Porters 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

Porters Five Forces ModelOrigin and Meaning

Porter five forces analysisis a framework
for industry analysis and business strategy
development formed byMichael E. Porter
ofHarvard Business Schoolin 1979.
It is a business unit strategy tool that is used to
make an analysis of the attractiveness
(value...) of an industry structure.
It captures the key elements of industry
competition.

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

Buyers Bargaining Power

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

Buyers Bargaining Power Contd..

Factors determining buyers power :
Buyers are concentrated.
Example: DVDs
Purchases large volumes.
Example: laptop dealers
Switching to another product is simple.
Example: Samsung mobile & Nokia headset

Buyers Bargaining Power Contd..

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

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.
Comes from a product outside the industry.
Example:
If price of coffee rises, a coffee
drinker may switch to tea
Tire retreads in place of new tires.

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.
Increasing consumer warranties and services.

Competitive Rivalry contd..

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

Suppliers Bargaining Power

Determine how much pressure a supplier can

place on business.
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

Powerful Suppliers

Supplier industry is dominated by few firms

Suppliers product have few substitutes
Buyer is not an important customer to the supplier
Suppliers product is an important input to the
buyers product
Suppliers product have high switching cost
Customers are powerful

Weak Suppliers

Many competitive suppliers - product is

standardized

Purchase commodity products

Concentrated purchasers
Customers are weak.

Threats of New Entrants & Entry

Barriers

It is not only incumbent rivals that pose a threat

to firms in an industry; the possibility that new
firms may enter the industry also affects
completion.

Barriers to entry are more than the normal

equilibrium adjustment that markets typically
made.

Barriers
to
entry
are
unique
characteristics that define the industry

industry

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

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

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.
India has 0.3 per cent of oil and gas resources of the
world and 18 per cent of the worlds population.
India is expected to remain an energy deficit country
with imports accounting for 76-77% of total domestic
crude oil demand.

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

PORTERs 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

Threat of New Entrants

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

Suppliers
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.

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

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.

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

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