JXTG Holdings is a Japanese petroleum and metals conglomerate headquartered in Tokyo, Japan. It was incorporated in 2010 after the share transfer of Nippon Oil Corporation and Nippon Mining Holdings, Inc. (JXTG Holdings, 2020). JXTG Holdings, Inc. manages its group of companies which are in the energy, resources, and materials businesses. It operates through the following segments: Energy, Oil and Natural Gas Exploration and Production, Metals, and Others. JXTG holdings operate across the globe with its subsidiaries; it has around 50 subsidiaries with a major focus on energy, oil, and natural gas exploration (Sec, 2017). The majority of its subsidiaries are located in Japan. Porter’s five forces model is a useful tool to identify threats and opportunities faced by JXTG Holdings.
Competitive Rivalry in the Market
JXTG faces competition from domestic competitors, as well as from global competitors. Its major competitors are Cosmo Energy Holdings and China National Petroleum Corporation (CNPC). Cosmo Energy Holdings is a holding company that posted annual revenue of $24.9 billion for the financial year 2019 (Nikkei Asian Review, 2020). CNPC is the Chinese state-owned company that operates through its subsidiary PetroChina earned annual revenue of $332.3 billion in 2018 (Nikkei Asian Review, 2020). In comparison, JXTG holdings reported annual revenue of $100.4 billion and a net income of $2.9 billion in the financial year 2019 (Nikkei Asian Review, 2020). Considering the presence of global conglomerate in petrochemical, oil and gas exploration, and energy sector there is an intense competition
Threat of Substitutes
The main Substitutes to oil and gas for producing energy are Nuclear energy, Hydrogen, Bio-fuels, and renewable energy sources. Oil is the backbone of the global economy. It is a fundamental part of transportation, energy production, and manufacturing industries. There is growing pressure in recent years to reduce carbon emission to stop climate change that has drastic consequences for the planet. This has started the debate to switch to renewable sources of energy rather than traditional mediums. The developed economies are moving from fuel-based power plants to renewable resources. All the currently available products are a complement to currently used oil for energy production. There is no real substitute available in the short term. In the next decade or beyond, the pressure will be on the oil and gas sector.
Threat of New Entrants
There are many impediments to start a company in the oil and gas sector. It is a highly regulated sector in the world; especially in Japan, foreign companies face tough regulatory challenges (U.S. Energy Information Administration, 2017). Usually, national oil and gas exploration companies are responsible for ensuring countries supply and create stockpiles. The important prerequisites for operating in this industry are specific expertise and significant capital investment, and these requirements deter aspiring newcomers. The conglomerates that dominate the oil and gas industry have invested heavily in research and development. To ensure a better return on extraction and then improved refine products. These prices in the industry are inherently volatile, and the reasons for price volatility are geopolitical events and supply-demand ratio (McKinsey, 2019). Considering the above-mentioned facts, the threat of new entrants remains low.
Bargaining Power of Buyers
Buyers in the oil and gas industry are oil refineries, State oil companies, oil trading, and distribution companies and countries. Oil is an essential commodity, and it has vast use; there are no real alternatives, and the existing products are complementary to oil. Buyers have no or minimum leverage when negotiating for oil contracts. Oil contracts have been agreed per the international benchmark oils. These are the international classifications used as a reference in the benchmarking oil process. The three most used benchmark oils are West Texas Intermediate, Brent Crude, and Dubai Crude (Petroleum, 2015). Product quality and quantity determines its price regarding benchmarks. Considering the above-mentioned factors, buyers have low bargaining power.
Bargaining Power of Suppliers
Suppliers can negatively impact the bottom line of the companies. Entities operating in the petrochemical, oil and gas industry have a complex supply chain. Organization of Petroleum Exporting Countries (OPEC) is the intergovernmental body, which has 13 member countries, and 79.4% of all the world’s oil reserves are located in member countries (OPEC, 2019). OPEC has the power to decide the member countries’ oil production levels; Thus, OPEC can adjust its production rate to control price in its favor. OPEC holds all the chips, as oil is the primary fuel required to run the economic engine of the globe. Considering that suppliers have high bargaining power in this industry.
References
JXTG Holdings. (2020). Corporate Profile. Available at: https://www.hd.jxtg-group.co.jp/english/company/history/index.html
McKinsey. (2019). Global Oil Supply and Demand Outlook. Available at: https://www.mckinsey.com/solutions/energy-insights/global-oil-supply-demand-outlook-to-2035/~/media/231FB01E4937431B8BA070CC55AA572E.ashx
Nikkei Asian Review. (2020). Cosmo Energy Holdings Co., Ltd. Available at: https://asia.nikkei.com/Companies/Cosmo-Energy-Holdings-Co.-Ltd
Nikkei Asian Review. (2020). JXTG Holdings, Inc. Available at: https://asia.nikkei.com/Companies/JXTG-Holdings-Inc
Nikkei Asian Review. (2020). PetroChina Co Ltd. Available at: https://asia.nikkei.com/Companies/Cosmo-Energy-Holdings-Co.-Ltd
OPEC. (2019). Data/Graphs. Available at: https://www.opec.org/opec_web/en/data_graphs/330.htm
Petroleum. (2015). Benchmarks. Available at: http://www.petroleum.co.uk/benchmarks
Sec. (2017). Document 6 – file: d408863dex81.htm. Available at: https://www.sec.gov/Archives/edgar/data/1452922/000119312517215521/d408863dex81.htm
U.S. Energy Information Administration. (2017). Japan. Available at: https://www.eia.gov/international/analysis/country/JPN