Value Chain Analysis of the Petroleum industry

1. Analysing the Value Chain for the Petroleum Industry
Prof. Dr. Howard Sutton Ramkumar Rajagopalan
Strategic Management Sherif Mohammed 1
December 7, 2011. 1 Sunil George

2. Agenda
1. The Value Chain for Oil
2. Adding value from oil to gasoline
3. Upstream Processes
3.1 Exploration
3.2 Drilling
3.3 Production
4. Midstream Processes
4.1 Transportation
4.2 Refining
5. Downstream Processes
5.1 Transportation
5.2 Storage
5.3 End Consumers
6. Internal or External Value Chain
7. Major Challenges for Provision
8. Summary
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3. The Oil Chain – Detailed View
Source: Crain, Abraham , Using value-chain analysis to discover customers’ strategic needs, Strategy and Leadership, VOL. 36 NO. 4 2008, pp. 29
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4. The Oil Chain - Simplified
Upstream Midstream Downstream
Source: URL: http://www.centreforenergy.com/AboutEnergy/ONG/Oil/Overview.asp?page=1
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5. Adding Value – Crude Oil to Gasoline
Oil Exploration
Upstream
25%
Drilling
Production 50%
Transportation 5%
Midstream
Refining 13%
Distribution 5%
Downstream
Marketing 2%
Source: URL: http://www.petrostrategies.org/Learning_Center/oil_and_gas_value_chains.htm
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6. Upstream
Processes
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7. Oil Exploration
World's leading oilfield services company
Investment of 919 million USD in R&D in 2010
Source: Schlumberger Annual Report, 2010
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8. Drilling
World’s largest offshore drilling contractor
Source: Transocean Annual Report, 2010
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9. Drilling
World’s largest offshore drilling contractor
Deepwater Horizon
11 Crewmembers were killed in the explosion
Litigations and lawsuit penalty upto 400 million USD
Source: Transocean Annual Report, 2010
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10. Oil Production
Source: Apache Annual Report, 2010
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11. Oil Production
Source: Apache Annual Report, 2010
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12. Oil Production
Source: Apache Annual Report, 2010
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13. Midstream
Processes
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14. Midstream Processes – Oil Transportation
Teekay is committed to being an essential marine link in the
global energy supply chain
Teekay Corporation transports approximately 10 percent of
the world’s seaborne oil,
Source: Teekay Corporation Annual Report, 2010
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15. Midstream Processes – Refining
Source: Shell Annual Report, 2010
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16. Midstream Processes – Refining
Source: Shell Annual Report, 2010
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17. Midstream Processes – Refining
Source: Shell Annual Report, 2010
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18. Downstream
Processes
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19. Downstream Processes
Midstream Source Refinery
Transportation Oil Trucks Train Oil Pipelines
Intermediary
or Storage Facilities
Distribution facility
External Internal
Micro Distributors Businesses
Retailers Retailers
Retail End Consumers
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20. Transportation
Trains – Oil Tankers
• Most cost efficient – (Beneficiary – Government, Railways)
• Only suits large scale transportations (Railway track restrictions)
• Very high risk involved
Oil Trucks
• Suits small scale transportations
• To desired client locations
• Inefficient External Logistics (Small and many players)
Oil Pipelines
• Most Efficient method to transport oil
• High fixed costs and low operational costs
• High safety (Compressing stations, Leak detection facility)
• Beneficiary – Piping companies, Maintenance, other countries
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21. Storage Facilities (Reservoirs)
Reservoirs
• External Private companies
• Cost effective in certain countries
• Reduced control and risk
• Own reservoirs – SHELL
Filling Stations
• LPG bottling facilities (B.P.)
• Liquefying Gas by cooling (Shell)
• Filling Stations (Trucks) (Shell)
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22. End Consumers
B2B
• Gas and Electricity (Industrial & Domestic usage)
• Business Usage (Airports)
• LPG
• Chemical products
• Lubricants
• Plastics
• Coatings
• Detergents
External & Internal Retailers
• SHELL Gas stations
• Other Gas stations
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23. Internal or External Value Chain ?
18000
16000
14000
Upstream Income
12000
10000 Downstream income
8000 Production costs
6000
Selling & Distribution
4000 costs
2000
0 All values in Millions
2009 2010
Internal Downstream value chain is profitable only when the trade volumes are high.
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24. Major Challenges for Provision
Inaccessibility of Oil Extraction sites
• Regional issues (Different country)
• Political and legal issues
• Environmental issues
• Natural calamities
• Accidents
Disruption in External value chains
• Strikes
• Higher demands from third party vendors
• Internal or External Social issues (CSR)
• Accidents
Depletion of Oil resources
• Lack of new oil sites
• Excessive extraction of oil
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25. Summary – SWOT for Oil Value Chain
•Increasing demand for oil •Ecologically unsustainable
•Price fluctuations
•High revenues
•Technological developments
•Alternate products •Depletion of easy resources
•Finding new reserves •Alternate energy
•Government policies
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26. Questions?
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27. Backup Slides
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28. Value Distribution
Cost Cumulative Value Value Profit
Operation Price Value Add Add % Net Profit Distribution
Exploration 2.97 16.33 16.33 25% 13.36 36%
Production 17.78 49 32.67 50% 14.89 41%
Transportation 1 51.96 2.96 5% 1.96 5%
Refining 3.7 60.46 8.5 13% 4.8 13%
Distribution 1.9 63.69 3.23 5% 1.33 4%
Marketing 0.8 64.85 1.16 2% 0.36 1%
Net value before
tax 28.15 36.7
Source: URL: http://www.petrostrategies.org/Learning_Center/oil_and_gas_value_chains.htm
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