Five Forces Analysis

Threats Of Substitutes

There can be different main alternatives to oil and gas which can be used for different purposes.
For example, Coal, Nuclear Energy, Hydrogen, Biofuels. These are the different sources of
energy that can be used as a substitute for POL and other oil and gas exploration company’s
products with regards to price, performance, and Quality. Investment in Research and
development can help POL to avoid dominance of possibility for substitute. Substitutes can
affect the profitability of POL and result in reducing the prices for the products of POL. These
alternatives can be used in electricity, transportation, and heating.

Bargaining Power of Buyers

Due to the nature of this industry the bargaining power of buyers is proportionally small. The
price is determined according to the quality based on international benchmarks. The main
benchmarks are Brent Blend, WTI, and OPEC Basket. POL’s main buyers are the refineries
companies, National and International Oil and Gas companies, distribution companies, Traders,
and different countries to which POL exports its products. From the above that the buyers cannot
affect the oil price that much except countries that consume huge amounts of oil and gas, for
example, China, India USA, Japan, and other countries but POL export to these countries are
negligible. The bargaining power of buyers is dependent on the quality buyer’s wants.

Bargaining Power of Suppliers

There are some big players both national and international in the value chain of the oil and gas
sector. So, their ability to affect oil prices in the industry is high, so the bargaining power of
suppliers is higher as compared to POL. Some oil-rich countries for example OPEC countries
have the lowest cost-producing prices also affect POL’s bargaining power as a buyer because
OPEC countries contain 70 % of the oil reserves of the world.

The Threat of New Entrants

A new entrant in an industry brings challenges regarding market share. This practice puts
pressure on existing players concerning the costs and prices of products. The major barriers to
entry in the oil and gas industry are patents for oil exploration technology, large initial
investments, government regulations and product differentiation. Patents help in gaining the cost
advantage as well as product differentiation which in return reflects in the profitability of the
firm. In an economy like Pakistan, large investments are the biggest barrier to entry.
Rivalry among Existing Competitors
A highly competitive industry puts a limit on the profits of the existing players. In Pakistan, most
of the companies are relatively equal in size and market power which makes this industry highly
competitive. This high rivalry can lead to a price war. If oil companies stop oil exploration and
production, then the rivalry increases. For example, during the COVID-19 pandemic exploration
and production has stopped and competition was high. Oil companies do join ventures to reduce
the competition. Pakistan Oilfields Limited is also involved in various projects with competitors
as a joint venture. Due to high rivalry, the profit potential in this industry is relatively low.