Sector Project 2: Oil & Gas

This analysis is from the perspective of an entrepreneur looking to setup a business in this industry.

 Bargaining Power of Buyers: It can be measured based on number of buyers in the business, the
availability of alternatives, switch over costs and the impact of buyers in the cost and quality.
India’s energy need is projected to double to 1,516 Million Tonnes of Oil Equivalent by 2035
from 700.50 Million Tonnes of Oil Equivalent in 2015. Oil PSUs primarily dominate the segment
with almost 85% market share. The PSUs leverage their extensive network and operate on wafer
thin margin. For customer, energy is an essential commodity hence they have little power to
affect the price of fuels. However, India being the world’s fourth-largest energy consumer, the
oil companies have a higher ability to influence price and quality from their suppliers.
 Bargaining Power of Suppliers: It can be evaluated based on the number of suppliers,
accessibility of substitutes for suppliers or vendors of manufacturers, influence of suppliers in
cost and quality and the industry in which supplier is operating. India is highly dependent on
non-renewable resources for energy demand. To meet these demands the companies import
vast quantities of fuel from a relatively small group of nations. Together, these groups of
countries like OPEC determine the prices and quantity of fuel to be produced. Since, we are
highly dependent on these nations, the suppliers have higher negotiation power.
 Rivalry among Existing Competitors: Industry rivalry among existing competitors can be
assessed by the number of competitors, product differentiation, industry growth rate,
substitution costs involved and the strategic stakes of the producers· A relatively small number
of players control the Indian Oil & Gas segment. Since the margins are lower, these players are
highly competitive.
 Threat of Substitutes Products: There is growing concern over the global warming and we are
one of the largest consumers of crude oil contribute significantly to it. Some Nordic countries
have shifted to complete EV setup. Similarly, India is trying to leverage renewable resources due
to its strategic location. Hence the threat of substitution is high.
 Threat of New Entrants: The new entrants bring new capability and a yearning to gain market
share which adds pressure on current prices, costs, and the investment rate needed to compete
in an industry. The extent of present entry barriers determines the threat of entry. The entry
barriers comprise the factors like Economies of Scale, Brand uniqueness, Product Distinction,
customer Switch Over Costs, Capital requirement; access to technology, raw material and
distribution channels; and Government policies. Oil & Gas is highly capital and infrastructure
intensive business. The significant players today in India are PSUs who have developed
infrastructure over the years. Hence the threat of new entrant is low.