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Porter’s 5 Force Analysis

of Oil & Gas Industry

Rajesh Kumar
Tirthankar Ghosh
Tripti Pandey
Vrishali Saxena
Yamini Valety
November 12, 2013

Agenda
Overview of Porters 5 Forces
Golden Rules
Structure of Porters 5 Forces
5 Forces Analysis of Oil & Gas Industry
Case study: RIL

Agenda
Overview of Porters 5 Forces
Golden Rules
Structure of Porters 5 Forces
5 Forces Analysis of Oil & Gas Industry
Case study: RIL

• It captures the key elements of industry competition. ...Porter’s Five Forces ModelOrigin and Meaning • Porter five forces analysis is a framework for industry analysis and business strategy development formed by Michael E.) of an industry structure. • It is a business unit strategy tool that is used to make an analysis of the attractiveness (value. Porter of Harvard Business School in 1979.

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Agenda Overview of Porters 5 Forces Golden Rules Structure of Porters 5 Forces 5 Forces Analysis of Oil & Gas Industry Case study: RIL .

Golden Rules • Often model is adjusted with 6th Force  Public Authorities • Because the Laws and Norms can influence porters 5 forces • 6th Force  Public authorities • Government. Regulators. Judiciary etc • Key Factors for Success • Identification Environment of Key Success factors of • To have competitive advantage some strategic elements needs to be controlled .

Agenda Overview of Porters 5 Forces Golden Rules Structure of Porters 5 Forces 5 Forces Analysis of Oil & Gas Industry Case study: RIL .

They exert power in the industry by : • Bargaining down prices • Forcing higher quality .Buyers Bargaining Power Determines how much pressure a customer can place on a business.

Example: Samsung mobile & Nokia headset .. Factors determining buyers power : • Buyers are concentrated.Buyers Bargaining Power Contd. Example: DVD’s • Purchases large volumes. Example: laptop dealers • Switching to another product is simple.

Buyers Bargaining Power Contd. • Significance of the product to buyer. Factors determining buyers power : • Product differentiation Example: Cadbury Bournville • Presence of substitutes. Example: Intel ..

a coffee drinker may switch to tea – Tire retreads in place of new tires. • Comes from a product outside the industry.Threat of substitutes • Products with improving price/performance tradeoffs relative to existing industry products. • Products with similar function limits the price that firms can change. • Example: – If price of coffee rises. .

• Increasing consumer warranties and services.Competitive Rivalry Occurs when a firm is pressured or sees an opportunity. Intense rivalry often plays out in the following ways: • Using price competition: often leaves the entire industry worse off. . • Staging advertising battles • Product differentiation. • Channels of distribution.

. Intensity of rivalry is influenced by following industry characteristics: • • • • • • • Large number of firms Slow market growth High fixed costs and storage costs Low switching costs Low levels of product differentiation High exit barriers Industry shakeout .Competitive Rivalry contd.

They exert power in the industry by:   Threatening to raise the price Reduce the quality of the raw material Powerful suppliers can squeeze the industry profitability if firms are unable to recover .Suppliers Bargaining Power • • • Determine how much pressure a supplier can place on business.

Powerful Suppliers • • • • • • Supplier industry is dominated by few firms Supplier’s product have few substitutes Buyer is not an important customer to the supplier Supplier’s product is an important input to the buyers product Supplier’s product have high switching cost Customers are powerful .

.Weak Suppliers • Many competitive suppliers .product is standardized • Purchase commodity products • Concentrated purchasers • Customer’s are weak.

the possibility that new firms may enter the industry also affects completion.Threats of New Entrants & Entry Barriers • It is not only incumbent rivals that pose a threat to firms in an industry. • Barriers to entry are unique characteristics that define the industry industry . • Barriers to entry are more than the normal equilibrium adjustment that markets typically made.

Sources Government policies Patents & Proprietary knowledge Assets Specificity Organizational economies of Scale .

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Agenda Overview of Porters 5 Forces Golden Rules Structure of Porters 5 Forces 5 Forces Analysis of Oil & Gas Industry Case study .RIL .

.3 per cent of oil and gas resources of the world and 18 per cent of the world’s population. •India has 0. •India is expected to remain an energy deficit country with imports accounting for 76-77% of total domestic crude oil demand.Oil & Gas in India •The Indian Oil and Gas (O&G) sector is one of the six core industries of India and contributes over 15% to the Gross Domestic Product (GDP).   •Oil and Gas accounts for 45% of Primary Energy Mix in India where Oil contributes 36%and Natural Gas has 9% contribution.

Players in Oil Sector Key upstream players Key upstream players Note: Prorated installed capacity MMTPA 23 Key downstream players Key downstream players .

Crude Oil Import data 24 .

Oil and Gas Value Chains Crude Oil Value Chain Exploration Production Using technology to find new oil resources Bringing oil to the surface using natural and artificial methods Refining Transportation Converting crude oil into finished products Moving oil to refineries and consumers with tankers. trucks and pipelines Marketing Distributing and selling refined products .

Natural Gas Value Chain Exploration Production Using technology to find new gas resources Bringing gas to the surface Transportation Processing Moving gas with pipelines and tankers Treating gas to be sent to markets Marketing Distributing and selling natural gas .

PORTER’s FIVE FORCES MODEL Potential entrants Threat of new entrants Bargaining power Industry competitors Bargaining power of suppliers of suppliers Suppliers Rivalry among existing firms Threat of substitutes Substitute products Buyers Bargaining power of buyers .

Agenda Overview Overview of of Porters Porters 5 5 Forces Forces Golden Golden Rules Rules Structure Structure of of Porters Porters 5 5 Forces Forces 5 5 Forces Forces Analysis Analysis of of Oil Oil & & Gas Gas Industry Industry Case Case study study :: RIL RIL .

Case study: Reliance Industries Ltd .

Essar Oil.IOCL. . • PSU players.BPCL. • Private Players.Threat of New Entrants • Competition in this sector is very low because of few players present in this sector.RIL. HPCL. • Need specialized worker. Crain India • Oil exploration and refining is a capital intensive business.

Supplier’s power • While there are very few of oil companies in India. . much of the oil and gas business is dominated by a small handful of powerful companies.

Diesel . Everyone are either directly or indirectly dependent on these products.Buyer’s power • Buyer’s (end users) have no power in case of petroleum products. Petroleum products such as Petrol. Kerosene etc become the basic needs of day to day life. • The only benefit the end user’s are getting is the subsidized petroleum products. . LPG .

.Availability of substitutes Availability of substitutes are very less and in near future also we are not seeing any product which can replace petroleum products.

exit barriers in the refinery business are quite high. • Besides the scrap value of the equipment. .COMPETITIVE RIVALRY • Slow industry growth rates and high exit barriers are a particularly troublesome situation faced by firms. • At the same time. a refinery that does not operate has no valueadding capability.

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