt or metal (vanadium, nickel, iron).12
The materiality of oil, then, produces differential rent (Ricardian rent) that can be
captured by firms via property rights. Firms holding large, low cost reserves are able to
obtain maximum rents as a result of their spatial monopoly (i.e. ability to exclude) other

firms. Accordingly, the logic of rent capture exerts a strong influence in resource-based
sectors, where it arises as a function of the confrontation between natural production
and social production (Fine, 1994; Prudham, 2005).13 That the logic of rent capture
governs natural resource sectors has two consequences for the shape of the oil pro-
duction chain. First, firms compete for access to and control over reserves, which will
provide the highest rent. While firms have a common interest in maintaining relatively
high oil prices, competitive pressures are greatest at the upstream end where firms
compete vigorously for access to reserves. For oil (and other extractive industries)
exploration provides a way to create and capture value via the mechanism of ‘primitive
accumulation’ i.e. the enclosure of ‘non-produced goods’, materials whose production
occurred prior to human intervention.14 The significance of this moment is reflected in
popular culture via the notion of striking it rich, the prospect of achieving large
personal gains in wealth by ‘finding’ (i.e. appropriating) valuable materials. Because of
the importance of reserves replacement and the opportunity to achieve large increases in
value, significant financial and human resources are directed towards identifying
prospective areas and determining which provide the greatest returns. Innovation, then,
takes place around upstream operations where it revolves to a great extent around the
natural properties of oil and the geological formations in which it is found (for example,
in areas such as subsurface visualization, reservoir engineering and directional drilling;
see also Prudham, 2005).
Second, rent capture is simultaneously an issue of rent allocation between oil
producing firms and resource-holders. In most jurisdictions, oil (and many other
minerals) are reserved as the property of the state. This means that resource-seeking
firms must negotiate with resource-holding states over the terms of access. The rent split
between firms and states has provided much of the drama over oil development during
the 20th century. The post-war international oil regime, for example, rested on the
introduction of a 50:50 split, whereby resource-holding governments received an
amount in taxes and royalties equivalent to the oil companies’ net profits (Yergin, 1991,
p. 435). This deal was hammered out initially in the context of Venezuela (the Petroleum
Law of 1943), which at the time was the world’s largest exporter and among the lowest
cost suppliers, and subsequently was taken up by Saudi Arabia in 1950 (at the urging of
12 Water has an API gravity of 10. A good quality, light crude will typically have an API of 35–40, and will
yield around 25–30% gasoline and kerosene by volume. A heavier crude—for example, a sour Wyoming
oil—will have an API around 18 and will yield 6% gasoline and 18% asphalt (Frost and Sullivan, 2003).
13 This applies to both extraction and cultivation (i.e. agriculture, forestry and other renewable natural
resources).
14 All extractive industries rest on the process that Marx termed primitive accumulation: the moment
through which mineral bearing lands are acquired and former land uses and social relations re-tooled for
mining. The socio-cultural and ecological upheavals consequent on this process have been well-described
by work in political ecology, cultural anthropology and environmental history (Quam-Wickham, 1998;
Santiago, 2006; Watts, 2001, 2006).
both the Venezuelan government, which saw low-cost Middle Eastern production as a
threat, and the US government which wanted to preserve the Aramco concession)
(Yergin, 1991). The 50:50 concept laid the foundations for what Mommer (2002) terms
the ‘proprietorial’ model of oil development—exemplified by the extractive regimes of
OPEC member countries—in which resource-holding states seek to enhance economic
development via demanding ground rent. This model identifies the allocation of rent
between firms and states as a critical determinant of the extent to which the production

