Description of the Oil and gas industry in Canada
According to a survey completed in 2010, the Canadian oil sands accounted for over 60% of the country’s total oil production. Further analysis of the growth of oil production reveals that oil production grew by about 12% from 2005 to arrive at 60% in 2010 (Q finance n. p). This significant increase in the production was because of increased oil exploration and increased production activities witnessed by Canada.
An analysis of Canada’s oil production shows that its oil sands represent a daily production of about 1.5 Million barrels per day. In a bid to sustain this trend, the oil industry has continued to receive massive support from the private and public sector initiatives aimed at boosting its overall growth (Q finance n. p).
General environmental analysis, including trends
According to the survey of 2010, the country has recorded a total production of conventional oil of 1.22 million barrels per day. The total reserves by the end of 2010 revealed a total reserve of 4,118 million barrels. Prices for crude oil have maintained a constant increase.
Table 1: Crude Oil statistics for 2010.
Source: Canadian Association of Petroleum Products.
Statistics shows that prices increased from $79.5 (US$ per barrel) to 95.10 (UD$ per barrel), which represents an increase of 19.6% in 2011 compared to the same period in 2010. Canada has ensured a constant increase in total exports of crude oil.
Table 2: Oil Sands in Canada (2010).
Source: Canadian Association of Petroleum Products.
In 2011, the country strengthened its oil exports by about 9.5% compared to the previous year to reach a total of 2.130 million barrels per day (Q finance n. p). Although Canada has a strong foreign market for its crude oil, its domestic market has remained equally strong, and the average consumption stood at 1.8 million barrels per day during 2010 and 2011. According to 2009 statistics, oil sands industry in Canada accounts for about 6.5% of the country’s total green house gas emissions. The global scenario shows that Canada’s oil sands contribute 0.1% of the total emissions of GHG.
The current analysis reveals that the country’s total emissions have declined by about 29% between 1990 and 2009. Government regulations, especially in the Alberta oil sands leading to a total reduction of emissions by approximately 12% in the last 10 years beginning 2000 (Q finance n. p).
An industry value-chain analysis
The analysis of oil and gas industry’s value chain shows that it transits to the last user through five steps, beginning with exploration of oil and gas fields and sands. This is the initial and perhaps the most critical of all the steps because it determines the existence of oil and gas resources.
This step warrants the subsequent steps; thus, it is fundamental to invest in technology that can facilitate the discovery of oil sands. Initially, companies were faced with challenges of discovering new and potential oil reserves because of lack of appropriate technology necessary to facilitate the process. However, this trend has shifted toward investment in advanced technology, research and development, which as seen an increased number of oil and gas sands.
Most industrialized and developing countries have realized the need for self-sufficiency to avoid the recent and ongoing shortages of global oil and gas supplies which come with skyrocketing oil prices (“Oil Sands Industry in Canada, 2011 – Market Analysis, Competitive Landscape and Production Forecasts to 2015” n. p).
The second step involves the process of producing oil and gas. In this process, oil and gas is brought unto the surface of the earth through the process of extraction. Traditional methods had guided this process for many years until recently when in situ methods were invented.
The in situ method involves the use of non-portable water (steam) to melt bitumen. The increased costs of water necessitated this advancement in technology. Surveys indicated that companies invested billions of funds in the establishment of postmodern methods of extracting oil (“Oil Sands Industry in Canada, 2011 – Market Analysis, Competitive Landscape and Production Forecasts to 2015” n. p).
The next step entails the transportation of oil to refineries and consumer destinations by use of trucks, pipelines, and tankers. Most companies have held these methods for many years. However, most companies have resorted to building pipelines linking countries, and companies. Refining refers to the conversion of crude oil into finished products for final consumers.
The industry has witnessed significant changes, including the emergence of many refineries in the market. This trend has led to shift from supply-driven oil industry to buyer-driven industry explained by the increased alternative substitutes and consumer bargaining power.
