Porter`s Five Forces Analysis, Alaska`s Oil and Gas Industry

Porter’sFive Forces Analysis, Alaska’s Oil and Gas Industry

Porter’sFive Forces Analysis, Alaska’s Oil and Gas Industry

TheOil and Gas Industry in Alaska, like in other parts of the world, hasbeen affected by the massive change forces like globalization,technology, industry instability or privatization, pressures foreconomies of scale, rising stock prices, low-interest rates, and higheconomic growth (Shuenet al., 2014).These change drivers determine the position of different energysectors in the market those that respond appropriately and rapidlyattract more customers than others in the otherwise highlycompetitive business setting of the 21stcentury. In this paper, Porter’s Five Forces is used to analyze thetrade situation of Oil and Gas Industry in Alaska the study offsetswith a brief overview of the theoretical framework before caseanalysis.

Porter’sFive Forces and Alaska’s Oil and Gas Industry

Porter’sFive Forces Overview

Accordingto Walder (2012), Porter’s Framework utilizes five industry forcesto clarify a sector’s competition openness against itsprofitability levels the factors, as identified by Porter in 1979,are summarized in the chart below:

Figure 1: Porter`s Framework (Walder, 2012).

MarketAnalysis of Alaska’s Oil and Gas Industry using Porter’s FiveForces

Threatof New Entrant

Thisdefines the ease (or not) of gaining entry into a particularindustry profitable industries with limited barriers are prone tointense rivalries as other companies proliferate and operate the samebusiness. Threats are common where start-up capital is small,government regulations lacks in place, companies don’t retaliate,economies of scale is achievable, and customer loyalty is low (Shuenet al., 2014).In the oil and gas industry of Alaska, the level of technology,knowledge, and start-up capital required to gain access to the sectoris so high and acts as a barrier to entry however, new entrants intothe field of renewable energy market remains low because it requiresmore capital investment.

Threatof Substitutes

Whencustomers can easily access substitute products that serve the samepurpose as the original one, they are likely to try the productsthat is especially when the products attract better prices andqualities (Walder, 2012). Although there are some substitutes likecoal and solar energy, Alaska’s oil and gas industry faces smallsubstitute threats due to the increased cost of production of thealternative energy sources above, which are also considered lesscost-effective in the region. In as much as several energy companiestry to invest in working out other sources as efficient as oil andgas for exploitation, they find it expensive to switch and maintaincost in those ventures, hence the reduced substitute pressures notedin Alaska.

BargainingPower of Suppliers

Avendor with high power can sell inferior quality or expensive rawmaterial to the buyers they hold an authority that prevails when rawmaterials` substitutes are few and scarce resources. Also, a vendormay threaten to forward integrate, or there may be more buyers withfewer providers and a high cost of switching raw materials bycustomers (Walder, 2012). The bargaining influence of suppliers ishigh in Alaska’s oil and gas sector because of the large reservesof the energy forms this constraint the country’s firms to stresson low production costs to achieve economies of scale. Moreover,suppliers need advance technical exposure and competencies in thiscountry’s industry, and that strengthens their bargaining powerhence, the supply curve tends to shift to the right with moredistribution at lower prices.

BargainingPower of Customers

Consumerswith high bargaining power readily demand lower buying prices forhigh-quality products such powers are assumed when bulk buying,where few buyers operate, a threat to backward integrate bypurchasers, substitutes are plenty, and low costs switching to othersuppliers (Shuenet al., 2014). Oiland gas industry encounters high threats here because buyers havestrong bargaining power due to the existence of many companiessupplying energy they often force down the prices to fall in Alaska,failure of which they can shift to other businesses that own the sameproducts.

CompetitiveRivalry within the Industry

Thisis the primary determinant force of an industry’s competitivenessand profitability different companies compete for a collectivemarket share as caused by some factors like high exit barriers, slowor negative industrial growth, low customer loyalty, undifferentiatedand easily substituted products (Walder, 2012). Oil and gas industryharbor stable and globalized companies like the Shell, Total, andExxon Mobil therefore, there is a high rivalry in which entitiesproduce low differentiated commodities. Besides, the businessesstruggle with the high exit barriers and fixed cost, these have beenthe reason for the slow industry growth observed in the oil and gassector of Alaska.

Conclusion

Porter’sFive Forces Model is an exemplary instrument for assessing thecompetitiveness of industry it comprises of substitute threats,bargaining power of consumers, bargaining power of suppliers, newentrant threats, and industry rivalry. These factors have beenexpansively covered regarding their impacts on Alaska’s Oil and GasIndustry the material proved that there are small entrant threats,high consumer and supplier’s bargaining powers, little substitutethreats, and strong industry rivalry.

References

Shuen,A., Feiler, P. F., &amp Teece, D. J. (2014). Dynamic capabilities inthe upstream oil and gas sector: Managing next generationcompetition.&nbspEnergyStrategy Reviews,&nbsp3,5-13.

Walder,J. (2012) ‘A critical evaluation of Michael Porter’s five forcesframework’, 21 (4) pp. 21-36.