M RahmanPESTEL analysis of the oil and gas (petroleum) industry
This detailed ‘PESTEL analysis of the oil and gas (petroleum) industry’ examines how different macro factors shape the direction and the activities of the global oil and gas industry. There is no doubt that this industry plays a big role in the global economy; however, it is often affected by several geo-political challenges.
Political factors that affect the oil and gas (petroleum) industry
It is widely known that political statements and tensions between countries can impact on the oil and gas industry significantly. For instance, tensions between the USA and Iran can easily disrupt the global oil price. It can also impact on the oil supply as the Strait of Hormuz (next to Iran) is critical to the global oil supply.
Instabilities in the Middle East can easily destabilise the oil and gas industry. Therefore, the USA maintains very close relations with a number of partners in the region, notably Egypt and Saudi Arabia. However, many analysts argue that the USA’s reliance on the Middle Eastern oil is gradually fading.
OPEC (the Organization of the Petroleum Exporting Countries) coordinates and unifies the petroleum policies of its member countries (OPEC, 2023). The current member states are Iran, Equatorial Guinea, Iraq, Kuwait, Saudi Arabia, Venezuela, Libya, United Arab Emirates, Algeria, Nigeria, Congo, Angola, and Gabon.
Interestingly, some countries such as Nigeria and Venezuela may like to see the oil prices going up because of their weak economic conditions, while some others are not that keen on it. It should also be mentioned that all these countries have different domestic political circumstances, rules, and regulations which impact on the oil and gas industry differently.
It is worth mentioning that Qatar left OPEC ending long-held membership. Some analysts argue that the decision was a political one, while others argue that it was a business driven one as the country is diverging from the oil industry with a view to diversifying its economy.
Many countries have set targets for reducing emissions and transitioning to renewable sources of energy, such as wind and solar. This shift towards renewable energy is having a major impact on the oil and gas industry, as governments look to reduce their dependence on fossil fuels.
Economic factors that affect the oil and gas (petroleum) industry
Economic environment is a key element in this PESTEL analysis of the oil and gas (petroleum) industry. The top oil producing countries in the world are the USA, Russia, Saudi Arabia, Iraq, Canada, China, the United Arab Emirates, Iran, Brazil, and Kuwait. The top gas producing countries are the USA, Russia, Iran, Canada, Algeria, Qatar, Norway, China, Saudi Arabia, and the United Arab Emirates (Worldometer, 2023).
The top oil consuming countries in the world are the USA, China, India, Japan, Russia, Saudi Arabia, Brazil, South Korea, Canada, and Germany. Domestic economic decline in any of these countries usually have impacts of the oil and gas industry.
For instance, oil prices fell in the first week of August 2021 as the growth in factory activity in China slipped sharply (Aljazeera, 2021). On the contrary, economic growth drives the global consumption of oil and gas. In African energy-exporting countries, economic growth has been historically driven by the oil and gas industry.
The oil and gas industry supports millions of jobs globally. However, this industry is complex, and has both positive and negative impacts on other industries. For instance, high oil price is great for the oil industry, while a challenge for many others.
People who own automobiles suddenly will have to pay higher prices potentially resulting in less disposable income for them. On the contrary, a decline in price is bad news for oil companies, while a good one for many other industries.
Social factors that affect the oil and gas (petroleum) industry
Evaluating the social factors is the next stage in this PESTEL analysis of the oil and gas (petroleum) industry. Oil consumption increased significantly in the past several years in many emerging and developing nations as these nations had seen the emergence of new middle classes.
Unsurprisingly, Brazil, India, Russia, and China are some of the top oil consuming countries in the world. More and more people are buying automobiles and using different transports for holidays which are increasing the demand for oil.
Global oil and gas companies need to understand the socio-cultures of the countries in which they operate. Many analysts advise that they should invest in local partnerships and capitalise on local market knowledge. This should help them boost local skills development which not only support the local people but also improve their corporate image.
Technological factors that affect the oil and gas (petroleum) industry
It is widely known that the oil and gas industry responds slowly to the new technological developments. However, due to digitalisation, many companies are now heavily investing on big data and analytics, the Industrial Internet of Things (IIoT), cloud computing, AI and machine learning, robotics, and drones, 5G networks, and collaboration tools (Huawei, 2021). Using these technologies is likely to increase the efficiencies of their operations and make them more profitable.
The use of robotics is increasingly popular in the oil and gas industry. Robotic systems are used to perform a variety of tasks, such as drilling and completing wells, performing maintenance and repairs, and monitoring the environment. By using robots, companies are able to reduce human error, improve safety, and increase efficiency.
Environmental factors that affect the oil and gas (petroleum) industry
Weather and seasons drive the demand of oil and gas. For instance, oil use increases during the summer travel seasons, while the demand for gas increase during winter as more heating fuel is consumed.
On the other hand, extreme weather conditions sometimes disrupt the oil and gas extraction activities. It is worth mentioning that many people are now-a-days after friendly fuels and shying away from ‘dirty’ fossil fuels.
It is important for companies in the oil and gas industry to have a robust safety and security plan in place. This should include measures to prevent accidents, such as the use of safety equipment and regular safety inspections. Companies should also have a plan for responding to emergencies and managing crises.
Legal factors that affect the oil and gas (petroleum) industry
Understanding the legal environment is an important element in the PESTEL analysis of the oil and gas (petroleum) industry. Different countries have different acts that govern the oil and gas industry e.g. the Petroleum Act in the UK, Federal Oil and Gas Royalty Management Act, Resource Conservation and Recovery Act in the USA, and the Petroleum and Natural Gas Rules in India.
It is worth mentioning that some countries have more than a single legislation. Some countries allow foreign companies to buy local oil and gas companies, while others impose some kind of restrictions on the ownership.
Summary PESTEL analysis of the oil and gas (petroleum) industry
The oil and gas industry is a dynamic and ever-evolving field, with new technologies and strategies being developed to unlock its potential. Through the use of advanced technologies, government policies and regulations, and risk mitigation strategies, the industry is able to increase efficiency, reduce emissions, and maximize profits.
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Last update: 24 February 2023
References:
Aljazeera (2021) Oil slips on worries of a China slowdown, jump in OPEC output, available at: https://www.aljazeera.com/economy/2021/8/2/oil-slips-on-worries-of-a-china-slowdown-jump-in-opec-output (accessed 02 August 2021)
Huawei (2021) 7 technologies that are reshaping oil & gas companies, available at: https://e.huawei.com/en/news/industries/2020/7-technologies-reshapes-oil-gas-companies (accessed 01 August 2021)
OPEC (2023) About us, available at: https://www.opec.org/opec_web/en/17.htm (accessed 24 February 2023)
Worldometer (2023) Natural gas production by country, available at: https://www.worldometers.info/gas/gas-production-by-country/ (accessed 24 February 2023)
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.
