Gas Natural Fenosa, formerly called Naturgy Energy Group, is a Spanish multinational firm dealing in natural gas and electrical energy activities primarily in Spain and other counties like Belgium, Mexico, Italy, and France. Coping in the natural gas sector, the company was founded in 1991, having its headquarters in Barcelona, Spain. The company has made a strong network among the community, with a 16 million customer base evolving over 20 countries with the involvement of almost 10,500 employees (Naturgy, 2021). From the observation of the global natural gas industry, the assessment of Porter’s five forces would be a helpful mechanism for maintaining prospect strategies to better understand the company standing position.
Competitive Rivalry in the Market
The competitive rivalry in the natural gas industry is high because crude oil and gas is the need of today’s world as many states and industries depend on natural energies for production and manufacturing purposes. As a result of this increase, major companies and institutions have captured the market to provide oil and gas production and exploration. Spain is well placed and is becoming a critical global supplier, resulting in fierce competition among established players. According to Statista (2020), Gas Natural Fenosa is trying to lead the firms by capturing the market size by 15.50 Million Euros. The major competitors of the company are Iberdrola, Endesa SA and Repsol with the market capitalization of 68.15, 25.45 and 12.70 million Euros respectively. Therefore, the presence of such big firms in the industry makes the environment more competitive.
Threat of Substitutes
The threat of having substitutes is considered to be low in the natural gas industry since the development of renewable energy sources such as solar, atomic, and wind energy are fraught with difficulties. These renewable fuels necessarily require substantial research and innovation as well as integrated expenses due to their performance, consistency, and efficiency. The extension and use of renewable power are related to climate conditions such as sunshine availability and low moisture, making alternative sources of energy output somewhat limited to geographic areas (Taha, 2018). Moreover, natural gas has maintained the market share in commercial, residential, and industrial sectors. And it is difficult for such sectors to switch to other energy sources. Therefore, the risk of substitutes in the gas sector is minimal.
The Threat of New Entrants
The threat of new firms in the gas sector is considered low as there are loads of oil and gas manufacturing and processing companies operating all over the globe. And the entry barriers are strong enough to keep such firms away from the sector. The development of a gas refinery infrastructure and the maintenance of supply chain processes require a significant amount of capital and manpower, making it difficult for outsiders to start a business in the gas energy industry. Keeping aside the financial obstacles, firms have to face the regulations set by the governments, ownership of the resources, and the economies of scales being enjoyed by the big firms (Hokroh, 2014). Thus, leaving minimized room for the newcomers.
Bargaining Power of Buyers
The Bargaining power of customers in the case of the natural gas industry is low because it includes individuals and corporate persons buying natural gas and another source of energy as per the prices set by the gas producers and manufacturers. A rise in the value of natural gas has a global influence on the economy of the gas industry, affecting consumers all over the world. Clients must pay for the higher prices charged by significant suppliers and high switching cost options (Vigolo and Cassia, 2014), leaving them with no capacity to affect or convince them to cut the prices. Keeping in view such a method, the power of consumers to bargain is considered to be low.
Bargaining Power of Suppliers
The Bargaining power of suppliers in the natural gas industry is moderate to high. The primary suppliers in this sector are the companies that produce and distribute the natural gas demand. These companies possess significant power over the industry’s operating conditions and have the potential to influence energy prices. Furthermore, the governments’ settlement on the locations where such resources are produced affects the suppliers’ willingness to negotiate. However, the economy is dependent on the operational efficiency of such firms, which leaves them in a controlling position (Yusuf et al, 2014). Thus, in context to the natural gas industry, the bargaining power of suppliers is moderate to high.
References
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), pp.76-82.
Naturgy, 2021. Home – Naturgy – About us. [online] Naturgy.com. Available at: https://www.naturgy.com/en/get_to_know_us/home.
Statista, 2020. Spain: leading companies based on market capitalization 2020 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/764999/leading-companies-based-on-market-capitalization-in-spain/.
Taha, TMAM, 2018. Competitive Analysis of the Global Oil and Gas Industry using Porter’s Five Forces Model.
Vigolo, V. and Cassia, F., 2014. SMEs’ switching behavior in the natural gas market. The TQM Journal, 26(3), pp.300-307.
Yusuf, Y.Y., Gunasekaran, A., Musa, A., Dauda, M., El-Berishy, N.M. and Cang, S., 2014. A relational study of supply chain agility, competitiveness and business performance in the oil and gas industry. International Journal of Production Economics, 147, pp.531-543.