Global Oil and Gas Industry Outlook: Porter’s Five-Forces

Most consumers correlate the fluctuation of gas prices with the success, profitability and even the longevity of the oil and gas industry. The enclosed analysis will take a deeper dive into the oil and gas industry from a global and market-specific focus based on Colombia. We will explore the global market factors via Porter’s Five-Forces. Then we will advance into a PEST analysis of Colombia where we explore the political, economic, social and technological forces impacting the Oil and Gas industry in that local market.

Then we’ll proceed into an in depth analysis of the strongest and weakest performing players in the space. What our analysis discovered is that most major suppliers control the full spectrum of the supply chain, limiting purchasers bargaining powers and Colombia is no exception. While the largest threat to the entire process is renewable resources; Colombia and its key players have additional threats and obstacles to overcome.

Specifically, our case takes a hard look at the threat of political change (tariffs, tax codes, and labor laws), as well as intense competition and in some cases, such as our weakest performer Omega Energy, technology can prove to be a weakness.

In sharp contrast our top performer Ecopetral leverages their technology platform and extra cash to emerge as the strongest performer in Colombia’s Oil and Gas industry. To find out more about the differences between our top and weakest performers in the space, as well as general industry insight, we invite you to continue reading our in-depth analysis found below.

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Bargaining Power of Suppliers: It would seem that the Oil and Gas industry is largely monopolized by a handful of large players that manage the entire stream of the supply chain from exploration and field development (upstream), to the processing, storage and transportation (midstream), to the manufacturing, refining and wholesale process (downstream).

By controlling the entire flow, suppliers don’t just have bargaining power, they own it. As a result of this lopsided supply chain, the suppliers have significant power over the purchasers. To put this into more visible terms most Americans can readily identify global leaders in the space such as Exxonmobil, Chevron, Shell and BP. We can also easily identify as end users that we have little impact into how much we’ll pay for gas. Thus suppliers have significant control over purchasers in the marketplace. Other notable players in space include the 12 major oil barons in the world according to The Telegraph (www.telegraph.co/uk, n.d.). This list includes Saudi Arabia, Iraq, Iran, Venezuela, Libya, Nigeria, Qatar, UAE, Algeria, Angola, Kuwait, and Ecuador. Most of you will recognize some well-known names on this list, like Saudi Arabia, Venezuela, and Qatar. These groups control who can obtain the oil resources and at what price. There are additional well known sources of oil which include offshore drilling; however those methods can be more dangerous and expensive to explore.

Bargaining Power of Purchasers: Who are purchasers? Purchasers include refineries, national oil companies (NOC), international oil and gas companies (IOC), distribution companies, traders and countries without oil resources. (Porter’s Five Forces Model for Oil and Gas Industry, 2016). While some suppliers control multiple faucets of this supply chain, some have varying levels of influence. For example, the US, Japan, EU, etc., are on the list of countries who need to purchase oil supplies. Some larger purchasers have a larger influence while smaller players have less of an influence. While the purchaser in this industry ultimately have little influence, they do have the ability to choose the type of oil and or type of energy sources.

Threats of New Entrants: This segment of risk is likely the most limited due to the high cost of entrance, limited access to raw materials (unless of course you’re a country with newly discovered and massive quantities of supplies), political restrictions and threats of substitutes. This said, with the advent of technology, there is always the likelihood of new tech suppliers or alternative solutions that help to optimize, improve or revitalize the process. Threats of Substitutes: This is a large segment of risk given the possibilities of potential substitutes in the market place such as wind power, solar power, nuclear energy, and other renewable resources. Multiple countries without expansive resources of oil have invested in alternative resources to mitigate their dependence on oil-rich countries. This is a well-known epidemic with lots of countries making future deadlines to limit if not eradicate their independence from oil laden countries. The most likely threat is renewable resource which includes any resource that is obtained naturally including solar power, wind-power, oxygen, fresh water and biomass.  The definition of a renewable resource is anything which can be used repeatedly and replaced naturally.

Gas, a man-made byproduct of oil, and is a non-renewable resource. Additional non-renewable resources include natural gas, coal, diesel, plastics and other fossil fuels. While there are multiple reasons to mitigate dependencies on oil rich countries, there are additional, environmental-friendly reasons to identify renewable resources. For example, Sweden is leading the charge to eliminate fossil fuel usage by striving to become to the first country entirely run on renewable resources. Additional countries following suit include Costa Rica, Nicaragua, Scotland, Germany, Uruguay, Denmark, China, Morocco, and the USA rounding out the top 10 list. Another notable fact listed on the Climate Council’s website was that the US is the second largest installed wind energy capacity in the world, second only to China. While the US has committed to improving its non-renewable resource dependency there is still a long road ahead. Hundreds of additional countries have limited to non-existent plans to move to non-renewable resources due to cost prohibition of building such an infrastructure.

Beyond the cost, some renewable resources have less consistency. Making oil and gas, at least for the foreseeable future, as being a dependable solution. Competitive Rivals: The oil and gas industry is a seasoned industry with over 100 years in existence; thus there are dozens of well-established long-term firms that currently occupy the space. While we previously discussed some of the more large-name players dominating the western hemisphere, additional firms in the eastern hemisphere include Saudi Aramco (notably the largest oil corporation in the world). Additional firms include, Sinopec, China National Petroleum Corporation, and Petro China. World Atlas lists 46 major competitors on the global stage, considering there are nearly 200 countries globally, this limited number of major suppliers indicates steep competition and intense rivalries.