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By John Kemp LONDON, Jan 15 (Reuters) - For a decade, the oil industryhas worried about rising resource nationalism in producingcountries. Host governments have imposed tougher terms, demandedbigger exploration bonuses and extracted a higher share ofrevenues, in some cases expropriating foreign oil companies whenthey failed to develop new fields fast enough. Now the wheel may be turning as the prospect of big new oiland gas finds from shale and in deepwater trigger a competitionamong potential host countries to attract investment. Between 2002 and 2008, the oil and gas sector wascharacterised by a scarcity of deposits, giving host countriesthe whip hand. Now deposits are plentiful but there is ascarcity of capital and technology needed to exploit them fully,which has shifted the balance of power in favour of the majorinternational oil companies and leading independents as well asoilfield services companies. Britain and Argentina are just two examples of countrieshoping domestic shale resources could transform their economiesfollowing the example of Texas and North Dakota, and willing toreduce their share of the revenues in order to develop new oiland gas resources. "We've decided to give incentives for gas production,"Argentina's President Cristina Fernandez said in November. Thecountry became notorious after expropriating Repsol's stake in YPF earlier last year, but exploration and productionterms are being softened to attract investment. Domestic prices remain controlled, but firms will be allowedto sell new production at $7.50 per million British thermalunits (mmBtu), up from the previous ceiling of $5.00, and almosttwice the prevailing price in the United States, to spurdevelopment of the country's giant Vaca Muerta shale deposits. Britain's government has promised to develop a "targeted taxregime" to stimulate the development of shale deposits. "Withthe shale gas industry at an early stage of development, thegovernment believes that a targeted tax regime will help unlockinvestment," according to Britain's finance minister. "The use of field allowances to encourage investment in theNorth Sea has demonstrated the effectiveness of a targeted taxregime in stimulating investment and production that would nototherwise have gone ahead" ("Government action to stimulateshale gas investment" Oct 8). In October, Britain announced the successful completion ofan offshore licensing round, an investment by Talisman to extendthe life of ageing fields in the North Sea, and the developmentof big new fields by Shell -- all after a series of changes totax laws that would introduce more generous field allowances andtax rates for fields that are old, small or particularly deep,and would otherwise be marginal or uneconomic to develop. Other countries, including Brazil, Mozambique, Tanzania,Kenya and Uganda, are also competing for investment by offeringmore generous terms than before. Even Russia, which has been cited for the past decade as theultimate example of resource nationalism, has expanded itscooperation with Exxon and BP, reversing adecade-long trend in which it was taking projects back from theinternational oil companies. It is too soon to say whether these are isolated examples orpart of an industry-wide trend. Fiscal terms in the mainproducing countries of the Middle East, with the largest andcheapest resources, remain very tough. But as the industry shifts from developing existing fieldsto finding and developing new resources in new areas (LatinAmerica, Africa, Arctic) and using new technologies (shale,offshore) fiscal terms will have to become more generous. FISCAL CYCLE Exploration and development of new resources entails a muchhigher level of risk than continued production from maturefields, as Peter Nolan and Mark Thurber from Stanford Universityexplain in a recent article "On the state's choice of oilcompany: risk management and the frontier of the petroleumindustry" (2012). "Frontier petroleum activities by definition are thosecharacterised by the highest risk," they write. "Over many decades, the industry has seen the frontierprogress from exploration and development of onshore sedimentarybasins through shallow offshore basins and into deep andultra-deep water basins today ... Emerging frontiers include thechallenge of commercialising vast resources of unconventionaloils and gas." In mature fields, with low risk, the temptation for thegovernment to toughen existing fiscal terms or even expropriateprivate operators (especially if they are foreign) is high. Theobjective is to extract as much rent as possible. The governmentmay feel a national oil company can produce from these fields aswell as one of the major international oil companies or aforeign independent. But with prospective new resources, the geological,technical and economic risks are much higher. The hostgovernment may need access to specialist technology andexpertise, and may not have the capital required or the appetitefor risk to try to develop the resources itself. Foreign companies become the only option for development.The choice is between offering generous terms acceptable toforeign investors or not developing the resource at all. Attitudes towards resource nationalism and openness toforeign investment therefore tend to match and amplify theindustry's underlying investment and pricing cycle. Waves ofexpropriation alternate with periods in which foreign investmentis welcomed, as the industry switches between developingexisting resources and opening up new frontiers. For the moment, with the industry and host governmentsfocused on opening up new supplies, terms are becoming moregenerous. High prices, intense exploration and the revolution inoilfield technology have caused the cycle to turn. On current trends, prospective oil and gas resources aremore than sufficient to meet projected demand over the nextdecade, while development technology and expertise remainscarce, so host countries will have to compete to ensure theirresources are developed.