network delivers economic development benefits to extractive regions. Although value
is produced elsewhere in the production network—for example, by processes of
resource-upgrading (refining) or transportation (which forms a critical role in realizing
the exchange value of oil by delivering its use values)—these stages are typically located
outside the extractive economy. The fiscal terms (taxes and royalties) on which firms
gain access to state-owned reserves, therefore, are a key component in the overall
package of linkages between extractive activities and states.
The post-war period, Mommer (2002) argues, has seen a struggle between the
proprietorial model and a non-proprietorial, liberal model. In contrast to the
proprietorial model, which focuses on the distinctiveness of minerals’ landed character
(i.e. the presence of landlords who demand ground rents), the latter finds little unique
about the extractive sector: rather extraction is just another industrial activity in which
investors take risks. As such, fiscal linkages—according to the non-proprietorial
model—should be limited primarily to corporate income tax: ground rents are regarded
as an impediment to the flow of investment and the emphasis of policy should be on
rewarding the risk borne by the investing firm (Wälde 2004). Since the 1980s general
policy advice—from the World Bank, for example—has moved away from rent capture
via royalties and taxes towards the attraction of investment. The replication of this
policy model in Africa, Latin America and the former Soviet Union has pitted oil-rich
regions into cost-based competition and, in Mommer’s view, constitutes an effort to
restore the dominance of consumers in the oil production chain. The explicit
‘development’ component of this policy model regards extractive industries as a
specific form of external investment akin to the branch-plant economy. As such,
attention is focussed on harnessing opportunities for learning and capturing economies
of scale and scope rather than capturing and allocating ground rent. In short, neo-
liberal policy advice on harnessing extractive investments for development focuses
on the investment component at the expense of the extractive component. As such,
investment is regarded as an opportunity ‘to access emerging global networks of
production, consumption and information exchange, while simultaneously harnessing
existing local knowledge and capability’ (Cumbers, 2000, p. 372).
The implications of the resource imperative for regional development stem from
(i) the ‘churning’ of customary mineral and surface (i.e. land) rights created by the entry
of extractive firms into new areas, and the connection of these new reserves to often
distant markets (via an infrastructural network of pipelines, terminals and shipping
routes) to secure their commercial value;15 and (ii) oil’s exceptional potential for
15 Mommer (2002, p. 106) observes ‘Regarding landed property rights, the mining companies may be
compared with nomads rather than settlers. . . Their arrival in a new region stirs up problems related to
their definition and creates all kinds of frictions, controversies and possibly confrontations. This is
inevitably the case, even in developed countries. The mineral riches underground attract them, not the
people’.
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generating rents (Mommer, 2002, p. 106). The first is substantially ignored in the
resource-curse literature, which largely assumes land and resource access rights have
been settled and which focuses on political conflicts arising from the allocation of
revenues rather than the wresting of land and resources. A GPN approach, in contrast,
is capable of highlighting the resource-seeking nature of upstream investments and how
the search for access inevitably puts oil firms into relation with those actors and
communities who currently hold rights to lands and resources. A growing body of work

on the political ecologies of oil provides a complementary view of these social relations
of extraction, from the perspective of those affected by the entry of oil firms and the
construction of pipelines (Watts, 2001; Zalik, 2004; Gachechiladze and Staddon, 2007).
A GPN approach to oil, therefore, illustrates more clearly than the resource curse
literature ‘the tension that necessarily exists between those who work and live on the
surface, and those who make their living out of the subsurface’ (Mommer, 2002, p. 29).
The second issue—the implications of oil rents for development—is central to the
resource curse literature and, in this sense, the GPN approach does not introduce
a novel perspective. Discussions of rent in the resource curse literature, however,
are heavily tilted towards the capacity of states for allocating and managing mineral
wealth, with particular reference to the political and economic challenges associated
with rentier states (Beblawi and Luciani, 1987; Coronil, 1997). A GPN approach to
oil—highlighting both differential rent (resource quality) and ground rent (the landed
nature of the resource) in relation to the resource imperative—does not collapse rent
into questions of state capacity. The architecture of the GPN approach—with its
insistence on a relational understanding of production and the ways in which inter-firm
competition structures the organization and geographies of the production network—
opens a space for addressing how the structure and pattern of the global oil production
network affects the ability of resource-holding states to (re)negotiate ground rent.
In essence a GPN approach, provides a relational perspective on Vernon’s model of the
‘obsolescing bargain’ between firms and states (Vernon 1971; Dicken, 2007). For
example, rising ground rents in the period 1950–1970 stemmed from the emerging
power of ‘OPEC landlords’ vis a vis international oil companies. This power shift
towards resource-holders reflected a rapid growth in oil demand and a slow-down in the
discovery and development of ‘domestic’ sources, and was marked by the transition of
the US from a net exporter to a net importer of oil. More recently, the apparent
obsolescence of agreements struck between international oil companies and govern-
ments in Russia, Venezuela and Bolivia during the 1990s is a function of both the
upward movement of oil prices and organizational restructuring in the upstream
reaches of the oil production chain. Outsourcing and rationalization by the majors has
produced several highly capable, independent oil service companies with global reach,
and which can provide to resource-holding states on a range of contractual terms the
technological and management skills once regarded as exclusive capacities of the
majors, but without the demand for ‘equity oil’ (see 4.2).
4.2. Technological imperative