The last step in the supply chain is the marketing of oil products. It entails the distribution and selling of products. Companies in the industry have adopted different approaches to gather a large market share compared to its immediate competitors (“Oil Sands Industry in Canada, 2011 – Market Analysis, Competitive Landscape and Production Forecasts to 2015” n. p).
An industry environment analysis, including trends
The global oil and gas industry has set strategies to establish alternative solutions to the impending energy needs and challenges, especially because of the industrialization process requiring sufficient supply of power. There is a general realization of the decreasing nature of oil resources and ever-increasing demand.
Table 3: World Oil and Gas Resources: Countries with the Largest Oil Reserves.
Source: PetroStrategies, Inc.
Today, the world is yet to overcome the complexities geopolitical influencing the production and supply strategies of oil and gas. This analysis explores the Canadian oil and gas industry by utilizing the Porters Five Forces Analysis.
The report derives the five forces that determine the nature and extent of competition and attractiveness of the industry market and environment. These factors consist of key facets that relate to a company’s performance relative to other companies in the industry.
Threat of New Entrants
Canada has many companies dealing in oil, gas, and oil serves operating in domestic and foreign oil markets. Although the oil market in Canada has seen a significant number of firms entering the industry, the industry exhibits enough barriers to successful entry and operations of new entrants.
The high initial investment requirements and operating costs in the oil industry scare potential investment of other new firms. Firms that have continued to flourish have demonstrated strong financial base, which remains their effective entry tool.
However, some companies have ended up in mergers with relatively stronger firms to take advantage of their operational strengths while avoiding tendencies of liquidation. A significant number of companies have shut down their operations while others have been acquired.
This trend shows that the oil and gas industry has continued to pose numerous entry and operational challenges (“Oil Sands Industry in Canada, 2011 – Market Analysis, Competitive Landscape and Production Forecasts to 2015” n. p). Similarly, the world’s technological needs have continued to undergo dynamic changes requiring oil firms to adopt post-modern technologies through investment in research and development (R&D).
This often demands vast resource mobilization to take a firm to the next technological level that appeal to the environmental demands. It means that increased costs of acquiring competent staff and constant training burrs some companies to enter and operate.
Power of Suppliers
A study of the Canadian oil and gas industry reveals that although the country has many companies, leading oil and gas business (production and supply) remain under the dictate of few powerful firms.
Literature abounds that although the industry experiences no cutthroat competition, small companies tend to fade out of business because of insufficient resource capacity (“Oil Sands Industry in Canada, 2011 – Market Analysis, Competitive Landscape and Production Forecasts to 2015” n. p).
The large initial and operating capital requirements weed out medium and medium firms dealing in rigs, refining, and pipeline. Therefore, because fewer small firms with little investment capital remain on the market, large companies with expansive capital endowments continue to determine supply trends in the market.
Power of Buyers
Traditionally, the oil industry has majorly been guided by the suppliers of oil and gas products because of pre-existing challenges of entry of other firms in the market. Although the industry survey has shown that fewer and powerful companies enjoy the oligopolistic supply economies, product and services in the oil industry remain similar.
Lack of differentiated products and the availability of substitute products have led to a shift in events. Today, the shift has moved from powerful suppliers toward buyers based on the availability of alternative and similar oil and gas products provided by oil companies. The existing balance of power shows that oil and drilling companies posse little or no difference, which leads to customers negotiating for lower prices and better terms of the transaction and business contracts.
Availability of Substitutes
Oil and gas industry has alternative substitutes, including alternative fuels such as solar power, coal, wind power, nuclear energy, and hydroelectricity. Companies dealing in specialized oil products such as those used in the production of plastics face limited threats of competition. Similarly, companies that deal in general drilling and supply of crude oil have continued to face significant competition from other firms.
Although Canada has stood out as one of the leading countries in the production and supply of crude oil, advances in technology and strategy from the neighboring countries and domestic firms provide huge competitive challenge (“Oil Sands Industry in Canada, 2011 – Market Analysis, Competitive Landscape and Production Forecasts to 2015” n. p).
