The report brings out the investment opportunity for Mozambique`s current gas production that is operated by the south Africa by Sasol in the provincial area of Inhambane province that holds reserves of 2.6 trillion cubic feet. As China National Petroleum Corporation (CNPC) wants to expand and extend its operation in Mozambique. The gas is produced and processed at a central facility in Temane and transport it via 865 km (German et al., 2016). It is important to get into consideration that china operates its oil and gas industry through government.
It is necessary to apply one academic model to know whether the elements of business situation would help to evaluate the entry in the Mozambique market. To analyse the entry, the report is focuses on Porter`s Five Forces model is an strategic tool used to evaluate the potential opportunities and risk related to oil and gas industry. The report also brings out several market opportunities for the industry and the way to grab the opportunities. To maintain a sustainable industry growth, a manager has to identify the traditional factors that challenge the current growth of the industry (Taliotis et al., 2016).
The factors are-
Competitive rivalry or threat of competitors- the competitiveness of upstream industry is intense. There are many players in upstream sector. Big IOCs or the private sector oil and gas company that is integrated and China National Petroleum Corporation (CNPC) is government regulated. The ranking and competitiveness among the gas and oil companies is based on revenue that they can generate. The top companies are Royal Dutch Shell that had a sum of 385.6 billion as a revenue in 2015, Exxon Mobil situated in country of USA, which derive a considerable revenue of 365.5 billion (Pavia, 2015). Moreover, BP from UK derive 6 billion dollars of revenue in 2015 and total revenue obtained from France announce a big sum of money approximately 194.2 billion dollars. Even after serving the whole country china, it is not among top competitors. Apart from these competitors, Chevron and Phillips from USA generate a revenue of 169.2 billion dollars. The previous information relates to revenue in the year 2015. The best indicator to become a known is to observe the size of the company to the market capitalisation. Mozambique`s current gas production also faces a competitive rivalry from several national and international oil companies (News, 2014). The opportunities of China National Petroleum Corporation (CNPC) to grow in Mozambique. In regards to exploration, the company continue to prioritise the strategies for resources and improve the oil and gas production and achieve economically recoverable reserves. The company announced in 2015 that it expects the output of crude oil to be 924.7 million barrels and gas production to be around 3,172 billion cubic feet (Petrochina Company Limited, 2015).
Threat of new entrants- This factor has a huge influence on new companies that who enter into oil and gas business. The establishment in the industry requires a huge capital. Moreover, National oil and gas companies control 90 percent of the public companies because they are proven reserves. The industry also has an increased internal competition. If any new company is established, it requires R &D spending that will give a enhancement in innovation and progress the existing technology. The new strategy can give a company a competitive advantage over the new and oil companies. The big IOCs can convince the new competitors to focus more on spending more capital. The prices of gas industry remains highly volatile. These reserves are usually situated in war zones and the geographical area with several geographical conflicts and political uncertainty (Hulshof, Maat, and Mulder, 2016).
Threat from the substitutes in the industry- there are not many alternatives available that can be used in place of producing energy that assists electricity, heating, and transportation. The alternatives are nuclear energy, coal, hydrogen, and biofuels and several other renewable sources such as wind energy and solar energy. The alternatives and substitutes can replace a high usage of hydrocarbons that are used in global energy mix of quality and quantity as per the performance. Undoubtedly, these strategies of finding alternative sources requires huge investment in research activities and produce procedures, which has made possible for the substitutes to dominate the global energy until 2040 (Richter, and Holz, 2015).
Bargaining power of buyers in the industry- The important buyers of oil products are refineries, International Oil and Gas companies, Traders, National companies, Traders, and distribution companies in several countries named USA, China, Japan, and other countries of EU. The bargaining power of buyers in oil and gas industry is small due to its nature. Buyers are more interested in price and quantity of the product. It has been recognised that global oil benchmarks that determine the oil prices. The main oil benchmarks are Brent Blend, West Texas intermediate (WTI) and Oman/Dubai. It can be said the buyers can not affect the prices to greater extent. The high bargaining power consists of buyers that consume enormous amount of oil prices such as EU, USA, Japan, and China in comparison with several different countries. Although, buyers can choose from several variety of oil as per the quality characteristics such as sulfur and density. Apart from these, as soon as the buyers has the availability to use alternate source of energy instead of oil, due to which the bargaining power of buyers remains low (Alafrica, 2018).
