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1. The global Petroleum Refining Industry is very dynamic. As the economies of the developing
countries continue to strengthen and new sources of crude oil emerge, grassroot refinery
projects are being continually planned and upgrades, revamps, and retrofits for the existing
refineries are increasingly frequent. This emerges as business potential for L&T Heavy
Engineering (RCOG) SBU.
This report will allow L&T Heavy Engineering (RCOG) SBU to target actionable project
spending opportunities and analyse project spending and market trends geographically.
2. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 2 | P a g e
IDENTIFY BUSINESS POTENTIAL AND STRATEGY
FOR L&T HEAVY ENGINEERING - REFINERY,
CRACKER, OIL & GAS AND GASIFICATION(RCOG)
SBU IN MENA, EUROPE & USA REGION
Larsen & Toubro, Heavy Engineering, Hazira
Submitted by:
Rajendra Panigrahi
Indian Institute of Management Rohtak
(April 2018 – May 2018)
3. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 3 | P a g e
TIAL AND STRATEGY FOR L&T HEAVY
ENGINEERING - REFINERY, CRACKER, OIL & GAS
AND GASIFICATION(RCOG) SBU IN MENA,
EUROPE & USA REGION
Larsen & Toubro, Heavy Engineering, Hazira
Submitted by:
Rajendra Panigrahi
Indian Institute of Management Rohtak
(April 2018 – May 2018)
4. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 4 | P a g e
CERTIFICATE FROM THE COMPANY/ORGANIZATION
This is to certify that Mr. Rajendra J Panigrahi, pursuing Post-
Graduate Diploma in Management from Indian Institute of
Management, Rohtak has successfully completed the Project Report
in our organization on the topic titled, “Identify business potential
and strategy for L&T Heavy Engineering in MENA, Europe & USA
region” from 5th April to 31st May 2018.
The matter embodied in this project has requisite standard and to the
best of our knowledge no part of it has been reproduced from any
other project, monograph, report or book.
During his project tenure in the organization/company, we found him
hard working, sincere and diligent person and his behaviour and
conduct was good. We wish him all the best for his future endeavours.
_______________________
MILAN RASKAPOORWALA
Asst. General Manager
L&T, Heavy Engineering, Hazira
5. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 5 | P a g e
DECLARATION BY THE STUDENT
I, Rajendra Panigrahi, student of Indian Institute of Management
Rohtak hereby solemnly declare that the project entitled “Identify
business potential and strategy for L&T Heavy Engineering in MENA,
Europe & USA region” is my original project. All the information, facts
and figures are based on my literature research, interviews of the
employees and the insights gained during my summer internship
programme.
Date:
Place: Hazira _____________________
ACKNOWLEDGEMENT
6. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 6 | P a g e
The satiation and euphoria that accompany the successful completion
of the project would be incomplete without the mention of the people
who made it possible.
I would like to take the opportunity to thank and express my deep
sense of gratitude to my corporate project mentor Mr. XXX and my
project buddy Mr. XXX. I am greatly indebted to both of them for
providing their valuable guidance at all stages of the study, their
advice, constructive suggestions, positive and supportive attitude and
continuous encouragement, without which it would have not been
possible to complete the project.
I would also like to thank Mr. XXX (Country Manager) who in spite of
busy schedule has co-operated with me continuously and indeed, his
valuable contribution and guidance have been certainly indispensable
for my project work.
I am thankful to Mr. XXX for giving me the opportunity to work with
Abbott India Ltd. and learn.
I owe my wholehearted thanks and appreciation to the marketing
team and entire staff of the company for their cooperation and
assistance during the course of my project.
I hope that I can build upon the experience and knowledge that I have
gained and make a valuable contribution towards this industry in
coming future.
