Oil and Natural Gas Corporation (ONGC) is an energy company based in India. The company operates in mining and crude-oil production; it was founded in 1956 by the Government of India. The company operates through its various subsidiaries in the vertically integrated environment and with in-house capabilities to explore oil and gas. The few subsidiaries include ONGC Videsh Limited, Mangalore Refinery and Petrochemicals Limited (MRPL) and HPCL. Through these subsidiaries, ONGC exerts its control on the country’s energy sector; Videsh limited has produced 30.3% of oil and 23.7% natural gas of India’s domestic production in 2019-2020 (ONGC, 2021). ONGC Videsh also owns Participating Interests in 35 oil and gas assets in 15 countries. ONGC was conferred Maharatna status in 2010, which makes it a Public sector undertaking. Porter’s five forces model is a valuable tool to identify threats and opportunities faced by ONGC in the oil and gas industry in the country.
Competitive Rivalry in the Market
ONGC operates in a naturally competitive market sector. As it is a Public sector enterprise, it faces intense competitive rivalry in the market. ONGC controls subsequent market share in the world’s second-most populous country. ONGC’s main competitors are Bharat Petroleum Corporation (BPCL), another Public sector entity and Reliance Industries, a private sector business conglomerate. ONGC has performed exceptionally well and improved its Fortune 500 global rankings by 37 points in 2019 and company was ranked at 160 with gross revenue of $61,420 million (OGNC, 2019). In contrast, BPCL recorded revenue of $40,410 million with a profit of $430.9 million in the financial year 2020 (Fortune, 2021). BPCL is also the best performing Public sector enterprise in the country, thus intensifying the competition. However, reliance outperformed both of its competitors in the financial year 2020; company is ranked 96 in the Fortune 500 companies, posting revenue of $86,270 million and profit of $5,624.9 million (Fortune, 2021). ONGC operates in the inherently competitive segment because of the large state-owned and private sector enterprises competing in the company.
Threat of Substitutes
The threat of substitute is moderate in the industry in the short term, but it is high in the medium to long term. There is growing pressure on the oil and gas industry to look for better alternatives as the sector has a substantial carbon emission footprint. The climate activists are pushing for options for the products offered, which has led to progressive policy change at the global level. The viable alternatives are Nuclear energy, hydrogen and renewable energy sources. One of the largest oil consumers are vehicles, and there are now genuinely ecological efficient electric vehicles available in large parts of the world. Governments are incentivizing the production of eco-friendly cars. In 2020, world added record renewable energy, with more than 80% of all new electric capacity added was renewable (IRENA, 2020). Therefore, the industry faces immense pressure and moderate threat in the short terTT
Threat of New Entrants
The sector is among the highly regulated sectors in the world, same is the case in India. Public sector entities mainly dominate the industry. India’s state-owned companies are dominant in the oil and gas industry. This is evident because 85% of the crude oil exploration and production and 76% of the natural gas exploration were undertaken by these companies (Adebare, 2013). The Indian government has pursued the policy to reduce reliance on oil and gas imports, further strengthening the internal infrastructure. Besides state dominance, there is a stringent regulatory framework, and it has high compliance cost. Another barrier to entry in the sector is the required capital investment for operating in the industry.
Bargaining Power of Buyers
Buyers do not possess high bargain power in the industry due to the full control of the production to distribution of oil and gas. The usual buyers are the oil refineries and the distribution companies, and end-users. Most of the significant oil conglomerate businesses have vertically integrated operations, thus allowing them to control the supply chain. The end-user has low switching cost due to many available oil companies and indifference in the product. Thus, they can exercise high bargaining power (Varma, 2016). Whereas downstream companies cannot switch buyers owing to high switching cost. Therefore, an end-user possesses somewhat high bargain power due to product in-differentiation and perceived quality. Other downstream companies do not hold high bargaining power.
Bargaining Power of Suppliers
The bargaining power of the suppliers is moderate to high in the Indian oil and gas sector. The industry is dynamic in nature and crude oil, a significant raw material; fluctuate due to many underlying factors. The companies that rely on petroleum self-exploration can reduce this cost as they are their supplier. If the company import crude oil from the other oil explorers price fluctuates due to the geopolitical situation, quality of the oil and benchmarking oil rates. The concentration of suppliers put suppliers in a strong position to control the price; India has thus diversified its crude oil imports. From 2006 to 2015, the sources of India’s oil imports grew from 26 to 44 countries and region (Zhijie Zhang & Wanli Xing, 2018). Considering the above, suppliers hold moderate bargaining power.
References
Adebare, A. (2013). Structural dominance of public sector undertakings (“psus”)/national oil companies (“NOCS”). Asia Pacific. Legal updates.
Fortune 500 Global. (2021). Baharat Petroleum. Available at: https://fortune.com/company/bharat-petroleum/global500/
Fortune 500 Global. (2021). Reliance Industries. Available at: https://fortune.com/company/reliance-industries/
IRENA. (2021). World Adds Record New Renewable Energy Capacity in 2020. Available at: https://www.irena.org/newsroom/pressreleases/2021/Apr/World-Adds-Record-New-Renewable-Energy-Capacity-in-2020
ONGC. (2019). Media. ONGC jumps 37 places to rank 160 in Fortune Global 500 list. Available at: https://www.ongcindia.com/wps/wcm/connect/en/media/press-release/ongc-jumps-37places-fortune-global500-list
ONGC. (2021). About ONGC. Corporate Profile. Available at: https://www.ongcindia.com/wps/wcm/connect/en/about-ongc/ongc-at-a-glance/corporate-profile/
Varma, S. (2106). Indian Petroleum Industry: Some insights using Porter’s model. Journal of Energy and Management. Vol 1. Pg 30-43
Zhijie, Z.& Wanli X. (2018). IOP Conf. Ser.: Earth Environ. Sci. 153 032046