As an industry producing a fungible commodity in which product competition is based
primarily on price, oil producers face a ‘technological imperative’ to reduce costs. This
imperative is particularly pronounced for producing firms whose reserves are
dominated by relatively high-cost oil, which has been the case for most international
oil companies, since the nationalization of low-cost producers in the Middle East in
the 1970s. In comparison to manufacturing, there are relatively few opportunities in
the upstream phase for producers to capture value by upgrading product quality or
introducing new products.16 While the quality of crude can provide some regions with a
small premium, these attributes are largely natural legacies, quirks of geological fate
that are not amenable to modification. Competition within a product market, therefore,
is based primarily on price. The technological imperative manifests itself in the aggres-

sive pursuit of economies of scale in production and refining, and in transportation.
As described by Bunker and Ciccantell (2005), there is a dialectical interaction between
efforts to reduce unit costs by scaling up production, and the necessity this creates for
scaling up transportation to handle increased product volumes. This interaction has
produced some of the iconic infrastructures that characterize the oil industry, including
the Very Large Crude Carrier (VLCC), high capacity production rigs (e.g. BP’s
Thunderhorse in the Gulf of Mexico which can produce 250,000 barrels per day), and
massive refineries, as well as the ‘great game’ to locate and control access to multi-
billion barrel ‘elephant’ deposits.17
The technological imperative appears not only in efforts to drive down unit costs
along the entire production chain, but also in efforts to reduce the upstream costs of
finding commercially attractive oil reserves and, in particular, the costs associated with
drilling ‘dry’ holes. Some firms have sought to achieve scale economies in exploration
through mergers and acquisitions and the rationalization of exploration budgets
(including significant lay-offs). However, exploration is a knowledge-intensive process
where the opportunities for achieving conventional economies of scale are limited:
employing the same exploration technology over larger areas, for example, does not
reduce costs of exploration in terms of barrels of oil discovered per unit area. Here the
land-based (i.e. material) character of oil production exerts a significant influence
on the opportunities for achieving scale economies and structures the nature of
technological development (Prudham, 2005, p. 16). More significant than economies of
scale at this upstream end of the production chain are economies of scope, in the form
of highly specialized design and engineering capabilities to develop technological
solutions capable of addressing the heterogeneity of exploration conditions and
reservoir types, which firms encounter in their search for reserves. The capacity to
design subsurface visualization and interpretation technologies and to tailor drilling
and monitoring tools that deliver accuracy, range and performance across a wide range
of sedimentary conditions provide economies of scope that are a vital part of the oil
production chain. The organizational form they take, however, is historically variable.
Since the late 1980s when oil prices fell, non-state-owned oil firms have tended to
outsource many of these functions to oil service providers in an effort to convert the
16 At times, however, oil producers have sought to mitigate this by diversification into industries with scope
for product upgrading: during the 1970s, for example, many of the oil majors took positions in
manufacturing and service companies.
17 In passing, it is worth noting here that a similar technological imperative has operated at the
consumption end, particularly at times (and in places) where oil prices have been high. This has worked
to improve the fuel efficiency of vehicles, for example, and a result has been an increase in the value
captured by the consumer in terms of the use (heating, mileage, product functionality) that one can get
out of a unit of oil. The effect of efficiency gains has been to reduce costs to the consumer and spur
demand: efficiency gains at the unit level, therefore, have been outstripped by an overall expansion in
consumption, a phenomenon known as the Jevon’s paradox (Clark and York, 2005).
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high fixed costs associated with maintaining these economies of scope in house to
variable costs. This has driven a dramatic growth of the oil service market and, in the
last few years, has led several commentators to suggest that the balance of power in the
oil production chain is shifting away from the majors as a number of oil service
providers—Halliburton, Schlumberger, Baker Hughes—assume an increasingly domi-
nant role in the production chain. This shift in the complex relationship of dependency
between majors and oil service providers revolves around the question of whether the