PROJECT TIMELINES
7. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 7 | P a g e
ABSTARCT
Week 1
(05-07)
Week 2
(9-14)
Week 3
(16-21)
Week 4
(23-28)
Week 5
(30-05)
Week 6
(07-12)
Week 7
(14-19)
Week 8
(21-26)
Week 9
(28-31)
T F S MT W T F S MT W T F S MT W T F S MT W T F S MT W T F S MT W T F S MT W T F S MT W
1 Induction Programme at LDA
2 Induction at L&T HED, Hazira
HR Formalities
Safety Training
Project Assignment
3 Study of L&T HED Bussiness
Product Catalogue Study
Plant Visit
Capacity Study
4 Market Study for HE Projects (MENA, Europe and USA)
Market Analysis
Upcoming Projects
5 MID REVIEW
6 Market potential and Business opportunities
Capacity Study
Timelines
Risks Involved
7 Competitor Analysis
Areawise/Projectwise competitor
Competitors capacity analysis
Competencies of competitior
8 B2B Marketing strategy
9 Recommendations
10 Deliverables Approval and Sign Off
11 FINAL REVIEW
Apr-18 May-18
Sr. No. Task
8. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 8 | P a g e
TABLE OF CONTENTS
9. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 9 | P a g e
LIST OF TABLES
LIST OF FIGURES
LIST OF APPENDICES
LIST OF ABBREVATIONS
1. BusinessProblem:ProbSta,Background,Object,Methodo,Benefits
2. IntroductiontoL&T: L&T, HE, Manu Facilituies,CapacityStudy,ProdPortfoilo
3. Introductiontoall regions:Introductiontoall,PESTanalysis,Hofstede
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4. Market analysis:ShortTermSecAnal,Long TermSec Anal,Market Anal
CHAPTER 1
INTRODUCTION TO L&T
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ENTIRE L&T
Larsen & Toubro Limited is a $17 billion, technology, engineering, manufacturing and
construction company. It was founded in 1938 by two Danish Engineers, Henning Holck
Larsen and Soren Kristian Toubro who built a world-class organization that is professionally
managed and a leader in India's engineering and construction industry.
Together, Holck-Larsen and Toubro, founded the partnership firm of L&T in 1938, which was
converted into a limited company on February 7, 1946. Today, this has metamorphosed into
one of India's biggest success stories. The company has grown from humble origins to a
large conglomerate spanning engineering and construction.
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L&T’s businesses include Hydrocarbon, Heavy Engineering, Buildings & Factories,
Infrastructure, Power, Electrical & Automation, Machinery & Industrial Products and IT &
Technology Services. L&T is engaged in core, high impact sectors of the economy and their
integrated capabilities span the entire spectrum of ‘design to deliver’.
L&T HEAVY ENGINEERING
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L&T Heavy Engineering manufactures and supplies custom designed equipment & critical
piping solutions to process industries such as fertilizer, chemical, refinery, petrochemical,
and oil & gas, as well as to sectors such as thermal & nuclear power.
L&T Heavy Engineering has state-of-the-art manufacturing facilities which are capable of
meeting the challenges of technology, quality conformance & timely delivery. The division
operates at the upper end of the technology spectrum and has been at the forefront of
introducing new processes, products and materials into manufacturing sector, for over six
decades.
Manufacturing & FabricationFacilities
Hazira Manufacturing Complex, Surat
This globally-benchmarked, state-of-
the-art, fully-integrated manufacturing
facility has mega construction
capabilities and captive ‘Load-on’ and
‘RO-RO’ jetties. The facility has
delivered some of the most complex
equipment for global customers, and
provided PHWR steam generators, end
shields and fast breeder reactor vessels
for Indian nuclear power plants.
Powai, Mumbai
L&T’s nodal complex was the first
manufacturing plant of L&T Heavy
Engineering, with the track record of
manufacturing heat-transfer
equipment and aerospace motor
segments that have set industry
benchmarks.
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Vadodara Heavy Engineering Works
L&T’s nodal complex was the first
manufacturing plant of L&T Heavy
Engineering, with the track record of
manufacturing heat-transfer
equipment and aerospace motor
segments that have set industry
benchmarks.
CAPACITY TABLE
Business portfolio
The entire Business portfolio of L&T Heavy Engineering is as shown in the below figure:
15. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 15 | P a g e
The RCOG divisionof HeavyEngineeringcustom-designs,fabricatesandintegratesengineered-to-
ordercritical equipmentandpipingsolutionsmainlyforoil andgasplant andpetroleumrefineries.
