BUSINESS

Gazprom

Gazprom

Introduction

Gazprom is a Russian company that operates in geological exploration, distribution, production, processing, storage and marketing of oil and gas and hydrocarbon products. The company also operates in the electrical energy and thermal energy production and distribution. Gazprom also operates the domestic pipeline network in Russia that conveys gas to countries around Central Asia and Europe. The company has primary operations in Europe and relies significantly on Western exports. Gazprom is owned the Russian government giving the state control over the assets and natural reserves it owns. The company has operations in following business segments (Stern, 2005, pp. 301):

Gas Production

Distribution

Transportation

Refining

Storage

Electrical Production

The company is also involved in the production and exploration of natural gas and hydrocarbons. It the largest company in the world in terms of ownership of gas reserves. Most of these reserves are located in Russia and provide for 18 percent of the demand globally.

Porter Five Forces of the Oil and Gas Industry

The analysis of the oil and gas industry in which Gazprom operates is as below;

Bargaining Power of Buyers

There is a significant amount of buyers in the industry which are both independent and institutional in nature. This results in weakening of the overall buyer power. Retailers and independent chemical companies have the ability to make purchase in bulk. These companies are also losing independent customers which has an impact on the overall revenues. There are a number of similar products in the market. The price of these products is set according to the demand and supply of the changes that take place in exchanges of London, Dubai and New York. This in turn improves the power of buyers on the basis of price. Brand loyalty remains to be an insignificant aspect in the industry which further strengthens the power of buyers. This would remain so unless companies introduce loyalty programs. Switching cost for buyers is expected to stay low but can increase if institutional buyers are given supply contracts. Overall, bargaining power of buyers in the oil and gas industry in the continent can be viewed as weak.

Buyer Independence: Medium

Differentiated Products: Low

Switching Cost: High for institutional buyers, Weak for individual

Oligopoly Threat: Weak

Overall Bargaining Power: Weak

Bargaining Power of Suppliers

The oil and gas industry includes players such as Schlumberger, Smith International, Baker Hughes and Halliburton that power equipment and services to companies. All these players are large scale organizations with highly diversified businesses. Their size and diversification allows greater bargaining power in the market. But the number of suppliers in the industry remains low (four companies), which gives the companies much greater control of the industry given the demand from the oil and gas industry. In 2009, the prices of oil and gas commodities decreased taking down with it the amount of investment in reserve exploration and drilling. This led to an increase in the competition with smaller companies taking advantage of the situation, thereby reducing the power of suppliers. A number of companies in the industry have resorted to backward integration to acquire oil ...