A marketing report on the Oil and Gas Sector
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Canada’s oil and gas sector is among the largest globally and a core sector in the country’s economy. With the vast crude oil reserves as well as natural gas reserves that Canada has, the country is a prime location for investing in the energy sector. Shell Canada realizes the importance of the oil and gas supply chain to the nation and its impacts not only economically but also environmentally. It is for similar reasons that the company considers participating in such a conference mandatory and essential. As a representative of Shell Canada, the following report is a representation of the company’s views and recommendations in the operating and marketing of Canada’s oil and gas.
It is important to first identify the type of market structure that Canada’s petroleum market operates under. There are basically four types of market structures. One is the monopoly market, whereby a sole organization controls the whole market. Such a market structure does not provide consumers other options, and the organization is the dominating market power. One key advantage of monopolies is that stakeholders are free to adjust prices as they face no competition. However, monopolies are also problematic as they lead to lower outputs and face strict regulations from governments. Oligopoly is also another market structure which comprises of few organizations dominating a market. It limits competition as the companies can even choose to collaborate. Similarly to a monopoly market, a key benefit of an oligopolistic market is that firms dictate prices of products, and its disadvantage is stringent rules in operating the market. Another market structure is a perfect competition, which entails many organizations competing in a common market. Perfect competition distributes market power to many small firms (Zeder, 2020). One advantage of perfect competition to stakeholders is the equal opportunity to penetrate the market and win customers. A key disadvantage is a high competition from others providing similar products. The Monopolistic market structure, on the other hand, involves majority of small firms offering similar products but slightly unique. A monopolistic market is an advantage to stakeholders as it gives them a certain degree to control the prices of their unique products. It is, however, problematic for a business if consumers prefer an alternative product. The Canadian petroleum market is oligopolistic in nature since only a few major companies with extensive resources operate Canada’s oil and gas sector. These firms hence have the power to control the country’s oil market.
Firms are organized differently depending on the type of business. A sole proprietorship is one that an individual owns and runs the organization. Sole proprietorship stands out from the other business forms in that the decisions of the entire business are made by the owner. Partnerships are businesses that are owned by more than one individual and share its liabilities and profits. Partnerships are different from a sole proprietorship in that they are less costly to establish. Corporations are considered a sole entity eligible for taxation as the personal income of the business. For corporations, the income gained by shareholders is subject to further taxation. Limited companies, on the other hand, are somewhat the same as partnerships as they limit the liabilities to owners while offering income benefits of partnerships (Rifkind Patrick LLC, 2015). A key contrast of limited companies is that they combine the benefits of corporations and partnerships. A multinational corporation is a firm with assets and facilities in other nations beyond its home country. Shell is a multinational petroleum company as it has extensive factories and markets worldwide.
One of the recent innovations being applied in the petroleum sector is platform-less drilling. It involves subsea compressing systems that see the majority of construction equipment set-up on the seabed (Wallwork, 2014). The subsea systems will minimize the operating costs of operating an above surface oil rig and increases production. Another emergent technology in the oil and gas sector is the integration of robotics. Advanced robotics assist in the heavy lifting out of oil rigs and are also used in patrolling offshore installations. These robotics have been beneficial in reducing labor and costs for inspecting and repairing underground pipelines. A range of regulatory measures in the petroleum sector are applied by governments of different countries. These regulations impact the gas and oil sector differently. Environmental regulations are among the policies set by governments in managing petroleum marketing and drilling. USA’s Clean Air Act, for example, aims to minimize greenhouse emissions by 95 percent for volatile organic compounds. The act requires operators to apply measures in capturing natural gas escaping into the air, which is usually emitted as waste. Another national regulatory policy is petrol, and natural gas companies need to notify the EPA prior to completing a new hydraulically-fractured well (Investopedia, 2020). Health and safety regulations are also a measure implemented in the petroleum sector to safeguard workers. One such regulation, as stipulated under the Occupational Health and Safety Administration safety standards, states that workers have to stand at safe distances while power tongs are used in drilling. The safety regulations lead to a reduction in job-related injuries and deaths of workers.
The privatization process of Petro-Canada began in 1990 after the government announced its intent to sell the state-owned enterprise. The first shares of Petro-Canada’s stocks were sold at $13 each. The government gradually sold its majority control, retaining only a 19 percent stake in the company (Pratt, 2013). Initially, no entity could own more than 10 percent of the company’s shares, and foreigners could also not own over 25 percent of Petro-Canada. Eventually, Suncor Energy acquired Petro-Canada in 2009. As a result of the purchase, Suncor had to divest several of its retail outlets.
The black market for oil leads to losses to both companies in the energy sector as well as governments. Organized crime, which propels these black markets of petroleum, results in refineries recording less productivity and outputs. Nigeria, for example, hosts large oil reserves, which account for the nation’s 95 percent export earnings. The country’s oil industry is, however, clouded with organized crime through militant groups who usually control pipelines in regions that they dominate. Illegal tapping and vandalism have led to a loss of revenue of about $4.4 billion annually for Nigeria’s oil firms and the government (Rexer, 2019). Additionally, the activities of these criminal syndicates contribute to environmental pollution and account for over 70 percent of the total oil spills experienced.
