Global Petroleum Industry. Multinational Corporations.

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During the last twenty-five years, the global petroleum industry not only grew immensely in absolute size within the whole manufacturing sector of the economy, but it also underwent significant changes in relative size within the industry itself. Many large firms vanished from the scene either by merger or by dissolution, while some grew to become billion-dollar firms within a remarkably short time.

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Through the continual process of entry and exit of firms, through mergers and dissolutions, the number of firms in the petroleum industry changed constantly, particularly in the production segment of the industry, while the change was relatively small in the refining segment. But, like any other dynamic industry, the underlying factors leading to growth and structural change were quite active in the petroleum industry, pushing it toward the lofty position it occupies today in the nation’s economy. The two multinational companies selected for analysis are British Petroleum (BP) and Petroleos de Venezuela S.A. Following the stages of development matrix, BP occupies the forth stage while Dominion Resources, Inc is on the third stage of development.

British Petroleum

British Petroleum is one of the oldest petroleum companies in the world founded in 1908. At that time, American oil companies had little oil production in foreign lands, except in Mexico and Rumania, and foreign production by U.S. firms accounted for only 15 percent of the total crude oil production outside the United States (British Petroleum Home Page 2008). Today, BP is considered the third largest petroleum company in the world. BP is on the forth stage of economic development marked by multi-product structure and integrated strategy. The company is committed to sustainability and perceives sustainability as a part of its strategic moves.

Petroleos de Venezuela S.A. founded in 1975. This is a state-owned company involved in production, refining and exporting natural resources. The company is on the third stage of the development marked by commitment to economically clean production processes and new technologies. It creates its unique brand image and regulation, high quality of all products and unique brand perception (Petroleos de Venezuela 2008).

In terms of environment, both companies have succeeded in delivering consistent high earnings from oil are using these management techniques. In addition, the management styles that will be discussed in the study are used in other functions and industries. Management is indeed a key driver in the oil industry. The challenge for this research is to find the suitable management schemes in the oil sector. BP has dominated the world petroleum market for a long time.

It first entered into the production of Middle Eastern oil through “concessions” for a specified number of years. All these concessions have turned to “participation” and in some OPEC countries, it is becoming “servicing.” Thus, the role of multinational oil companies is changing fast in the world oil market. From a position of almost unlimited control over production, distribution, and pricing policy in the oil-producing countries in the early 1960s, they have now been forced to play a secondary role to the oil-producing governments in regard to crude petroleum production. It is a long and fascinating history of exclusionary tactics, private companies’ attempts to break the barrier through governmental help, a colonial power play by the British Government, lucky strikes of huge oil reserves in Saudi Arabia, and quick discoveries of oil in other parts of the Middle East (Doane, 2005).

Petroleos de Venezuela

In contrast to BP, Petroleos de Venezuela is a young company dominates the oil industry of Venezuela, and the Latin American region. This market, as it exists today, is entirely different from when the British and American interests carved up the major market among themselves, leaving others to scramble for the rest. The role of multinational oil companies is changing fast. In the early days of exploration, production, and marketing of crude oil and refined products from the Middle East and around the world, the oil companies. enjoyed concessions from the host governments.

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The tendency is already evident that the future role of the oil companies in OPEC countries will be that of production sharing only. The nationalization of Saudi Arabia’s largest oil-producing company, Aramco, and the nationalization of the oil companies in Venezuela clearly mark the trend in that direction. In 1979 Venezuela’s President Carlos Andres Perez outlined the government’s plan to assume control of the score of private oil companies operating there. Foreign oil company operations, including subsidiaries of Exxon, Royal Dutch Shell, Mobil, and Gulf, had made Venezuela the third largest oil exporter. For example, these companies paid the government almost $10 billion in 1974 in taxes and royalties (Petroleos de Venezuela 2008).

The Venezuelan Government wants considerable flexibility to enter into agreements with foreign petroleum companies and establish mixed-capital companies in certain areas of the industry. The Venezuelan opposition parties say that the foreign companies should be allowed to work only as contractors to carry out specific tasks such as oil-exploration projects. But the oil companies and the government have asserted that certain phases of the industry, such as offshore drilling, will demand highly sophisticated technology that is only available from the international oil companies. The government, however, has stressed that the state will manage every phase of the industry and that no more concessions will be granted under any circumstances (Petroleos de Venezuela 2008).

In economic terms, both BP and, Petroleos de Venezuela obtain large market share selling such products as petroleum and gas products. As oil-exporting nation, Venezuela is increasingly bypassing international oil companies, except where the companies are simply customers for oil. Several years ago, in contrast, selling was in the hands of the oil companies, except for a small volume of oil sold in some OPEC-area markets.

