OIL INDUSTRY

1. Oil industry overview
The petroleumindustry includes the global processes of exploration, extraction,
refining, transporting (often by oil tankers and pipelines), and marketing
petroleum products. The largestvolume products of the industry are fuel oil and
gasoline (petrol). Petroleum (oil) is also the raw material for many chemical
products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics.
The industry is usually divided into three major components: upstream,
midstream and downstream. Midstreamoperations are usually included in the
downstreamcategory.
Oil Consumptionacross the world
 Oil accounts for a large percentage of the world’s energy consumption,
ranging from a low of
 32% for Europe and Asia,
 up to a high of 53% for the Middle East. Other geographic regions’
consumptionpatterns are as follows:
 South and Central America(44%),
 Africa(41%), and
 NorthAmerica(40%).
 The UnitedStates consumed25% of the oil produced in 2007
 The worldconsumes 30 billionbarrels (4.8 km³) of oil per year, with
developednations being the largest consumers.. The production,
distribution, refining, andretailing of petroleumtakenas a whole
represents the world's largestindustry interms of dollar value.

2. Consumption by sector
 Transportation 71%
 Industrial22.5%
 Commercial 1.8%
 Residential 3.8%
 Electricity 1%

INDUSTRY STRUCTURE
 The American Petroleum Institutedivides the petroleum industry into five
sectors:[18]
 upstream (exploration, development and production of crudeoil or natural
gas)
 downstream (oil tankers, refiners, retailers and consumers)
 pipeline
 marine
 serviceand supply
 The oil and gas industry is usually divided into three major sectors:
upstream, midstream and downstream.
Upstream
 The upstream oil sector is also commonly known as the exploration and
production (E&P) sector.[1][2][3]
 The upstream sector includes the searching for potential underground or
underwater crudeoil and natural gas fields, drilling of exploratory wells,
and subsequently drilling and operating the wells that recover and bring
the crudeoil and/or raw natural gas to the surface.

3.  With the development of methods for extracting methane from coal
seams,[4]
therehas been a significant shift toward including unconventional
gas as a part of the upstreamsector, and corresponding developments in
liquified natural gas (LNG) processing and transport.
 Most upstreamwork in the oil field or on an oil well is contracted out to
drilling contractors and oil field servicecompanies
Midstream
Midstream operations and processes include the following:
 Gathering: The gathering process employs narrow, low-pressurepipelines
to connect oil- and gas-producing wells to larger, long-haul pipelines or
processing facilities
 Processing/refining: Processing and refining operations turn crudeoil and
gas into marketable products. In thecase of crudeoil, these products
include heating oil, gasoline for use in vehicles, jet fuel, and diesel oil
 Transportation: Oil and gas are transported to processing facilities, and
fromthere to end users, by pipeline, tanker/barge, truck, and rail.
 Storage: Midstreamservice providers providestoragefacilities at terminals
throughoutthe oil and gas distribution systems
Technological applications: Midstreamserviceproviders apply technological
solutions to improve efficiency during midstreamprocesses. Technology can be
used during compression of fuels to ease flow through pipelines; to better detect
leaks in pipelines; and to automate communications for better pipeline and
equipment monitoring
DOWNSTREAM
 The downstreamsector commonly refers to the refining of petroleum
crude oil and the processing and purifying of raw natural gas, as well as the
marketing and distribution of products derived fromcrudeoil and natural

4. gas. The downstreamsector touches consumers through products such as
gasoline or petrol, kerosene, jet fuel, diesel oil, heating oil, fuel oils,
lubricants, waxes, asphalt, natural gas, and liquified petroleum gas (LPG) as
well as hundreds of petrochemicals.
 Midstream operations are often included in the downstreamcategory and
considered to be a part of the downstreamsector.
History of oil industry in india
• Oil struck at Makumnear Margherita in Assamin 1867
• Firstcommercial oil discovery in Digboi in 1889
• Systematic E&P in 1899 after AssamOilCompany formed
• 1947 India’s domestic oilproduction just250,000 tonnes per annum
• 1954 IPR - petroleum to be coresector
• 1955 – ONGCset up
• 1958 - FirstGas & Oil pool discovered in Jwalamukhi(Punjab) and Cambay.
Oil India Limited (OIL) was setup
• Discovery of giant Bombay High field in 1974 –Western offshorehighest
producer
• 1991 – Liberalized petroleum exploitation and exploration policy
• 1991-1994 –4th, 5th, 6th, 7th and 8th Rounds of exploration bidding
• 1999 - New Exploration Licensing Policy (NELP)
• 2000 – NELP II
• 2002 – NELP III
• 2003 – NELP IV
• 2004 – NELP V

5. • 2006 – NELP VI
• 2007 – NELP VII
Short term and long term problemof oil industry
Short term problem
 Lack of transport
 Loss due to evaporation
 Limited suppliers
 Increasing costof production
Long term problem
 Limited reservoir
 Rising demand
 Few substitutes
 Rising price
 Loss during extraction
Industry CompetitiveAnalysis
Porter’s Five Forces framework points out that the state of competition in any
industry depends on five competitive forces:(a).threat of entrants, (b).threat of
substitutes, (c).power of suppliers, (d).power of buyers and (e).rivalry among
industry’s firms. However, a company’s successin an industry depends on how it
is related to that industry and how the industry is structured.
Industry structure(manifested in the five competitive forces) drives competition
and profitability. In order to reveal the roots of an industry’s currentprofitability
and anticipate futuretrends, a company has to understand the underlying causes
of the five competitive forces.
Threat of potential entrants:

