Introduction

The global oil and gas industry's profits in 2022 jumped to some $4 trillion from an average of $1.5
trillion in recent years, the head of the International Energy Agency (IEA, Fatih Birol, 2023).

Source: BP Statistical Review of World Energy 2022

PESTLE ANALYSIS
Political

In the past few years, energy prices have been steadily rising with the global geopolitics of the
Russian invasion of Ukraine leading to the uncertainty of global supply chains and the need for
governments to build resilience measures to meet the energy needs of the populations. The
duration and scale of disruption could lead to further issues if the war expands to involve other
nations, catastrophic attack on Nuclear Power plants spread radioactive materials, if the energy and
commodity markets lose confidence. (McKinsey and Company, 2022).(Negative Impact)
International Energy Agency – World Energy Outlook 2022

OPEC have acted as a cartel, fixing prices and protecting interests even when the consequences have
affected the unaffordable increases in energy bills. This has resulted in government intervention in
several nations, with energy price caps, fuel poverty grants and rationing of limited supplies.
(Positive Impact)

The uncertainty in energy supplies with international sanctions, has accelerated the need to invest
and research to produce renewable energy and become energy independent. Governments provide
huge subsidies for such developments in Fracking, Solar infrastructure, Wind turbines, Tidal energy
as well as Biowaste energy technology. These subsidies, grants and tax incentives provide favourable
terms for the energy sector investment. In addition, the political goal of reducing the dependence on
fossil fuels and reduction of pollutants provides an environment for long term growth.

UK Government Policy to introduce a windfall tax on Energy firms is a worry for the industry.
However, Energy firm Shell has bypassed the legislation while making record profits of $40bn in
2022 and only paying $134m (The Guardian, 2023). (Impact Variable)

According to Global Energy Perspective 2022, 64 countries have pledged or legislated achieving net
zero in the coming decades (McKinsey & Company 2022).

Economic

A resilient Energy sector is essential for all sectors of the economy. The high energy dependence in
manufacturing and farming mean often these sectors are in receipt of subsidies, grants and tax
incentives to provide stability of production. (Positive Impact)

Inflation has limited the spending power of consumers and affected the energy sector with the high
global market prices. The huge resource requirements for energy infrastructure investments while
higher financing costs are incurred with Global Central Banks increasing base rates will impact on the
profitability of the investment. (Negative Impact)

The consumer price index has shown a significance global increase putting pressure on consumers
and creating a cost-of-living crisis. These increases have been confounded by the Covid-19 pandemic
causing lockdowns, a global vaccine programme and the affects of the Russian invasion of Ukraine.
With wages not keeping up with inflation, energy poverty has been widespread as people decide on
whether to heat or eat. (Negative Impact)

Social

The growth in global population is important as the growth translates to a greater need for energy
consumption to sustain the population increase. (Positive Impact)

The rights of workers to work with health and safety as well as financial packages to provide living
standards that do not put stress on the workforce.

With better healthcare provision, populations are living longer and again, this has a greater need for
energy consumption to cater for their needs, especially in colder climates. (Positive Impact)

Technological

Developments in energy infrastructure, technological innovations in making Solar energy more

affordable, batteries more efficient and production procedures from biowaste gas capture
improvements. (Positive Impact)

These technological developments have led to alternative viable sources of energy generation and
storage capacity to build a resilience in the network. The technological advancements require a
skilled staff to monitor, operate and innovate the industry. The threat of cyber attacks such as the US
shutdown of the Colonial Pipeline ransomware attack in 2021 disrupting 45% of East Coast fuel
supplies (The New York Times, 2021). (Negative Impact)

Environmental

The Energy sector has long been criticized for the adverse environmental consequences. Pollution,
carbon reduction and green-house gas (GHG) emissions continue to be the focus (Negative Impact).
The trend and growth in sustainable renewable natural gas (RNG) from biowaste as well as other
renewables which leave no harmful GHG is key to improving the sector and meeting climate change
frameworks such as the CMA3 Paris Agreement and COP26 (United Nations Climate Change
Conference, 2015). (Positive Impact)