Subsequently, the exporting nations progressively stripped concessions from the oil companies and, in most cases, reduced them merely to contract managers of oil fields. With their marketing know-how, the companies also continued to handle sales of crude oil for most countries. But now even that is changing. But the oil companies are retaliating also where they can, particularly in the sphere of refining, to lift oil unless price concession is given in the world currently enjoying oil surplus. We can mention Kuwait as an example in this regard. The oil companies were making around 22 cents a barrel more on the oil they owned themselves than on oil they bought from Kuwait.

They were also able to safeguard their taxes at home the royalties and taxes they paid Kuwait on the oil they own. They will lose this extra profit and the tax benefits if Kuwait takes all the oil it owns. This will give the oil companies a considerable incentive to shy away from Kuwaiti oil and sell their customers oil that they themselves own elsewhere (Petroleos de Venezuela 2008).

In contrast to Petroleos de Venezuela, BP provides sustainable policies aimed to improve its brand image and ethical principles. Petroleos de Venezuela is one of the companies that make their biggest profits “upstream”–that is, in the production of crude oil–they had been eager to refine and market large volumes of petroleum products, mainly gasoline, even if it meant selling the products at little or no profit or at a loss.

Now, as the crude oil profit is shrinking fast because of OPEC actions, and because of governmental action in such matters as the abolition of price controls and loss of depletion allowances, the oil companies are stressing that refining and marketing must stand on their own feet as separate profit centers. Also, the major oil companies are attempting to improve their profit margins by selling more fuel through fewer service stations, and many are turning into self-service stations, particularly without auto-repair services. The days of relatively cheap gasoline are gone forever (Doane, 2005).

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The main similarity between BP and Petroleos de Venezuela is that the oil companies are under tremendous pressures at home and abroad. During 1990s, there was also a movement afoot to confine the large oil companies to only one phase of the oil business: either production or refining or marketing of crude oil. This restriction would obviously weaken the future role these large oil companies would play in the world petroleum market. Some time ago, another idea was circulated. It proposed turning oil companies into regulated utilities, whereby the consuming governments would have the right to set the prices the companies paid for the crude and the prices they could charge for their products (Doane, 2005).

At the beginning of the new millennium, even if the largest oil companies are broken up or if the industry is regulated, the role of the big oil companies will still be considerable in future. The major oil companies’ grip over the whole energy field will not be slackened even if production and consumption decline over the years. They are turning to other sources such as hydrogen, solar energy, geothermal fields, shale oil, coal gasification, and, of course, nuclear energy.

Thus, even if the hydrocarbon source diminishes in the future, the companies will maintain their hold over the entire energy industry. These companies are spending millions of dollars for research and development of alternative sources of energy. There is a movement in the U.S. Congress to curtail the activities of large oil companies in the fields of alternative energy sources such as coal (Doane, 2005).

The concentration ratios were much higher in the petroleum refining sector than in crude production, the former showing the least change during the last twenty-five years. But the relative degree of concentration was extremely high in this industry. However, there were a tremendous number of entries and exits in the crude production sector while entries in petroleum refining were virtually nonexistent in later years.. Measuring the economic and financial performances, the growth rate of assets in this industry was spectacular throughout the period, but it was negative when the growth rate of number of new firms was taken into consideration in both sectors (Petroleos de Venezuela 2008).

The main problems of enhanced coal production are environmental and ecological. Coal is dirty, and no matter how many environmental safeguards are undertaken, it will still pollute the air relatively more and create more environmental scars than any other alternative energy source. In 1975, a panel assembled by the National Academy of Sciences reported that the gaseous oxides of coal-burning boilers, composed mostly of sulphur dioxide, posed “a serious hazard to health and environment,” and the panel strongly recommended “low growth” in the case of coal, citing a steady rise in the acidity of rainfall.

To combat that problem, the Carter energy plan proposed installing sulphur scrubbers in every new coal-burning boiler, whether or not the fuel was relatively low in sulphur content. But the utilities are skeptical because most of them view scrubbers as unreliable. Purification or pulverization of coal will be quite expensive and may lose the relative advantage of coal. If the share of coal as an energy source increases substantially soon, then the work habits, the environment, and the technological composition of industrial production will all change drastically in the future (Ernst and Steinhubi 1997).

Fr both companies, BP and Petroleos de Venezuela, competition from alternative energy resources (nuclear power or solar energy) is the main threat for their existence and prices.. It has been found that oil companies now supply about one-fifth of U.S. coal production and about one-third of the uranium output. If successful, the move in the OPEC to restrict or prohibit oil companies from owning and developing energy sources other than petroleum–the so-called horizontal divestiture–would be the most serious handicap to their future growth.

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The proponents of horizontal divestiture see a danger that big energy companies may control the pace of development and pricing structure of all types of fuel. The fear is that, because of their ventures into other fields, oil companies may be able to make fundamental decisions about the prices and production levels of the energy sources that are the primary competitors of oil (Ernst and Steinhubi 1997).

There are several reasons why this divestiture would be very detrimental to the energy future. First, depriving the major oil companies of their most natural expansion area–into other energy industries–may hinder the fastest, most viable development of alternative energies. For it is the major oil companies that have the capability and the money to risk the huge capital needed for research and commercial development of alternative energies. And in a time of capital scarcity and dried-up venture capital, any restriction of this important source of new capital in the name of preserving competition may be counterproductive.

