Repsol S.A. is a multinational fossil fuel company. It was founded in 1927 and is headquartered in Madrid, Spain. Repsol operates worldwide, but its major focus is Europe, the Middle East, and Africa (EMEA) region (S&P Global Platts, 2019). Repsol operates in vertical integration. It operates through its upstream and downstream setups in the world. The upstream setup is used for the exploration, production, and sale of crude oil. The downstream setup is involved in refining, the production, and marketing of petrochemical products (Repsol, 2020). It also used for transportation of oil and crude oil. Repsol operates through its 300 companies in 40 countries. The majority of its companies are located in Spain, The Netherlands, Canada, and the United States. Porter’s five forces model is a useful tool to identify threats and opportunities faced by Repsol in the oil and gas industry in the world.
Competitive Rivalry in the Market
Repsol doesn’t face any competition from local competitors, as it controls the majority share in the local market. Its major competitors are ENI of Italy and B.P. Plc of Britain. Eni is a public company partially owned by the Italian Government, that operates through its subsidiaries in the petroleum sector, oil and gas exploration; it posted an annual profit of $90.799 billion for the financial year 2019 (Fortune, 2020). B.P. Plc is a multinational oil and Petroleum Company bases in London. It is a vertically integrated company. It operates through its subsidiaries such as Castrol and Amoco; it has an annual revenue of $303.73 billion in 2019 (Fortune, 2020). In comparison, Repsol reported annual revenue of $ $53.1 billion and a net income of $2.762 Billion in the financial year 2019 (Fortune, 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 oil and gas industry is under pressure due to climate change activists. The demand for reducing carbon emission to stop climate change has damaged the earth’s ecosystem. Oil and gas are majorly used to produce energy. The world is searching for its substitute for some time now. Nuclear energy, Hydrogen, Bio-fuels, and renewable energy sources are the main substitutes for producing energy. Wind energy is leading as a renewable energy source from sometime behind solar energy. In the last decade, wind energy has grown by around 20 % in the last decade (Solaun, K., & Cerdá, E. 2020). The developing countries are moving toward renewable resources 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.
The Threat of New Entrants
The oil industry is highly regulated in the world. There is too many restraint to start a company in the oil and gas sector. The rules are set by the oil governing bodies and Government. OPEC is the governing body that controls the majority of oil exports in the world. 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 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
The bargaining power in oil and gas is low due to the environment of this industry. It provides minimum leverage to the client. The usual customers are oil refineries, international oil and gas companies, and countries. The buyer can only exert its power if he opts out to purchase oil and gas products in bulk. Countries like The United States, China, Japan, and India. Which is the biggest importer in the world can exert power to some extent. The only benefit they can get is the timely delivery of the product and the predetermined quality. The quality standard is known as the international oil benchmark.
Bargaining Power of Supplier
The petrochemical industry is very dynamic. It is heavily dependent on the geopolitical situation of the region. Repsol is a vertically integrated company. It controls everything from exploration, transportation to retail. It only requires equipment for industry. There is a couple of oil governing bodies in the world. Spanish oil producers are not part of any oil export group. So it doesn’t need to comply with their oil export capacity rules. It 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). In this case, the supplier doesn’t hold any major power against Repsol.
References
S&P Global Platts. (2020). Top 250 global energy companies. Available at: https://top250.platts.com/Top250Companies/42
Repsol. (2020). About us. Available at: https://www.repsol.com/en/about-us/what-we-do/index.cshtml
Fortune 500 Global. (2020). ENI. Available at: https://fortune.com/global500/2019/eni/
Fortune 500 Global. (2020). B.P. Available at: https://fortune.com/global500/2019/bp/
Fortune 500 Global. (2020). Repsol. Available at: https://fortune.com/global500/2019/repsol/
Solaun, K., & Cerdá, E. (2020). Impacts of climate change on wind energy power–Four wind farms in Spain. Renewable energy, 145, 1306-1316.
OPEC. (2019). Data/Graphs. Available at: https://www.opec.org/opec_web/en/data_graphs/330.htm