increased capacities of oil service providers means resource-holding states no longer
‘need’ the technological and managerial capacities that the IOCs have traditionally
provided, and that state-owned oil firms can develop new reserves via service contracts
with oil supply firms.
In many resource-rich economies, natural resource endowment provides the primary
‘regional asset’. As Coe et al. (2004, p. 471) argue in reference to manufacturing and
services, regional assets can be pre-conditions for development if they provide
economies of scope and economies of scale that can deliver regional advantages.
They caution, however, that this happens only ‘insofar as such region-specific
economies can complement the strategic needs of trans-local actors situated within
global production networks’ (a process they term ‘strategic coupling’). Large, low-cost
oil reserves can indeed complement the strategic needs of trans-local oil firms for access
to new reserves to replace production. A GPN perspective indicates, however, how the
technological imperative in the oil production chain constrains opportunities for
turning this specific form of strategic coupling into regional advantage. Three reasons
can be identified. First, the balance of power between different actors in the chain is
highly significant. For example, the massively increased power of state-oil firms in the
1970s drove the development of indigenous upstream engineering and service capacities
that in the case of some state producers—such as Venezuela’s PdVSA and Saudi
ARAMCO—were widely regarded as coming close to international best practice.
It also enabled the development of downstream processing capacities and efforts at
diversification to ‘sow the oil’ which, for a variety of reasons, have been less successful
(Auty, 1990; Coronil, 1997). This confirms Coe et al.’s (2004, p. 481) observation that
‘for the processes of value creation, enhancement and capture to benefit economic
development in particular regions, the balance of power between the different actors
involved is a crucial variable’.
Second, the scaling up of production, refining and transportation raises the capital
intensity of production, and entrenches the position of existing actors by increasing
barriers to entry. This tends to weaken the opportunities for developing backward and
forward linkages between extractive investments and the host economy. That the
upstream and downstream linkages associated with resource extraction are limited is a
central tenet of the resource curse literature, where it shows up in reference to enclave
economies. A GPN approach affirms this assessment, although it emphasizes how weak
linkages flow not only from any intrinsic properties of oil, but also from the conditions
of inter-firm competition that characterize oil’s global production networks: while local
actors are often excluded from capital-intensive and/or high-skill parts of the network,
conditions of competition can create opportunities for the host economy elsewhere in
the production network where skills are standardized and there are transport and/or
labour cost advantages (e.g. shipping services, fabrication). Third, economies of scope
in the upstream, exploration phase of the production network are dominated by global
firms. Although this phase is less capital intensive, barriers to entry tend to be
associated with technology and with the ability to service contracts across a wide range
of oil fields. There is, however, a dynamic ecology of outsourcing relationships that can
present opportunities for regional firms to establish linkages with extractive investments
that produce regional advantages over the long term. Cumbers (2000), for example,
notes the ways in which this has worked in the Aberdeen oil cluster and it is significant
that Aberdeen has become the ‘aspirational model’ for several new oil provinces
developed during the neo-liberal round of extractive investments since the 1990s.

Cumbers (2000, p. 379) cautions, however, that the depth and sustainability of these
connections are questionable as ‘local firms (were) unable to penetrate the more
technically sophisticated parts of the industry (where) oil companies have maintained
long established relations with foreign contractors and suppliers’.
4.3. Ecological imperatives

A full materials flow analysis of hydrocarbon production (Figure 2) would reveal
a network of exchanges that massively exceed those of the linear production chain.
It would illustrate oil production and consumption as a frequently branching,
distributive network in which a series of by-products are separated off from the core
production chain and exchanged into the environment. It would also reveal the very
large inputs of energy required to extract, process and distribute oil. The highly ordered
(i.e. low-entropy) hydrocarbons we use for fuel and chemical feedstocks require
increasing amounts of energy to produce so that, over time, the ratio of energy
produced to energy expended in oil production—what ecological economists term the
‘energy return on investment’—has been falling, from around 100:1 in the early 20th
century to 30:1 today (Cleveland, 2005). These large energy inputs provide an
explanation of why firms that are nominally in the business of producing oil (rather
than consuming it) top the ranks of carbon dioxide emitters. Producing oil from tar
sands in Alberta, for example, is an energy-intensive process that by 2010 is estimated to
release around 49 million tonnes of carbon dioxide equivalent per year: the scale of
these emissions is such that offsetting them would consume three-quarters of the carbon
credits available worldwide through the Kyoto Protocol’s Clean Development
Mechanism (Footitt, 2007).18 Although typically regarded as an external sink for the
unintentional by-products of hydrocarbon metabolism, the capacities of the environ-
ment to absorb carbon and other by-products are integral to the functioning of the
production network. That these services historically have been taken as ‘free’ inputs—
and not rendered as part of the production chain—does not detract from their
significance to the functioning of the global production network and ultimately to the
relations of dependency and dominance that govern its structure. The ‘ecological
imperative’ then, refers to the radically distributive (pollutant) nature of the
hydrocarbon commodity chain and the way the distribution of value along the chain
is a function of the extent to which ecological services for absorbing waste products are
formally integrated into chain. The expansion and material intensification of oil-based
capitalism (since the 1920s in the US and since the 1950s in much of the rest of
the world) has, via the informal ‘logistic system’ of pollution dispersion and
re-accumulation, flooded pollutant sinks across progressively larger spatial scales
18 For reference, the UK’s total annual CO2-equivalent emissions are around 560 million tonnes (2007).
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(Clark and York, 2005). From the challenges of urban photochemical smog that
emerged in the wake of oil-fuelled suburbanization in the late 1950s to global carbon
dioxide accumulation, the materials transformations associated with the hydrocarbon
commodity chain have ‘chronically exceed their intended effects’ (Hudson, this
volume).
Recognition of the effects of air pollution arising from the combustion of oil
(and other fossil fuels) has driven efforts to internalize some environmental damage