The product portfolioof L&T HeavyEngineering,RCOG mainly consistsof the followingproducts:
1. ARDS & HydrocrackerReactors
2. FCC Reactors/Regenerators
3. Coke drums
4. Heat exchangers
5. Separators
6. Gasifiers
7. Pressure Vessels
8. Tubularreactors
9. Modification,RevampandUpgradation
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17. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 17 | P a g e
INTRODUCTION TO MENA, EUROPE AND USA REGION
The followingfigure depicts MENA(Middle Eastand North Africa), Europe and USA regionin World
map:
MENA:
CHAPTER 2
INTRODUCTION TO
MENA, EUROPE & USA
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The Middle East and NorthAfrica(MENA) isa regionencompassingapproximately22countriesin
the Middle East andNorth Africa.The MENA regionaccountsfor approximately6% of the world's
population,60%of the world'soil reservesand45% of the world'snatural gas reserves.Due tothe
region'ssubstantial petroleumandnatural gasreserves,MENA isan importantsource of global
economicstability. The MENA regionmakesupabout$3.3 trilliondollarsinGrossDomesticProduct
everyyear,whichsurmountstoabout4.5% of the world’sGDP.Although onlyasmall percentage of
the world’sGDP,the regionalsohas a relativelysmall population.The vastmajorityof people inthe
MENA regionlive inmiddle-income countries.
While there isnostandardizedlistof whichcountriesare includedinthe MENA region,the term
typicallyincludesthe areafromMorocco innorthwestAfricatoIran in southwestAsiaanddownto
Sudanin Africa.The followingcountriesare typicallyincludedinMENA:Algeria,Bahrain,Djibouti,
Egypt,Iran, Iraq,Israel,Jordan,Kuwait,Lebanon,Libya,Malta,Morocco,Oman,Qatar, Saudi Arabia,
Syria,Tunisia,UnitedArabEmirates,WestBankandGaza, andYemen.EthiopiaandSudanare
sometimesincluded.
Europe:
The Europeancontinentencompassesapproximately50countriesinthe easternhemisphere
betweenAsiaandthe AtlanticOcean.Europe coversabout10,180,000 square kilometres(3,930,000
sq mi),or2% of the Earth's surface (6.8%of landarea).Europe had a total populationof about741
million(about11%of worldpopulation) as of 2016, but ingeneral itspeople are welleducatedand
highlyskilled.Europe alsosupportshighdensitiesof population,concentratedinurban-industrial
regions.
As a continent,the economyof Europe iscurrentlythe largestonEarthand it isthe richestregionas
measuredbyassetsundermanagementwithover$32.7 trillioncomparedtoNorthAmerica's$27.1
trillionin2008.In 2009 Europe remainedthe wealthiestregion.Its$37.1 trillioninassetsunder
managementrepresentedone-thirdof the world'swealth.Itwasone of several regionswhere
wealthsurpasseditspre-crisisyear-endpeak.Aswithothercontinents,Europe hasalarge variation
of wealthamongitscountries.The richerstatestendtobe inthe West;some of the Central and
EasternEuropeaneconomiesare still emergingfromthe collapse of the SovietUnionandthe
breakupof Yugoslavia.Asa whole,Europe'sGDPpercapitais US$21,767 accordingto a 2016
International MonetaryFundassessment.
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The EuropeanUnion (EU) is a group of 28 countriesEuropeancountriesthatoperatesasa cohesive
economicandpolitical block.Nineteenof the countriesuse the euroastheirofficial currency.The
EU grewout of a desire toforma single Europeanpolitical entitytoendthe centuriesof warfare
amongEuropeancountriesthatculminatedwithWorldWarII and decimatedmuchof the continent.
The EuropeanSingle Marketwasestablishedby12 countriesin1993 to ensure the so-calledfour
freedoms:the movementof goods,services,people andmoney.
USA:
The UnitedStatesof America(USA),commonlyknownasthe UnitedStates(U.S.) orAmerica,isa
federal republiccomposedof 50states,a federal district,fivemajorself-governingterritories,and
variouspossessions.At3.8 millionsquare miles(9.8millionkm2) andwithover325 millionpeople,
the UnitedStatesisthe world'sthird- orfourth-largestcountrybytotal areaand the third-most
populouscountry.