Competitive Rivalry
The country’ oil and gas industry has continuously recorded significant growth over the past few years. The industry’s greatest challenge is the barriers to exit the industry. Because of the increasing production of crude oil in the country, more refinery firms have emerged out the need to process these products.
Increased levels of competition among leading suppliers of oil and gas have led to a change in strategic marketing and a shift in export destinations. These measures have attempted to loosen the strict competition witnessed by the industry.
Key Success Factors, with trends
Growth of any given industry or sector requires coordination of numerous factors to generate necessary energy for sustainable growth. The ever expanding US and global market have played a significant and motivating role for growth of the oil and gas industry in Canada.
Currently, the US is Canada’s largest market for crude oil accounting for more than 95% of its total exports of crude oil. The consistent growth in the automobile industry in the US has led to incremental demand for oil, and gas products owing to its limited oil and gas resources that remain insufficient to serve its extensive market (“Oil Sands Industry in Canada, 2011 – Market Analysis, Competitive Landscape and Production Forecasts to 2015” n. p).
However, studies indicate that the future of Canada’s oil and gas market in the US has begun to shrink, thus necessitating the need for marketing beyond the US. The recent completion of shale oil production fields means a lot to the future of the oil market created by Canada.
The anticipated increase in US crude oil production shall curtail the future exports from Canada to boost its industry. Thus, the Canadian oil and gas production need to device alternative marketing strategies aimed at sustaining its exports. Similarly, the industry has continued to refocus on domestic marketing aimed at increasing oil and gas demands from within the country (Voyer,Roger, and Canadian Institute for Economic Policy 55).
The Canadian government has staged a strategic support for increased growth in production and sale of its domestic crude oil and gas. This has come in the form of new and supportive legislative policies aimed at encouraging foreign investors to invest in Oil sands projects currently under exploration.
The reduction of entry and participation rules has motivated entry of Asian companies to take part in the exploration, production and processing of oil and gas products. In 2010, the Chinese Petroleum and Chemical Corporation (Sinopec), in collaboration with other dominant oil companies announced an investment of about $100 million in the famous Northern Gateway pipeline, which shall connect the Canadian oil and gas sands to the British Colombia. The connection of these two countries shall facilitate the shipping of the crude oil and gas to Asian and Middle East counties.
Another factor that continues to facilitate continues success of the oil and gas industry is the reduced water requirements because of increased water recycling. In the recent past, Canada has experienced challenges of increased costs of production of crude oil because of insufficient water supplies.
The oil industry has been trying to increase its levels of water recycling coupled with the need for using non-portable water. The Albertan oil sands have recorded a tremendous improvement in water recycling by recycling between 80-95% of its total water used in the oil sands (“Oil Sands Industry in Canada, 2011 – Market Analysis, Competitive Landscape and Production Forecasts to 2015” n. p).
The establishment of projects aimed at providing non-portable water for in situ productions where steam is used is phenomenal in the industry. This innovative method of using non-portable water has accounted for a reduction in water usage by about 200%.
The current water regulation laws established by the Canadian government have spurred increased level of modern technology. An industry forecast that the use of in situ methods in providing water for oil production in Canada’s oil sands will increase by about 11.9% by 2015 (Canadian Association of Petroleum products n. p). Subsequently, increased bitumen recovery because of in situ production methodology shall account for the industry’s overall growth through increased return on investments.
The existing large oil sands have accounted for the increased production and development of oil and gas in Canada. A survey of the Canadian oil industry reveals that about 97% of the country’s recoverable oil reserves lie in oil sands. These significant oil reserves estimated at 176 billion barrels of oil reserves has provided unlimited supply of crude oil (“Oil Sands Industry in Canada, 2011 – Market Analysis, Competitive Landscape and Production Forecasts to 2015” n. p). The constant supply and production of oil and gas products has established Canada as one of the leading oil exporters in the world.