costs (O’Rourke and Connolly, 2003). Carbon taxation—via nationally based fiscal
mechanisms—promises to redistribute value along the chain towards consuming
governments. To the extent that carbon taxation encourages reductions in demand and/
or substitution and decreases the price of oil, it involves a transfer of wealth from oil
producing economies to oil consuming economies (Guha and Martinez-Alier, 1997).
Any reduction in demand is likely to be felt in sections of the crude oil market, which
are more readily substitutable—i.e. heating oil rather than diesel or gasoline—and, at
the extreme, may spur the husbanding of oil for chemical feedstocks and applications
(like jet fuel) for which there are few alternatives. Under this scenario the internalization
of environmental concerns into the global oil production network is likely to heighten
the price differential among different grades of oil. The emergence of carbon credits and
carbon trading in the last few years has also introduced new actors into the global
oil production network. Parallel to the processes of oil discovery and enclosure
(i.e. primitive accumulation), which mark the upstream ‘source’ of the hydrocarbon
commodity chain, the identification and enclosure of downstream carbon ‘sinks’ via
enforceable property rights creates significant new opportunities for value capture that
are likely to influence the structure of the network. By increasing the cost to the
consumer of using oil and/or via reducing oil demand, carbon trading shifts the
accumulation of value further downstream towards a new class of ‘end user’—those
actors who own or control carbon sinks. Interaction between the ‘old’ (fossil fuel) and
‘new’ (trading and offsetting) carbon economies is producing an emergent hydrocarbon
production chain whose implications for development are currently unclear. One
indication of what may be in store is the way some ‘old carbon’ producers are
experimenting with ways to protect the value of their oil assets by, for example,
bundling carbon and carbon offsets together in their wholesale operations (e.g.
Gazprom, see Kramer, 2007b) or providing the infrastructure for retail consumers to
offset their emissions (e.g. BP). The largest regional development effects, however, are
likely to be associated with the transfer of value towards those actors (states, firms) that
own or control carbon sinks. Depending on the price for carbon, the value of these
transfers could rival those associated with massive transfer of value from oil consuming
economies to oil-producing economies following the price rises of 1973 and 1979
(estimated at 3% of global GDP). The economic geographies to which exchanges of
carbon credits and carbon finance give rise are still emerging: like the OPEC revolution,
however, opportunities for accumulation via the enclosure and trade of carbon sinks are
likely to produce a new global geography of uneven development associated with the
hydrocarbon production chain (Bumpus and Liverman, 2008).
4.4. Summary
A GPN approach to oil shares with the resource curse literature a cautious and critical
perspective on the conventional claim that natural resource abundance can be
converted into lasting forms of regional advantage. However, whereas the resource
curse literature focuses primarily on issues of national state capacity, a GPN perspective
on oil roots explanations and assessments in an understanding of a relational
production network made up of multiple firms, states and other actors. Its primary
advantages over the resource curse literature, therefore, are that a GPN approach puts
firm–state relations centre stage in explaining the (limited) opportunities for oil
extraction to drive regional development, and that it considers how firm–state relations