The UnitedStatesis a highlydevelopedcountry,withthe world'slargesteconomybynominal GDP
and second-largesteconomybyPPP,accountingforapproximatelyaquarterof global GDP.The U.S.
economyislargelypost-industrial,characterizedbythe dominance of servicesandknowledge-based
activities,althoughthe manufacturingsectorremainsthe second-largestinthe world.The United
Statesisthe world'slargestimporterandthe secondlargestexporterof goods.Thoughits
populationisonly4.3%of the worldtotal,the U.S.holds33.4% of the total wealthinthe world,the
largestshare of global wealthconcentratedinasingle country.The UnitedStatesranksamongthe
highestnationsinseveral measuresof socioeconomicperformance,includingaverage wage,human
development,percapitaGDP,and productivityperperson.The U.S.isthe foremostmilitarypower
20. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 20 | P a g e
inthe world,makingupa thirdof global militaryspending,andisaleadingpolitical,cultural,and
scientificforce internationally.
The UnitedStateshas a capitalistmixedeconomywhichisfuelledbyabundantnatural resources
and highproductivity.Accordingtothe International MonetaryFund,the U.S.GDPof $16.8 trillion
constitutes24%of the gross worldproductat marketexchange ratesandover19% of the gross
worldproductat purchasingpowerparity(PPP).The nominal GDPof the U.S. isestimatedtobe
$17.528 trillionasof 2014. The UnitedStatesisthe largestimporterof goodsand second-largest
exporter,thoughexportspercapitaare relativelylow.In2010, the total U.S. trade deficitwas$635
billion.The United Statesisthe largestproducerof oil inthe world,aswell asitssecond-largest
importer.
PEST ANALYSIS
The oil and gas industry is expected to continue its slow recovery as upstream
companies increase production, helping the midstream and services businesses as well.
This has a very positive effect on the future business potential for L&T HeavyEngineering,
RCOG SBU. For thisto happen,itisveryessential tofocusonthe correct regionsandcorrect
projects.Toanalyse the marketholistically, PESTanalysishasbeenone of the mosteffectivetools
usedinmarkets.
POLITICAL
Governmenttype andstability,freedomof press,rule of law,levelsof bureaucracy &corruption,
regulationandde-regulationtrends, socialandemploymentlegislation, tax policyandtrade & tariff
controls, likelychangesinthe politicalenvironment andmanyotherfactorstogethercontributesto
the political environmentof the nation.
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The Worldwide Governance Indicators(WGI) indexreportsaggregate andindividualgovernance
indicatorsforsix differentdimensionsof governance.
http://info.worldbank.org/governance/WGI/#reports
From the above figure,itisquite evidentthatthe Politicalstabilityin the MENA regioncanbe a
concernfrom the businessoutlook.Hence appropriatecontingenciesshouldbe takeninto
considerationwhile designingthe businessstrategy.
ECONOMIC
Current& projectedeconomicgrowth,e.g.GDP/GNP growth,inflation&interest rates,
unemploymentandlaborsupply,laborcosts,levelsof disposable income &income distribution,
impactof globalization,likelyimpactof technological orotherchange onthe economyare some of
the factors that derivesthe economicstandpointof an economy.
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SOCIAL
Populationgrowthrate andage profile,populationhealth,education&social mobility,andattitudes
to these,populationemploymentpatterns,jobmarketfreedom&attitudestowork,pressattitudes,
publicopinion,socialattitudes& social taboos,lifestylechoicesandattitudestothese,socio-cultural
changes,healthconsciousnessandothersimilarfactorsshapesthe social outlookof aneconomy.
From the above table itcan be interpretedthatthe standardof livingandeconomicdisparityvaryto
a veylarge extentfromcountryto countrywithinEurope andMENA region.
TECHNOLOGY
Impact of emergingtechnologies,impactof internet,reductionincommunicationcosts&increased
remote working,research&development(R&D) activity, impactof technologytransfer,degreeof
automationandthe rate of technological change determinesthe technological advancementa
regionismaking.