The ever-increasing global oil prices has made it possible for Canada to reap lucratively, and develop its oil sands through modern exploration, extraction and processing of crude oil. Today, the world’s oil demand continues to grow at a faster rate because of increased industrial activities and growth of the automobile industry.
The debates on introduction and usage of alternative energy aimed at reducing world demand, and conservation of the environment have failed to address the continued increase in demand for oil and its products (Voyer,Roger, and Canadian Institute for Economic Policy 55).
The current survey of the oil industry in Canada shows that vast oil reserves consist mainly of oil sands. Industry forecasting indicates that these oil sands shall serve the industry for a considerable length of time (Canadian Association of Petroleum products n. p). The increased consumption of oil and gas in most of its neighboring countries such as US has provided the impetus for developing Canada’s oil industry.
Brief strategic profiles of three selected competitors
Suncor Energy
Suncor is a Canadian based energy company engaged in the acquisition, production, distribution, and marketing of crude oil and gas. Besides the exploration and production of crude oil and gas, the company pursues refinery and transportation of oil and gas, and participates in the marketing of oil and gas products.
The company has engaged in strategic portfolio expansion by taking part in several business lines related to oil and gas products. Therefore, the sustainable growth witnessed by the company has mainly been motivated by its involvement in many portfolios. This has given it a strategic advantage of increased returns as well as gaining a large market share compared to its competitors. The decision of the company to engage in the development of one of the leading petroleum resources called the Athabasca oil sands. The company adopted an expansionist strategy in the domestic and international environment.
The company operates in Canada, Norway, Syria, Trinidad, United Kingdom, US, Libya, and Tobago. Recently, the company completed a number of projects, including successful containment of Colorado petroleum spills Suncor Energy. In 2011, the company adopted a strategic partnership with companies such as General Motors. GE supported the company’s wind project at Ontario (Canadian Association of Petroleum products n. p).
The Canadian Natural Resources Company
The Canadian Natural Resources company is Canadian based company dealing in the exploration, production, and development. According to the Forbes Global magazine in 2000, the Canada ranked number 251 among all companies in the world. The company begun as a small company in Alberta with 9 employees.
Throughout its history, the company adopted strategic expansion plans through acquisitions and mergers with other companies. This strategy has led to the company being one of the highly capitalized oil companies in Canada with over $40 million (Canadian Association of Petroleum products n. p).
Through the concept of strategic expansion, the company invested heavily in research and development with a view of remaining technologically competitive compared to its immediate competitors. The company has also adopted strategic penetration of the market through opening several offices and subsidiary firms in domestic and foreign markets.
Enbridge
Enbridge Inc. operates as a Canadian energy transportation and distribution company. It deals with the collecting, processing, and distribution of gas, and crude oil. The company engages in strategic marketing of oil and gas products. The company has a strong financial base with an estimated second quarter adjusted earnings of about $260 million.
The company’s move to engage in research and development led to the completion of projects significant to its sustainable growth. The company’s investment in human capital has generated sufficient energy for continued growth. In addition to the identified strategies, Enbridge has attempted to navigate the foreign markets through establishing partnership relationships. This step enabled it to access advantages of strategic partnership.
Works Cited
Canadian Association of Petroleum Products. Basic Statistics, 2010. Web.
Canadian Association of Petroleum Products. Responsible Canadian Energy 2010 Progressive Report: Oil Sands, 2010. Web.
Q finance. Oil and Gas Industry. 2010. Web.
Oil Sands Industry in Canada, 2011 – Market Analysis, Competitive Landscape and Production Forecasts to 2015. Web.
PetroStrategies, Inc. International Situation. 2000. Web.
Voyer,Roger, and Canadian Institute for Economic Policy. Offshore oil: opportunities for industrial development and job creation. Toronto: James Lorimer & Company, 1983. Print.