Petrobras is a semi-public Brazilian multinational corporation in the petroleum industry headquartered in Rio de Janeiro, Brazil. It was incorporated in 1953 (Petrobras Holdings, 2020). Petrobras operates through integrated infrastructure with a focus on oil and gas. Petrobras manages its group of companies which deals with the exploration and production, refining, marketing, transportation, petrochemicals, oil product distribution, natural gas, electricity, chemical-gas and biofuel segments (Petrobras Holdings, 2020). Petrobras operate across the globe with its subsidiaries; it has around 35 subsidiaries with a major focus on energy, oil, and natural gas exploration (Sec, 2017). The majority of its subsidiaries are located in Brazil. Porter’s five forces model is a useful tool to identify threats and opportunities faced by Petrobras in the business world.
Competitive Rivalry in the Market
Petrobras faces no or minimal competition from local competitors. It controls around 67% of local production, 100% import, and 99% of oil refinery (Petroleum Economist, 2019). Its major competitors are Saudi Aramco and China National Petroleum Corporation (CNPC). Saudi Aramco posted an annual profit of $110.9 billion for the financial year 2019 (Fortune, 2020). CNPC operates through its subsidiary PetroChina, and it has an annual revenue of $332.3 billion in 2018 (Nikkei Asian Review, 2020). In comparison, Petrobras reported annual revenue of $95,584 million and a net income of $ $7,173 million in the financial year 2019 (Fortune, 2019). Considering the presence of global conglomerate in petrochemical, oil and gas exploration, and the energy sector, there is 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. Biomass energy is considered as the replacement in South America. Brazil boasts the world’s largest sugar cane fields. The sugarcane bagasse used as alternatives to the fuel for electricity production. It produced around 19 Million MWH in 2015. Renewable energy sources will impact the oil industry, as the world is moving to more climate-friendly products.
Threat of new Entrants
There are many hindrances to start a company in the oil and gas sector. It is a highly regulated sector in the world. Those rules are being set by different governing bodies and government. It takes a lot of time to get through those rules. The oil and gas explorations need huge capital investment, and its sunken investment cost makes it harder for the startup to compete with established companies. The startup couldn’t invest in research and development, whereas other companies have separated research and development wings for exploration. The newer firms are moving to renewable energy and sustainable fuel solutions. That type of startup doesn’t require that much initial investment. The prices in the oil and gas industry are controlled by a few countries, and it is unstable. It depends on the geopolitical condition of oil-producing countries. Considering the above-mentioned facts, the threat of new entrants remains low.
Bargaining Power of Buyers
Oil is the major commodity in the world. There is an alternative for the oil industry because of its vast usage, and it produces the number of products. These products are irreplaceable for now. The major buyers of the oil and gas industries are oil refiners, state oil companies, and oil trading and distribution companies. It has a very complex supply chain system. It provides minimum leverage to the client. The oil-based products are benched against international standards for oil. It is to control the quality of certain oil products. The quality standards used commonly are West Texas Intermediate, Brent Crude, and Dubai Crude (Petroleum, 2015). The buyer’s only leverage is getting a quality product according to international standards.
Bargaining Power of Supplier
The petrochemical industry has a complex supply chain. Petrobras is at the upstream level in the oil extraction supply chain. It two major sources of supplies expert human resources and technical equipment. The equipment it requires is of specialized nature, and it has to be of good quality. Few suppliers are making such specialized equipment. Compliance with the high-quality requirement is necessary because it is difficult to haul this equipment to drilling sites; If the equipment is not of the required quality, it will result in extraction delays and labor idle time. As the equipment is of specialized nature, the suppliers hold high bargaining power. Due to tough economic conditions in Brazil, there are many available experts, and they have low bargaining power. Considering the above-mentioned facts, suppliers have moderate to high bargaining power.
References
Assumpco, D. C. Hamaguchi, M. Rocha, J. D. & Mariano, A. (2020). Green energy in Africa, Asia, and South America. Green Energy To Sustainably: Strategies for Global Industries, First Editioin. pg no.58.
Fortune 500 Global. (2015). Petrobras. Available at:https://fortune.com/global500/2019/petrobras/
Fortune 500 Global. (2015). Saudi Aramco. Available at:http://www.petroleum.co.uk/benchmarks
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
Petrobras Holdings. (2020). Corporate Profile. Available at: https://petrobras.com.br/en/about-us/profile/
Petroleum Economist (2019) Brazil gets moving on gas competition. Available at: https://www.petroleum-economist.com/articles/politics-economics/south-central-america/2019/brazil-gets-moving-on-gas-competition
Petroleum. (2015). Benchmarks. Available at: http://www.petroleum.co.uk/benchmarks
Sec. (2017). Available at: https://www.sec.gov/Archives/edgar/data/1119639/000119312505135283/dex81.htm