For the larger parts of Canada, gas prices increase as long weekends draw near. One of the reasons for the spike is that retailers take the opportunity to increase prices as they are usually operating on razor-thin margins. A key reason why the price increases are because refineries have to close to switch to more environmentally- friendly gasoline (KOHUT, 2017). Gasoline sold during winter is different from the one on sale during the summer. Summer-grade fuel is more expensive and leads to price hikes for consumers. Resultantly, the increase in gas price impacts consumers as they have to adjust their household budgets.
Oil companies are heavily investing in renewable energy sources as efforts towards environmental sustainability and protection. Despite such ventures proving to be less profitable both in the short and medium-term due to the high costs in their current methods of operations, oil companies are still increasing investments in terms of capital and diversifying the portfolio of renewable energy sources (Schweitzer, 2016). This indicates that stakeholders in the oil industry support environmental protection to the company’s profits.
Governments of different nations are promoting the growth of environmental-friendly energies. Some of the green innovation policies implemented by different countries are Australia’s Renewable energy Agency, which invests in commercializing and deploying renewable energy as well as energy technologies that release fewer pollutants. Also, the Canadian government directly funds and offers tax breaks for clean energy through the Clean Energy Fund as well as the Sustainable Development Technology Canada Programme. In Brazil, the Growth Acceleration program dedicates USD 67.4 billion to enhancing renewable energy sources such as wind and solar power (G20 Summit, 2012). Such government initiatives are forcing petroleum firms to diversify into renewable and environmental-friendly energies. Shell Canada, for example, is integrating renewable energy sources under its products portfolio.
Oil and gas are commonly transported through pipelines in Canada. One of the key benefits of transporting through pipelines is that they are highly reliable as they have no obstacles like rail and road transport. Also, pipelines are efficient in supplying to remote regions where roads are impassable and are a safe and secure method of supplying petroleum and its products (Sahu, 2016). Transporting oil through pipelines can, however, be costly if any leakages arise which lead to wastage. Additionally, patrolling and maintaining oil pipelines is tasking and expensive.
In summary, the gas and oil sector forms an essential part of Canada’s economy as well as other nations globally. As the call for sustainable energy sources and environmental protection increases, oil companies are forced to adjust their practices and policies. It is important for major oil companies to collaborate to develop policies that seek to enhance environmentally-friendly energies and their products while still improving their bottom line. Through government-supported initiatives and organizations in the energy sector coming together, the oil and gas market will improve to meet demands while still upholding environmentally friendly standards.
References
G20 Summit. (2012, June 19). INCORPORATING GREEN GROWTH AND SUSTAINABLE DEVELOPMENT POLICIES INTO STRUCTURAL REFORM AGENDAS. Retrieved from The United Nations: https://www.oecd.org/g20/topics/energy-environment-green-growth/G20_report_on_GG_and_SD_final.pdf
Investopedia. (2020, January 19). How do Government Regulations Impact the Oil and Gas Drilling Sector? Retrieved from Investopedia: https://www.investopedia.com/ask/answers/012715/how-does-government-regulation-impact-oil-gas-drilling-sector.asp
KOHUT, T. (2017). Reality Check: Do gas prices spike ahead of long weekends? Retrieved from GLOBAL NEWS: https://globalnews.ca/news/3458397/gas-prices-long-weekend/
Pratt, S. Y. (2013, December 16). Petro-Canada. Retrieved from The Canadian Encyclopedia: https://www.thecanadianencyclopedia.ca/en/article/petro-canada
Rexer, J. (2019, March 05). Organized Crime and Environmental Externalities in Nigeria’s Oil Sector. Retrieved from Kleinman Center for Energy Policy: https://kleinmanenergy.upenn.edu/policy-digests/black-market-crude
Rifkind Patrick LLC. (2015, November 02). The 4 Major Business Organization Forms. Retrieved from Rifkind Patrick LLC: https://www.rifkindpatrick.com/Blog/2015/November/The-4-Major-Business-Organization-Forms.aspx
Sahu, A. (2016, May). What are the advantages and disadvantages of pipeline transportation? Retrieved from Quora: https://www.quora.com/What-are-the-advantages-and-disadvantages-of-pipeline-transportation
Schweitzer, D. (2016). Oil Companies and Sustainability: More than Just an Image? Retrieved from Deepblue: https://deepblue.lib.umich.edu/bitstream/handle/2027.42/77607/dschwei.pdf
Wallwork, L. (2014, September 05). The top 5 emerging technologies in oil and gas. Retrieved from Multibriefs: https://exclusive.multibriefs.com/content/the-top-5-emerging-technologies-in-oil-and-gas/natural-resources
Zeder, R. (2020, January 31). The Four Types of Market Structures. Retrieved from Quickonomics: https://quickonomics.com/market-structures/