Bargaining power of suppliers in oil industry- Many big suppliers are mostly integrated in the oil industry with both national and international oil companies, which remain active in the whole value, chain of oil sector. The value chain of global oil and gas companies start from upstream activities such as exploration, field development, and production operations. The raw crude material is shifted to mid-stream, which plays an important role in transportation, processing, and storage and distribution activities. Further, feedstock and downstream activities such as manufacturing, refining and petro-chemicals, and wholesale and marketing take place (Ed crooks, 2018).
Certain big companies such as Chevron, Shell, Exxon Mobil and other national oil companies such as Gazprom, Petrobras, and Saudi Aramco are the important companies in this industry. The ability of these big companies can affect the oil prices and the prices is high due to business involvement of all the business segments of oil industry. Moreover, the bargaining power of somewhere is higher as compared to buyers. Other great players on the part of suppliers are the rich oil countries as they are called oil-producing countries or OPEC has significant bargaining power (Robinson, and Scott, 2016).
OPEC nations cover at least 70 percent of the world`s oil proven reserves. These oil reserves have low producing cost as the quantity produced in this industry is very large and bulk. Whereas, the contrast of oil producing from oil sands and several deep-water oil fields remained expensive in regards to cost oil production. Some several companies such as national oil companies are high privilege to the other domestic reserves and the aim of every NOCs is different from IOCs not necessarily but monetised but it serves the national interests. It supports national interest of protecting territorial environment (Pitatzis, 2016).
Strengths
CNPC is the integrated energy company in china with dominant position in its domestic market. It was ranked fourth in the global fortune list in 2017. CNPC developed and invested in a pan-china network of oil and natural gas. The company is fast developing global and domestic footprint with some major strategic investments. Many joint programs established reservoirs of tidal, shallow water zones, sour gas, CBM, high-temperature and high-pressured reservoirs. The company functions in around 30 countries. The company operates 49 cooperation programs in around 19 countries, which are the main source of revenue outside china (Wang, Zhang, and Zhong, 2014).
Weaknesses
CNPC lacks operation in eastern and southern china. The cost to company remains high especially while treating environmental hazards and accidents of oil spills. The staff cost is generally high because of risky petroleum refining operations. The recent workforce was decreased to 540000. The half year of 2013, financial reports revealed that the cost of employees reached $2884 million. The huge human resource team is still burden on enterprises. China petroleum could not manage to make its sales more effective. The selling capacity is low but the operating costs remains same and high that have to bear depreciation costs, transportation, and lose money. Moreover, reform in petroleum stations of China have low capacity of stations who have low sales capacity, who can contract the some credibility and ability with the contractor (Taliotis et al., 2016).
Opportunities
Due to increasing industrialisation and transportation system, the demand has been increasing. As per the accounting data, rapid growth of china`s GDP, where china`s primary consumption of energy is increasing on a fast pace. Till 1990, the energy consumption of the country was 662.35 million tons for oil equivalents in 2011, it reached 2,613.21 million tons of oil equivalent. The petroleum industry of china handles large number of resources that forms a highly vertical integrated oligopoly that accuses the causes of china’s dependency on foreign oil and natural gas. China petroleum and its related oilfield service company should split as soon as possible. Nation advocates to develop and enhance its natural gas imports by the country`s responsibility to handle the major natural petroleum (Wang, Zhang, and Zhong, 2014).
Threats
Government may indulge into corruption and monopoly strategies that force to split with the petroleum executives that are exposed to corruption cases. Monopoly in the oil industry may bring many problems. China petroleum thinks to control huge resources that have formed highly integrated oligopoly. China is rich in coal and poor resources in gas and oil. Competition always remained a threat to oil and gas industry. Chinese petroleum Sinopec and PetroChina gives a string rivalry as a competitor. These organisations are china`s largest producer of petroleum products. Chinese claims advantage in exploiting petroleum fields. In addition to this these competitors, Chinese is the largest producer of natural gas and it is a part of policy division (Perepelitsa, and Zhdanova, 2017).