6. indicates that new entrants bring with them new capacity and the desire to gain
market share. This desire, Porter suggests, puts pressure on costs, prices and the
rate of investment that is necessary to compete. As he indicates, threat of entry
depends on two factors: the height of entry barriers and the incumbents’ reaction to
new entrants.
the major barriers to entry in the oil and gas industry are:
1. Patents
2. Large capital requirements
3. Economies of scale
4. Governments regulations
5. Productdifferentiation
6. Predatory behavior by cartels
7. Ownership of resources
Threat of substitutes:
Porter distinguishes between rivalry (the fifth force) and substitution (the third
force). The term rivalry describes competition between companies that provide
similar products while substitution refers to products that are not in direct
competition. Substitutes affect the industry through limiting its anticipated profit
by placing a ceiling on price .
With the useof advanced technology, major oil and gas companies are looking for
alternative sources of energy as possible substitutes. For example, in April 2009,
TOTAL formed a partnership with Gevo, a US company developing transportation
biofuels and chemical products.indicates thata substitute’s threat is high when it
offers an attractive price trade-off to the industry’s products or when thebuyer’s
cost of switching to substituteis low. For instance, the Chinese governmentaims
to have biofuels accountfor 15% of its total transportation fuel consumption by
2020, and in comparison, the European Union has set a target of 20% for the
same period. China National Petroleum Corporation is already taking steps to
leverage this expected increasein demand in China and Europe. If biofuels offer
an attractive price trade-off, it would providecompetitive substitutes, thus
threatening crude oil products .
Powerof suppliers:
powerful suppliers affect the market through charging higher prices, limiting
production, and/or integration. the power oil and gas suppliers have over the
industry. Any move by a competitor to influence prices will be followed by
changes in competitors’ strategies. As suppliers, oil and gas companies bring

7. power to the recipient countries through international vertical integration. Cash can
be injected into the refining industry to foster competition and enhance supply
security to consumers. the oil companies balance their operations and protect
themselves from markets instability. For instance, when crude oil price goes down,
the refining and marketing margins would generally be expected to be positive.
Powerof buyers:
Powerful buyers have the ability to reduce prices, demand better quality or more
service (thereby increasing costs)and play industry participants off against each
other, at the expense of industry profitability (Porter 2008). Major oil companies
outsourcemuch of their field operations to oil and gas service companies. As
buyers, oil companies are in a powerful position to bargain prices, demand better
quality or additional service.
Oil and gas companies seek to obtain rights to invest in exploration and production
areas internationally. These rights are acquired through buying a percentage of
another company’s right or through participating in licensing rounds. In this highly
competitive environment, oil and gas companies join together and form a Joint
Venture.
Joint Ventures are formed primarily for three reasons:
1. Gain more market power (buyer)
2. Reduceor share risk
3. Acquire or share information
Rivalryamongstcompetitors:
High rivalry between existing competitors can limit industry profitability
depending on the competition intensity and basis major oil and gas companies are
relatively equal in size, power and capabilities This increases the intensity of
rivalry which can manifest itself in a price war if a competitor tries to influence
prices

8. Future of oil industry
The global oil consumptionwilljump by some 35 percent by the year 2030,
according totheInternationalEnergyAgency, a leading globalenergy
forecaster for the United Statesand other developed nations. For producers
it will meansomehow finding and pumping anadditional11 billionbarrels
of oil every year. And that’sonly 22 years away, a heartbeat for the
petroleum industry, where the paceof finding and tapping new suppliesis
measured in decades
The pursuit of oil will be just part of the energy challenge. The world’s total
energy demand — including oil, coal, naturalgas, nuclear power, as well as
renewableenergy sources like wind, solar and hydro power — is set to rise
by 65 percent over the next two decades, accordingtothe I.E.A. But

9. petroleum, the dominant fuel of the 20th century, will remainthe top
energy source. It accountsfor more thana third of the world’s totalenergy
needs, ahead of coal and naturalgas. Refined intogasoline, kerosene or
diesel fuel, oil has no viablesubstituteasa transportationfuel, and that is
not likely to changemuch in the next 30 years.
The problem is that no one can say for sure where all this oil is going to
come from.
That might not sound like such a bad thing for those concerned about
carbonemissionsand climatechange. High pricesmight end up forcing
people to conserve and encouragethedevelopment of alternatives. But the
energy crunch might alsoresult in a global scramblefor resources, energy
wars, and much higher energy prices.
At the same time, major oil companieslike Exxon
Mobil, BP and Chevron are finding it harder to competeworldwide, as
nationaloil companieserodetheir once-dominant positions. Fourteenof
the world’s Top 20 oil companiesarestate-owned giants, likeSaudi Aramco
and Russia’s Gazprom. That leaves Westernoil companiesincontrol of less
than10 percent of the world’s oil and gas reserves.
Facing higher costs, those companiesarealso having greater difficulty
locating new oil deposits. Despitespending over $100 billionon
explorationlast year, the five largest internationaloil companiesfound less
oil last year thanthey pumped out of the ground.
What of the alternatives?
Corn ethanol, which was sold as a quickfix to the nation’s dependencyon
oil imports, is an imperfect substitute. It is now blamed for driving up food
prices while emitting morecarbondioxideand providing a third less energy
per gallon thangasoline.
It is no panacea either. Even if oil companiescanmeet the federal
requirement touse 36 billion gallons of ethanol by 2022, which manysay
will be impossible, it would only amount to10 percent of the country’s
current oil demand.

10. Likewise, the rush to develop heavy oil, tar sands and shale oil reserves, and
investmentsto turncoal into liquid fuels, like diesel, will yield only small
amountsof fuel. But their cost to theenvironment will be much higher than
the exploitationofconventionaloil.
“The countryhas been living beyond its means,” said VaclavSmil, a
prominent energyexpert at the University of Manitoba. “Thesituationis
dire. We need to do relativesacrifices. But people don’t realize how direthe
situationis.”