All suchtechnological advancementswillleadto,
1. More demandforlighterdistillate products
2. Stringentenvironmental regulations
3. Improve refiningmarginbyHeavyOil Cracking
4. Adoptionof Energysavingtechnology
The Global InnovationIndex (GII) isanannual rankingof countriesbytheircapacityfor,andsuccess
in,innovation.
https://www.globalinnovationindex.org/analysis-indicator
Overview India USA Europe MENA
GDP $2.848 trillion $18.624 trillion $11.886 trillion $3.145 trillion
GDP Growth Rate 7% 3% 0.6 % 5%
GDP per capita PPP 6093 USD 53272 USD 38235 USD 19515.40 USD
Unemployment Rate 5% 4% 8.5 % 22%
Inflation Rate 4.28% 2% 1.3 % 4%
Interest Rate 6 % 2% 0% 3% - 18%
Overview India USA Europe MENA
Population 1299 Million 326 Million 341 Million 381 Million
Unemployment Rate 5% 4% 8.5 % 22%
GINI index 33.9 40 41.20-25.50 41.40-29.00
Human Development Index 0.624 0.92 0.949-0.802 0.490-0.847
Overview India USA Europe MENA
Global Innovation Index 35.5 61.4 67.7- 30.2 53.9- 15.6
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https://www.hofstede-insights.com/product/compare-countries/
HOFSTEDE'S CULTURAL DIMENSIONS
POWER DISTANCE (PD)
Thisdimensionexpressesthe degree towhichthe lesspowerfulmembersof asocietyacceptand
expectthatpowerisdistributedunequally.The fundamental issuehere ishow asocietyhandles
inequalitiesamongpeople.
People insocietiesexhibitingalarge degree of PowerDistance acceptahierarchical orderinwhich
everybodyhasaplace and whichneedsnofurtherjustification.Insocietieswithlow PowerDistance,
people strive toequalise the distributionof poweranddemandjustificationforinequalitiesof
power.
From above,we canderive thatMENA regionpredominantlyhasaveryhierarchical structure in
theirsocieties.
INDIVIDUALISM(IDV)
The highside of this dimension,calledIndividualism,canbe definedas apreference foraloosely-
knitsocial frameworkinwhichindividualsare expectedtotake care of onlythemselvesandtheir
immediate families.
Its opposite,Collectivism,representsapreference foratightly-knitframeworkinsocietyinwhich
individualscanexpecttheirrelativesormembersof aparticular ingroup to lookafterthemin
exchange forunquestioningloyalty.A society’spositiononthisdimensionisreflectedinwhether
people’sself-image isdefinedintermsof “I” or “we.”
From above,itcan be concludedthat people inUSA are predominantly Individualisticinnature.
MASCULINITY (MAS)
Europe India MENA USA
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The Masculinityside of thisdimensionrepresentsapreference insocietyforachievement,heroism,
assertiveness,andmaterial rewardsforsuccess. Societyatlarge ismore competitive.Itsopposite,
Femininity,standsforapreference forcooperation,modesty,caringforthe weakandqualityof life.
Societyatlarge ismore consensus-oriented.
In the businesscontextMasculinityversusFemininityis sometimesalsorelatedtoas“toughversus
tender”cultures.
From above,we canconclude that all the societiesare almostequallymasculineinnature.
UNCERTAINTYAVOIDANCE (UA)
The UncertaintyAvoidance dimensionexpressesthe degree towhichthe membersof asocietyfeel
uncomfortable withuncertaintyandambiguity.The fundamentalissue hereishow asocietydeals
withthe fact that the future can neverbe known:shouldwe tryto control the future or justletit
happen?
CountriesexhibitingstrongUAImaintainrigidcodesof beliefandbehaviour,andare intolerantof
unorthodox behaviourandideas.WeakUAIsocietiesmaintainamore relaxedattitude inwhich
practice countsmore thanprinciples.
Europeanregionscoresthe highestinUncertaintyAvoidance parameter.
