PetroChina is a oil and gas company based in Dongcheng District, Beijing, China. The company is one of the largest oil and gas manufacturers with distribution in the country. The PetroChina owned by China National Petroleum Corporation that is the state-owned company (PetroChina, 2019). The company is operating in competitive market with the presence of local and international manufactures in global oil and gas market. The market analysis of oil and gas industry forms the basis for the company to evaluate and direct the current and future strategies to meet the rapidly changing demands of oil and gas sector. The Porter’s five forces analysis is conducted for the purpose and presented in detail.
Competitive rivalry Among Existing Players
Sinopec, BP, Royal Dutch Shell, Total, and Exxon Mobile are the major competitors of PetroChina in terms of revenue collection and products manufacturing. Along with the massive and major multinationals, there is some state-owned enterprise in the industry intensifying the competition. The concept of innovative and creative oil and gas products and processes are evolving and companies are spending expenditure on research and development to come up with innovation and creativity. This expenditure pressurizes the competitors to continuously invest and produce innovative product to remain in the market. The revenue collection of company from all over the world also depicts the intensity of competition in the market. The revenue collection of Sinopec, Royal Dutch Shell, British petroleum, Exxon Mobile and are USD 322.7, USD 252.6, USD 241.5, USD 377.3 and USD 222.5 billion respectively (Statista, 2019). The distribution of market revenues and the expenditure on innovation and creativity in terms of products and processes has intensified the competition in oil and gas sector. Therefore, the competitive rivalry in oil and gas industry is high
Threat of Substitutes
The scarcity of oil and gas reserves forces the companies of oil and gas to research and produce the alternative sources of energy. The progress in the alternative sources have been good but not to the level of substituting the oil and gas product in near future. The evolvement of solar energy and bio-fuel has considered as a potential substitute for oil and gas products. Sinopec has an aim to transform the transport fuel consumption into bio-fuel consumption by 15 % in coming 10 years. Total has also worked with Gevo to come up with the innovative products by using bio-fuels to substitute the oil and gas products by keeping in view the scarcity of reserves (Goh & Lee, 2010). Until now, there has been a progress in the development of substitute but the progress is minor and not threatening to oil and gas industry which makes the threat of substitute to the lower side.
Threat of New Entrants
The development and installation of oil and gas refinery is one of the largest and most difficult businesses all around the world. The development takes efforts, expertise and capital in massive quantity along with fulfilling the legal requirements. These requirements are some of the biggest hurdles for the new entrants to enter and conduct business activities in the oil and gas industry. There are few other barriers to entry that mainly includes continuous requirements of research and development expenditure, the legislation and patents, the attitude and behavior of different cartels, and the continuous adaption and up gradation of technology with capital requirements. The overall threat of new entrants is low in oil and gas sector (Hokroh, 2014).
Bargaining Power of Suppliers
The suppliers of crude oil are scarce that strengthen their power of bargaining with the oil and gas companies. The suppliers of crude oil increased the prices of per barrel from $2.7 to $11.2 due to restriction of trading by the governments on the regions producing the oil (Library of Congress, 2010). Due to scarcity of reserve to few suppliers, the bargaining power is on the higher side and the companies can little to no bargaining with the suppliers for the credit or business terms.
Bargaining Power of Buyers
The bargaining power of buyer is low in oil and gas products due to strict control of companies over the industry. The pricing of these products is also influenced by governments’ policies and decisions. Due to nature of necessity of products and exceptionally high demand, the buyers have n way other than to buy the product at companies’ prices (Hokroh, 2014).
References
Goh, C. S., & Lee, K. T. (2010). Palm-based bio-fuel refinery (PBR) to substitute petroleum refinery: an energy and energy assessment. Renewable and Sustainable Energy Reviews, 14(9), 2986-2995.
Hokroh, M. A. (2014). An analysis of the oil and gas industry’s competitiveness using Porter’s five forces framework. Global Journal of Commerce and Management Perspective, 3(2), 76-82.
Library of Congress . (2010) ‘The oil and gas industry’. Available online at http://www.loc.gov/rr/business/BERA/issue5/issue5_main.html.
PetroChina. (2019). Company Profile. Available at: http://www.petrochina.com.cn/ptr/gsjj/gsjs_common.shtml
Statista. (2019). Ranking of the global top 10 oil and gas companies in 2018, based on revenue (in billion U.S. dollars). Available at:https://www.statista.com/statistics/272710/top-10-oil-and-gas-companies-worldwide-based-on-revenue/