There are certain external factors such as scheme of application of the options in the industry; the factors are cost of investment, time, risk-free rate, and uncertainty. The manager has to undertake methods of project analysis, its implementation, and evaluation by understanding the methods of mathematics, statistics, and several physics concepts of random processes for China National Petroleum Corporation (CNPC) (Perepelitsa, and Zhdanova, 2017). A manager can use model of Algorithm application of real options by undertaking commodity prices, prediction of discounting pulling in the prices, and distribution of NPV components. A manager should have strong knowledge base of mathematical and physics model of programming to decide how to manage the business operations from the volatility of prices of oil and gas (Monitor deloitte, 2017).
Conclusion
From the above analysis and academic framework used for China National Petroleum Corporation (CNPC) to get into Mozambique`s current gas production on the basis of approval of how entry in the market can be reached and can be profitable too. A model named five forces model is applied in the report that depicts several factors such as bargaining power of suppliers, bargaining power of buyers, threat of substitutes in the industry, threat of rivalry in the competition, and the threat of new entrants. It is analysed that a manager has to use a decision-making procedure to achieve a sustainable growth in the oil industry. As per the framework used, the bargaining power of suppliers is more significant than the bargaining power of the buyers. The competitors are not very large in this sector, as it requires a large sum of investment for establishing.
References
Alafrica, (2018) Mozambique: Oil and Gas Company Anadarko Receives Government Go-Ahead. Available on: https://allafrica.com/stories/201803070388.html [Accessed on 08/11/18]
Ed crooks, (2018) Mozambique to become a gas supplier to world: Anadarko-led LNG project set for investment approval in 2019. Available on: https://www.ft.com/content/d34685b2-7995-11e8-bc55-50daf11b720d [Accessed on 08/11/18]
German, L., Cavane, E., Sitoe, A. and Braga, C., (2016) Private investment as an engine of rural development: A confrontation of theory and practice for the case of Mozambique. Land Use Policy, 52, pp.1-14.
Hulshof, D., van der Maat, J.P. and Mulder, M., (2016) Market fundamentals, competition and natural-gas prices. Energy Policy, 94, pp.480-491.
Monitor deloitte, (2017) Investment Opportunities in Mozambique Manufacturing Edition, 2017. Available on: https://www2.deloitte.com/content/dam/Deloitte/za/Documents/africa/za_Monitor_Deloitte_FSD_Manufacturing_Publication_ENG_v2.pdf [Accessed on 08/11/18]
News, (2014) Investments in gas exploration in Mozambique may reach US$100 billion. Available on: https://www.ecokaya.com/noticia.php?id_not=21 [Accessed on 08/11/18]
Pavia, J.F.L.Z., (2015) 15. THE MARITIME SECURITY IN THE GULF OF GUINEA: THE ENERGY SECURITY OF EUROPE AND THE POTENTIAL ROLE OF PORTUGAL. New Challenges of The Atlantic, p.157.
Perepelitsa, D. G., and Zhdanova, O. A., (2017) Peculiarities of Investment Decision-making in the Oil and Gas Industry Aimed to Ensure Sustainable Growth of the Russian Economy. International Journal of Energy Economics and Policy, 7(1). Pp. 216-223
Petrochina Company Limited, (2015) Annual report, 2015. Available on: https://www.petrochina.com.cn/ptr/ndbg/201604/a67a6a0ac90749719ced516a9c83cacf/files/26c2875cfbe847099ac0633aed666acf.pdf [Accessed on 11/11/18]
Pitatzis, A. (2016) Porter’s Five Forces Model for Oil and Gas Industry. Available on: https://energyroutes.eu/2016/05/23/porters-five-forces-model-for-oil-and-gas-industry/ [Accessed on: 08/11/18]
Richter, P.M. and Holz, F., (2015) All quiet on the eastern front? Disruption scenarios of Russian natural gas supply to Europe. Energy Policy, 80, pp.177-189.
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Taliotis, C., Shivakumar, A., Ramos, E., Howells, M., Mentis, D., Sridharan, V., Broad, O. and Mofor, L., (2016) An indicative analysis of investment opportunities in the African electricity supply sector—Using TEMBA (The Electricity Model Base for Africa). Energy for Sustainable Development, 31, pp.50-66.
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