are structured by the logics of inter-firm competition elsewhere in the network. The
three ‘imperatives’ described above are significant, structural characteristics of the
hydrocarbon chain that influence its capacity for producing sustained forms of regional
development. They do not all work the same way, in the sense that each has different
development implications. The ecological imperative is the only one that unambigu-
ously moves value away from oil producers (and consumers, and towards a new class of
actors): these ‘new carbon’ bargains—between carbon extractors, carbon consumers
and (potential) carbon sequesters—are hammered out through offsetting agreements
reached under the Clean Development Mechanism and the Joint Implementation
facility (Article 12 of the Kyoto Protocol), and the voluntary carbon offset market
(Bumpus and Liverman, 2008). The technological imperative draws attention to where
value is captured in the complex ‘ecology of firms’ that comprise the upstream end of
the production network. It is in broad accord with the resource-curse literature on the
issue of weak backward and forward local/regional linkages associated with extractive
industries. The greater attention that a GPN perspective gives economies of scale,
scope and the organization of technological innovation, however, reveals how
competitive conditions can produce some forms of local and regional advantages.
The resource imperative highlights the enduring tension between resource holders
(states) and resource-seekers (firms) and how, at times, the structures of dominance
and dependence which govern the oil production network have secured substantial
value to resource holders via the mechanism of ground rent. It also emphasizes the
tension between surface and subsurface rights and how, depending on the socio-
ecological basis of the society, this can be a critical component of the developmental
effects of oil extraction and transportation. Critically, however, it indicates the political
battleground around access regimes (in a way that the resource curse literature does
not) and how—in their fixation on questions of state capacity—some contemporary
versions of the resource curse are part and parcel of the (neo-liberal) ideological project
to institute a (non-proprietorial) model of resource access that moves value towards
consumers.
5. GPN from the vantage point of extractive industries

This section turns the lens back from extractive industries and onto GPN. The
exploratory analysis of the oil industry begun in this article affirms the practicality of
applying a GPN perspective to the extractive sector. It further highlights the importance
of understanding the organization of the inter-firm and firm–state relations that
comprise the oil network outside of a national frame of reference. And it shows
that there is something to be gained in the resource curse debate by focussing on
the creation, enhancement and capture of various forms of ‘economic rent’ as an
alternative way of understanding the relationship between resource extraction and
412 . Bridge
regional development (Kaplinsky, 1998 cited in Coe et al., 2004, p. 473). Because
extractive industries have to date been largely outside the purview of GPN,19
this article’s exploratory application of a GPN perspective to the oil industry
provides an opportunity to reflect on the universality of the GPN approach and the
extent to which its tools and concepts reflect its origins in the study of manufacturing
and services.
The most significant differences about the extractive production network relate, in

one way or another, to the ‘landed’ nature of assets in the extractive sector. ‘Landed’
here describes, on the one hand, the nature-based character of extractive enterprises and
the influence that the materiality of oil exerts on the organization of production; and on
the other, it describes the territoriality of oil in the sense of its embeddedness in the
territorial structures of the nation–state.
5.1. The materiality of oil

The question of oil’s materiality arises out of the confrontation in extractive sectors
between natural production and social production (cf. Prudham, 2005). The hydro-
carbon production chain (Figure 2) relies on the operation of biophysical processes
along its entire length: production, transportation and processing, for example, depend
on the distributive and assimilative services of the atmosphere to remove by-product
emissions. The confrontation with natural production, however, is particularly
pronounced at the extreme upstream (source) and downstream (pollutant sink) ends.
Because natural resources are only partially socially produced, extractive sectors rely on
natural production to a degree not found in manufacturing and service sectors. At its
simplest, the dependency on natural production limits the spatial flexibility of the
network. Reliance on processes of production which occur prior to human labour also
means there are opportunities to create value via extending ownership over resources,
whether these be conventional hydrocarbon reserves or carbon sinks. This in turn exerts
a powerful influence on the location of competition in the production network, the form
that competition takes and on relations of dependency between holders and seekers of
resources. In addition, the fact that upstream conditions of production can be only
partially capitalized—technological interventions cannot make oil in a physical sense,
but can increase its availability via exploration—means that the geographies of
extraction for a multi-locational oil firm are much less related to the labour intensity of
production than to variations in resource quality (geological risk). Thus, in the
extractive sector—and particularly for minerals like oil and gas that are consumed by
use and for which there is a relatively constant demand—the expansionary dynamic
that is common to all capitalist economic activities is primarily related to the way
competition centres on replacing wasting assets. The ‘emerging geographies’ of the old
(fossil fuel) and new (capture and sequestration) carbon economies, for example, are
strongly related to this point. Lastly, at the upstream end of the hydrocarbon chain the
extensive nature of exploration activity, combined with variation in physical conditions,
limits opportunities for achieving economies of scale in exploration and emphasizes
economies of scope.
19 See, however, Smith (2005).