Second, many of the oil companies are already in other energy industries, in which they have invested considerably in research and development. At a time when the oil companies are searching for product diversification because of their belief that oil will soon dry up or will be uneconomical for secondary recovery, other energy industries are the most logical fields of extension (Ernst and Steinhubi 1997). Finally, many of the technological aspects of energy search are interrelated, and to deprive the oil companies of using and adapting the technologies to other energy sources would be harmful to the society in the end, particularly when the prices of energies could decrease further due to the application of better technologies by these oil companies (British Petroleum Home Page 2008).

It is important to note that if BP and Petroleos de Venezuela oil companies are prevented from extending their activities into other energy industries, they will obviously move into other nonenergyrelated fields. In their search for diversification and corporate safety, they will join the ranks of conglomerates in industry. Already, some big oil companies have moved in that direction; the best examples are Mobil’s acquisition of Marcor (the parent company of Montgomery Ward and Container Corporation of America) or Atlantic Richfield’s acquisition of Anaconda, the ailing giant in the copper industry.

Therefore, the oil companies, cut off from their main source of foreign supplies of crude oil, and prevented from entering into other domestic nonpetroleum energy. industries, will truly become giant conglomerates, which derives less than 25 percent of its sales from telephone operations, or Diamond Shamrock, which has relegated its oil operation to a secondary position (Ernst and Steinhubi 1997).

For Petroleos de Venezuela, the entry of another oil company can become the main threat while it will not have a great impact on BP. In the petroleum refining subgroup, the entry by new firms had no perceptible effects since only a few firms entered during 1990s. At the same time, the number of mergers and acquisitions performed by the giant firms to enhance their relative positions was remarkable during the same period.

This gain in relative size position, while not being threatened by any new giant firm from outside the industry, had actually helped to maintain the market occupancy of the largest petroleum refining firms during the last two decades. This fact was also reflected in the slightly changed values of both the Gini Coefficients and the Herfindahl Index for the entire period (British Petroleum Home Page 2008).

Another important economic variable that brings about structural change for BP and Petroleos de Venezuela is the relative growth of giant firms in relation to the growth of the entire industry. Firms belonging to a growing industry will have different concentration situations in comparison to firms belonging to a stagnant or decaying industry. The petroleum industry is dominated by large firms.

The size distribution of firms is extremely skewed, and the situation did not change much during the last twenty-five years. The large multinational firms are fully integrated, from drilling and production to transportation, refining, marketing, and servicing at the retail outlets. According to Fortune magazine’s 1979 ranking, seventeen of the top twenty industrial companies in the United States are full-fledged multinationals, and ten of the top twenty are oil companies, with Exxon Corporation heading the list (“BP to Sell Most Company-Owned” 2007).

Recent years, the move toward the slower growth of nuclear reactors is understandable because fast-breeder reactors, with their hazards of plutonium, nuclear wastes, and other environmental pollution, have raised the question of safety in the public mind, and they are becoming less appealing as a viable alternative to fossil fuel. At the same time, the environmental and production safeguards are adding costs to such a degree that the development of nuclear breeder reactors may not be economically feasible and socially justifiable.

Given the current technology, and barring unforeseen “clean fission,” the future of nuclear power as an increasing source of energy supplies is indeed bleak. Future hopes are now with hydrogen fusion energy — energy from the abundant supply of water that will never run out. But that alternative is a distant possibility because the scientific knowledge is still in the rudimentary stage and the technology is far from complete. None of these entry barriers is significant in natural-gas production (Doane, 2005).

In sum, the case analysis shows that BP obtaining higher stage of development is better positioned on the market bit is also influenced by economic and social changes. The large number of gas producers provides evidence that there are no significant barriers to entry or development either inherent in the industry or collectively enforced by producers. This is also supported by the growth in production and sales of the smaller producers, which has often been spectacular. Thus, most new onshore supplies have gone to intrastate consumers, particularly the electric utilities and petrochemical plants in the producing states, which has created a worse crisis in the interstate natural-gas supplies.


British Petroleum Home Page. (2008). Web.

BP to Sell Most Company-Owned, Company-Operated Convenience Stores to Franchisees (2007). British Petroleum Home Page. Web.

Doane, D. (2005). Beyond Corporate Social Responsibility: Minnows, Mammoths and Markets. Futures 37 1, 32.

Ernst, D., Steinhubi, A. M. H. (1997). Alliances in Upstream Oil and Gas. The McKinsey Quarterly, 2 (1), 3.

Petroleos de Venezuela S.A.. (2008). Web.

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BusinessEssay. 2022. "Global Petroleum Industry. Multinational Corporations." June 11, 2022.

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BusinessEssay. "Global Petroleum Industry. Multinational Corporations." June 11, 2022.