LONG TERM ORIENTATION (LTO)
Everysocietyhasto maintainsome linkswithitsownpastwhile dealingwiththe challengesof the
presentandthe future.Societiesprioritizethese twoexistential goalsdifferently.
Societieswhoscore lowonthisdimension,forexample,prefertomaintaintime-honouredtraditions
and normswhile viewingsocietal change withsuspicion.Those withaculture whichscoreshigh,on
the otherhand,take a more pragmatic approach:theyencourage thriftandefforts inmodern
educationasa way to prepare forthe future.
From above,itcan be concludedthatpeople inEurope regionare predominantlylongtermoriented
innature.
INDULGENCE(IND)
Indulgence standsforasocietythatallowsrelativelyfree gratification of basicandnatural human
drivesrelatedtoenjoyinglifeandhavingfun.Restraintstandsforasocietythatsuppresses
gratificationof needsandregulatesitbymeansof strict social norms.
USA ranks the highestinnthisparameter
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GLOBAL ECONOMICOUTLOOK
The economicoutlooklooks “Nottoo Hot…Nottoo Cold”for the upcomingyeari.e.2018.
The cyclical upswing underway since mid-2016
has continued to strengthen. Some 120
economies, accounting for three quarters of
world GDP, have seen a pickup in growth in
year-on-year terms in 2017, the broadest
synchronizedglobal growthupsurgesince 2010.
Among advanced economies, growth in the
thirdquarterof 2017 washigherthanprojected
in the fall, notably in Germany, Japan, Korea,
and the United States. Key emerging market
and developing economies, including Brazil,
China, and South Africa, also posted third-
quartergrowth strongerthan the fall forecasts.
High-frequency hard data and sentiment
indicators point to a continuation of strong
momentum in the fourth quarter. World trade
hasgrownstronglyinrecentmonths,supported
by a pickup in investment, particularly among
advanced economies, and increased
manufacturing output in Asia in the run up to
the launch of new smartphone models.
Purchasing managers’ indices indicate firm
manufacturing activity ahead, consistent with
strongconsumerconfidencepointingtohealthy
final demand.
CHAPTER 4
SECTOR ANALYSIS
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Some of the importantpointsrelatedtooil andgasindustrythatcan be derivedfromthe economic
activitiesin2017 were asfollows:
1. 2017 was a yearof buildingonstructural change andpolicyreform.
2. ‘Goldilocks’economyencounteredmodestbutsteadygrowth.Theyobservedrisingasset
pricesand lowinflation.
3. There were healthyupstreamanddownstreaminvestmentsinoil andgasrelatedprojects.
4. Crude price rebalancing.
5. Global trade rebounded.
Some of the global marketdriversandmarketconstraintsare as follows:
The global Petroleum Refining Industry is very dynamic. As the economies of the developing
countries continue to strengthen and new sources of crude oil emerge, grassroot refinery
projects are being continually planned and upgrades, revamps, and retrofits for the existing
refineries are increasingly frequent. This emerges as business potential for L&T Heavy
Engineering (RCOG) SBU.
SECTOR ANALYSIS
SHORTTERM ANALYSIS
CRUDE PRICEEXPECTATION IN 2018
The Oil & Gas industry isfacingseveral challengesincludingglobal economicuncertainty;
overcomingcurrentmarket cycle;geopolitical dynamics;buildinginvestorconfidence,restoring
investment;adoptingtechnologyforefficientexplorationandproduction;andenvironmental and
sustainable development.Also,the stance of OPEConoil production andUS producers’increase in
production tokeep priceslow are some of the keyfactorsthat will determine the directionof oil
pricesinnear future.
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Oil price showedlessvolatilityin2017, presentedrisingsignsprimarilyowingtoproductioncuts.
Slowdemandgrowthcoupledwithsupplyincreasesinthe UnitedStates,Brazil,Iran,Libya,and
Nigeriahave,asyet,limitedthe pace of a returnto marketequilibrium. The Oil &gasindustryin
2018 receivedstimulusthroughupwardoil andgasprice correctionsresultinginrenewedinterestin
upstreaminvestment.
Moody's andS&P predictaverage oil price tobe around $55 per barrel,whereasGoldmanSachsand
CreditSuisse are predictingBrentprice tobe $62 and $60 perbarrel in2018.