5.2. The territoriality of oil

The territoriality of oil refers to the way oil is embedded in the proprietorial,
institutional and cultural-political structures of the nation–state. When compared with
other commodities—and particularly to those of the manufacturing sector—oil is
embedded within state structures to a much greater degree. At the upstream end of the
chain, mineral resources are in most jurisdictions reserved to the state. The core assets
on which extractive firms rely for future growth, therefore, are typically not owned by

these firms but controlled via lease and licensing arrangements enacted by national
states. This means that states play an unusually strong role in extractive production
networks, and that changes in state policies around resource ownership and access can
produce large-scale changes in the configuration of the network. This general tendency
is even more pronounced in the case of oil, because the state also has significant
interests at the consumptive end of the chain. These relate to specific interests in
taxation (including green taxation) as well as more general interests in supply security
and the impacts of oil price on rates of economic growth.
The centrality of state power in structuring the oil production network provides the
starting point for much of the research on oil in international politics (Klare 2002;
Abramovici, 2004; Alden, 2007; Frynas, 2007; Ghazvinian, 2007). This work examines
the geo-economic and geo-military actions of economically powerful, oil-importing
states vis a vis states which have abundant natural resources, and is popularized in
writing on ‘energy security’, the prospect of ‘new resource wars’ over oil, and the
apparently neo-colonial ‘scramble’ for African resources in which China, the United
States and, to a lesser extent, India play the lead roles. The emphasis in this literature on
how the hydrocarbon commodity chain produces relations of dependency and domi-
nation between states is certainly useful: contemporary debates over energy security—
and the rhetoric of ‘oil addiction’—suggest inter-state relations structured via oil are
often rather more complex than those assumed by dependency theory. In comparison to
a GPN approach, however, this work pays little attention to inter-firm relations and the
ways in which the ‘oil industry’ is in fact a highly differentiated set of actors.
Recognizing the ‘agency’ of firms complicates the story of a titanic battle between rival
consuming states for the resources of the world’s less powerful and, critically, maintains
a space for examining how value is captured in the oil production network via firms
who link national resource owners to international consumers.
Beyond its embeddedness in proprietorial, jurisdictional and institutional aspects of
the state, oil is frequently embedded in national systems of cultural meaning and
signification. Resources are closely bound to notions of sovereign territoriality and
national identity and, as recent political struggles over the control and ‘national
character’ of natural gas in Bolivia well demonstrate, nationalist and regionalist
movements around resources can create significant shifts in the distribution of power
within the production network (Perreault, 2006; Valdivia, 2007). In short, the important
role of the state at both the producing and consuming ends of the chain means that the
organization and geography of the oil GPN is structured by geo-political concerns to an
extent which is not found in many other sectors. Here the empirical findings of work on
the extractive sector modestly diverge from the theoretical emphases of the GPN
agenda. For example, the persistence of core-periphery structures and the centrality of
the state in extractive GPNs is somewhat at odds with the emphasis in the GPN
literature on the rejection of hierarchy. If one of the aims of the GPN agenda is to move
414 . Bridge
beyond a core-periphery model, pursuing this aim in the context of extractive industries
may lead to an under-appreciation of the way state power structures extractive
production networks and how, as a result, they can be remarkably durable for long
periods of time. A second element of oil’s territoriality concerns the way the devel-
opment potential of oil extraction is closely associated with the capture and distribution
of resource rents. Here, the GPN perspective’s catholic approach to rents is welcome
(Coe et al., 2004) as it opens an opportunity to identify different forms of rent and how

each of these can be created and captured by local and non-local actors in a GPN.
To date much of the focus on rent within GPN has been on technological and
relational rents (see, for example, Nadvi this issue): there is scope to extend this to
the differential, monopoly and windfall rents which are particularly prominent in
extractive sectors.
6. Conclusion
Exploratory by design, this article has applied the GPN perspective to the oil industry
with the aim of producing an account that can compare the organization of inter-firm
relations in the industry with that in other sectors. Its motivation was to see whether the
GPN perspective is capable of offering anything new to the resource curse debate. The
verdict is positive. In comparison to the literature on the resource curse, a GPN
perspective places extractive firms and inter-firm relations at the centre of the account,
highlights the diversity of organizational forms—state producers alongside publicly
traded firms; transnational versus domestic producers; different levels of vertical
integration along the hydrocarbon chain—and, in so doing, draws attention to relations
of dependency and dominance along and across the network and the ways in which
these shift over time and space. A GPN perspective, therefore, helps move discussion of
the development opportunities of extractive economies on from explanations based
exclusively on structural relations of dependency. At the same time its emphasis on the
distribution and capture of value in inter-firm networks clearly challenges explanations
of poor development outcomes based solely on state-failure.
The extensive territorial embeddedness of the extractive sector suggests that emphasis
in the resource curse literature on the role of the state is certainly warranted. A GPN
analysis, however, highlights the multiple ways in which the hydrocarbon production
chain is territorially embedded at different points along its length, its simultaneous
embedding in multiple territorialities and the way its multi-national character influences
the balance of power along the production chain. While the territoriality and
materiality of oil exemplify many characteristics of extractive industries, care needs
to be exercised in expanding these findings to all extractive industries. The radical
heterogeneity of natural production (which is a distinguishing feature of the extractive
sector) suggests that territoriality and materiality are likely to be expressed differently in
other extractive industries. Oil is significantly different in these regards when compared
even with other minerals, such as iron ore, bauxite or coal. Competition in the coal
industry, for example, does not centre on exploration or reserves replacement because
the location of reserves is generally well-established (in part a function of the physical
geology/geography of coal versus oil deposits). This reduces the opportunities to create
value via exploration and means there is no equivalent in the coal industry to the
knowledge-intensive, exploration phase in which economies of scope are paramount.
The oil production chain is also different to other extractive industries on account of
the deep embeddedness of oil in socio-economic life—i.e. its prevalence as a fuel and
feedstock, the multiplicity of commodity forms which oil adopts, and the relative
difficulty of substitution. As with other primary sectors, civil society has emerged as a
significant actor shaping governance of the hydrocarbon commodity chain. In the case
of oil, however, civil society concerns ‘govern’ the environmental and development
effects of oil production not via the consumer-facing mechanisms of labelling or

product certification (an acknowledgement of the limited ‘sovereignty’ of the consumer
in relation to oil), but via the ‘political’ mechanism of direct pressure on firms and
states. Unlike forestry, fisheries or fair trade goods, for example—where an architecture
of non-state certification bodies influence management practices and structure the
direction and volume of trade—the ‘governance’ of oil’s environmental and devel-
opment effects works primarily through appeals to national state-based regulatory
structures (reflecting the greater territoriality of oil when compared with many other
resources).
Application of the GPN perspective to the oil industry has also demonstrated its
flexibility for analysing sectors outside of manufacturing and services. The GPN
perspective emerges from this article, therefore, as a robust framework that is capable of
making cross-sectoral comparisons, as well as a tool for understanding the complex
linkages between the organization of production in an extractive industry and its
implications for regional development. What the extractive sector brings to GPN is an
increased attentiveness to the materiality of production (understood comprehensively as
the metabolism of human and natural production) and to the influence materiality
exerts on industrial organization. The extractive sector clearly illustrates how value
can be created by enclosure and exclusion (via the extension of property rights). This
process is not limited to extractive industries and occurs—via technological innovation
and patenting—in many other sectors. The non-renewable character of extraction,
however, means that enclosure is a primary competitive logic in extractive industries in
the way that improving labour productivity is for labour-intensive manufacturing
sectors. The extractive sector also emphasizes—in a relatively extreme way—how pro-
duction networks remain territorially embedded even while they are reconfigured into
new trans-local geographies. Emerging resource geographies associated with both the
old and new ‘carbon economies’ indicate how the creation and capture of value in the
hydrocarbon production chain relies on its constant re-territorialization.
Acknowledgements
I would like to thank the editors for their invitation to contribute to this theme issue. I also thank
the editors and two anonymous reviewers for their constructive comments on an earlier draft,
John Broderick for references to work on carbon emissions associated with Canadian tar sands,
and Nick Scarle for Figures 1–3. This article draws in an indirect way on research undertaken
with Andrew Wood and Michael Bradshaw on Geographies of Knowledge in the U.S. oil sector,
supported by NSF Grant #0354495. I am responsible for any errors of fact or interpretation.
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Global production networks and the extractive

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Keywords: natural resources, global production networks, resource curse, oil

*School of Environment and Development, University of Manchester, M13 9PL.

forward an immensely significant debate about the regional development effects of

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2. Extractive economies and regional development

demographically and socio-politically diverse as Alberta, Sao Tomé, Scotland, Bolivia,

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2.1. The resource curse

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2.2. The need for an alternative perspective

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3. An extractive global production network: the case of oil

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3.1. Characterizing the production network

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A generalized global production network for oil. Figure 3.

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9 Thanks to Michael Bradshaw for this observation.

3.2. Restructuring of the oil GPN since the 1990s

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tension between resource-holding states and resource-seeking firms. We will see in

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4. The regional development opportunities of oil: a GPN approach

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4.1. The resource (access) imperative

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4.2. Technological imperative

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4.3. Ecological imperatives

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5. GPN from the vantage point of extractive industries

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5.1. The materiality of oil

19 See, however, Smith (2005).

5.2. The territoriality of oil

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Auty, R. (1983) Mutinational corporations and regional revenue retention on a vertically

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