Some of the reasonsforthe rise inoil pricesare as follows:
1. The oil cartel,OPEC,ledby Saudi Arabia,and10 non-OPECoil producersledbyRussia,
agreedto extendtheircollective crude productioncutof 1.8 millionbarrelsperday(bpd)
beyondMarch 2018 nextyearto December. OPECandRussiatogetherproduce over40
percentof global oil.
2. Saudi Arabiaisin an efforttoboostoil prices,as itis preparingastock marketlistingfor
national energychampionAramconextyearandwouldhence benefitfrompriciercrude.
3. U.S. shale companiesare maintainingtheircurrentrigcountsirrespective of the higher
crude price.
LONG TERM ANALYSIS
Worldwide, total oil demand keeps growing. Low prices are fueling this trend. Oil prices
have seen ups and downs in the space of just a few months. In the summer of 2014 a barrel
(159 liters) of “black gold” cost over $100. In January 2016 a barrel cost less than $40. Now,
In April 2018 a barrel cost about $69. The major drivers of global oil demand has been
associated with economic growth, population growth and oil prices. Therefore, these factors
are always critical in oil and gas companies’ investment decision making process apart from
other technical and uncertain parameters.
Generally, most of the companies rely on
the forecast of international agencies, such
as the Energy Information Administration
(EIA), International Energy Agency (IEA),
BP- Energy Outlook and other energy
consultancy reports
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The role of fossil fuels will grow smaller in the next 2 decades from 86 percent in 2015 to 66 percent
in 2040 due to penetration of renewables as the world is moving fast to implement the Paris accord on
climate change. The role of oil and coal respectively is likely to plunge to 20 percent and 18 percent in
2040. While the clear winner would be more environmentally friendly natural gas and renewables.
Natural gas and renewables (solar and wind) in particular will be substituting coal in power
generation. By 2040, the share of natural gas will climb up to 28 percent, nuclear 6 percent, hydro 7
percent and renewables will see the most significant increase: to 21 percent.
Source: BP Statistical Review of World Energy June 2002, June 2016
https://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-
2016/bp-statistical-review-of-world-energy-2016-full-report.pdf
IMPACT OF CRUDE PRICES ON DOWNSTREAM PROJECTS
Fall incrude oil priceshasbothhigherandlowerprofitabilityinthe downstreamsector,depending
uponwhichregionone considers.AsiaandEurope have seenhighermarginsbuoyedbyhigher
apparentdemandforproductto buildinventories.NorthAmericanmarginshave fallensharplydue
to lossof some of the region’srecent structural advantages(Shale Oil)versusthe restof the world.It
isexpectedthatsustainedlowercrude priceswillhave a(moderately) negativeeffectonrefining
29. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 29 | P a g e
margins.The onlysustainedpositiveeffectwouldhave tocome fromstimulationof higher demand,
whichwouldlargelyoccurinthe longerterm.
Lowercrude oil pricesreduce the marginsof the upstreamoil companies,hence indirectlythe
refineriesare alsoimpacted.Similarly,highercrude price increasesthe feedstockprice forthe oil
refinerycompanies.Hence anoptimal crude oil price iswhatmostof the oil companieslookfor.
The expectationof the marketondownstreamprojectcompaniesw.r.t.change inoil pricescanbe
seenasbelow:
From the above charts itis quite evidentthat downstreamoil refineriesare havingapositive outlook
withthe steadyrise inthe oil pricesandhence may investinnew projects.Thisinturnwill fetch
more businessforL&T HeavyEngineeringandwe canconclude thatthe current oil pricesare in
favour.
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In 2017, we saw US exports of crude, as well as liquefied natural gas (LNG) and
refined products, continue to rise. This rise aligns nicely with the new
administration’s motto of “energy dominance” for the United States. Although
still a net importer of crude, its growing place as an energy exporter and low-cost
supplier could fundamentally change dynamics in Oil and Gas global market.
30. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 30 | P a g e
Riding on rising oil price exploration and production (E&P) activities gathered
momentum in the USA, which is evident from the fact that rig count rebounded
to 747by 29 December 2017 from 525 in 30 December 2016, registering a
staggering 42 percent growth. The oil & gas companies in US accelerated
upstream activities to boost production in 2017. Early signs in 2018 indicate
that oil & gas companies will continue to boost invest in E&P activities. OPEC
upstream investment plans suggest that in 2017, over $40 billion invested in
upstream projects or field developments and a similar invest pattern may
continue in 2018. Despite higher production from US, emerging global
demand-supply scenario suggests that crude oil buyers will have to pay higher
price in 2018 compared to 2017.
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Whenthe Crude Price decreasesthe profitabilityof the upstreamcompanies decreases andhence it
isnegative forthem,whenupstreamcompaniesisindeclinewe have lessprojectsfordownstream
companiesaswell andhence itaffectsdownstreamaswell.
https://www.forbes.com/sites/gauravsharma/2017/11/30/opec-and-russia-kick-crude-oil-can-
down-the-road/#25ea8a363a4e
Downstreamcompaniesgenerateddesirable returnstoremaininthe huntfor growingbusiness.
<script type="text/javascript"src="https://www.oil-price.net/TABLE2/gen.php?lang=en"></script>
<noscript>To getthe WTI <a href="http://www.oil-price.net/dashboard.php?lang=en#TABLE2">oil
price</a>,please enableJavascript.</noscript>
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31. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 31 | P a g e
CRUDE OUTLOOK
Long range world refining prospects are positive, with plant expansions, growing
petroleum demand, and ample oil supplies combining to curb oil price increases and
encourage economic development.
LNG OUTLOOK
32. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 32 | P a g e
CHAPTER 0.5
BUSINESS PROBLEM
33. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 33 | P a g e
BUSINESS PROBLEM
PROBLEM STATEMENT
To identifybusinesspotential forL&THeavyEngineering - Refinery,Cracker,Oil &Gasand
Gasification(RCOG) SBUinMENA, Europe & USA regionforprocessequipmentmanufacturing,
modification,revamp&upgradationworkinthe petroleumrefineryindustry andformulate strategy
for the identifiedprojects.
BACKGROUND
Prodvs demandchart
Oil Prod and DemandEIA.pdf
Worldwide,total oil demandkeepsgrowing.Lowerpricesare fuellingthistrend.Toremain
competitive,oil companiesneedtoreduce theirproductioncosts andincrease theirproduction
capacity.L&T issupportingthe efforts of majoroil refineriesbymanufacturing acomprehensive
portfolioof products forpetroleumrefineryindustry.Apartfromgrassrootproject,L&T also
undertakesmodification,revamp&upgradationworkinthe petroleumrefineryindustry.
There are about700 oil refineriesall overthe worldtoday,but - like oil - theyare notequally
distributedinall partsof the world.Theirrepresentationbylocationisgreatlydeterminedbyseveral
crucial factors; vicinityof oil sources,vicinityof intense oilproductsconsumptionorpopulation
density,vicinityof oil transportationroutes,economicpotentialforrefineryconstruction,etc.In
turn,refineriesmutuallydifferbytype andcomplexityof oil refiningtechnologies(refinery
complexity),installedandutilizedoil refiningcapacity,andmore recentlybytechnological potential
for obtaininghighlypurifiedoil productsandhighlytreatedrefineryemissions.Outof these more
than 60% of the total oil productioncomesfromthe refineriesinMENA,Europe andUSA region.
Hence it isextremelyessential forL&THeavyEngineeringSBUto evaluate the marketpotential in
these areasand come up witha strategyto focuson the profitable aswell asviable projects.
OBJECTIVE
The objective of thisreportisto identifybusinesspotential forprocessequipmentinoil andgas
industryi.e.toidentifyall newandup-gradationprojectsinoil andgasrefineriesandformulate
businessstrategyforL&T HeavyEngineering(RCOG) SBUinMENA, Europe and USA region.
METHODOLOGY
Will be completedlater
34. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 34 | P a g e
BENEFITS
35. Business Strategy for L&T Heavy Engineering (RCOG) SBU in MENA, Europe and USA region 35 | P a g e