The effects of pollution on local community health and quality of living has raised concerns for the
long term considerations and ethical standards and practices to facilitate transparency and
accountability. (Negative Impact)
Legal

Legislation in the further licensing of fossil fuel mineral exploration and extraction has led to
demonstrations from environmental groups. Licensing of novel procedures in the Fracking industry
has led to tremors in the earth and damaged buildings. Long term effects of contaminants into the
soil and water supply have resulted in Lawsuits in the US. (Negative Impact)

The need for energy security has raised concerns for the provision of critical energy infrastructure to
be from countries from friendly nations to reduce influence and foreign powers and combat
cyberattacks. (Positive Impact)

Opportunities in the Energy Industry

Having conducted the Pestle Analysis for the Energy Industry, we can identify the following
opportunities for further investigation.

 Energy diversification to include renewable sustainable energy

 Global annual rise in Green Investment
 Energy Transformation, decarbonised electricity system
 Develop resilience in the infrastructure to cope with distress in demand
 Create cybersecurity systems to protect critical energy infrastructure
 Production, distribution, sale, installation and maintenance of solar panels
 There are орроrtunities for Energy companies to exраnd into new geоgrарhiс territories
with its alternative fuel and energy орроrtunities.
 The Energy industry has the орроrtunity to partner with certain соuntries in develорing
solutions for infrastructure issues to move into the use of clean energy орtiоns, роsitiоning
the Energy brand аrоund innovation and environmental resроnsibility.

Threats to the Energy Industry

 Geopolitical events leading to divestment at short notice (BP, Rosneft)

 Competition from rivals innovating systems that more efficient faster.
 Government imposed Windfall Tax on energy profits.
  Cyber Attacks on critical infrastructure with ransom demands.
 Environmental issues will соntinue to be а threat of the Industry,if energy companies do
not formalize their Cоrроrаte Soсiаl Responsibility and рut it at the forefront of its strategy,
including revising wоrkрlасe safety issues to reduce refinery explosions, oil leaks and spills,
pipeline соrrоsiоn and other environmental hazards.
 Energy companies face huge threats from low margins, high overheads and competition
from rivals.
 The emergence of specialised alternative energy соmраnies that are offering the technology
and affordability to encourage greater migration аwау from the reliance on fossil fuels,
which could challenge the energy firm business model, thus acquisition and mergers may be
required.
 Bad PR from energy production disasters, protest groups disrupting new and existing sites
 The global, regional, and lосаl regulatory environments continue to be а threat as
changes .in regulations imрасt how Energy firms may operate.

Five Forces Analysis of the Energy Industry

Threat of new entrants

The rapid transformation in the energy sector has given rise to multiple organisations developing
solutions for the generation and storage of energy. The new competitors are taking a slice of a
business and developing market share, encroaching on the steps of the global energy giants. These
new entrants are primarily focused on the renewable energy sector. The new entrants face stiff
competition from the global giants due to the high barriers to entry , such as fixed costs, research
and development, cost disadvantages, initial investment costs. Huge capital required

National Oil Companies control more than 90% of the proven oil and gas reserves thereby
controlling competion.

Bargaining Power of Buyers

In the energy industry, the price of oil is fixed internationally and compared to benchmarks such as
Brent Crude. The power of buyers can be exerted by the quantity of oil and gas purchase. Larger
economies with greater populations may benefit from preferential prices. The power of a union of
nations to set a price has been demanded by the European Union for Russian Oil to be set at $60/
barrel (Politico, 2022). In addition, the ability to impose sanction on energy exporting nations may
help to influence price.

Threats of Substitute products

This has been a growing evolution of the cleaner energy sector with the development of biofuels,
carbon capture, wind, solar and tidal energy storage. The global trend to the reduction in reliance on
fossil fuels has led to the growth in biowaste energy production. Utilizing waste to create clean
energy with the capture of methane and GHGs to power turbines for energy is at the cutting edge
with advances in the efficiency and production process and improved storage capabilities. The
geopolitical situation in Ukraine and the disruption to energy security has accelerated the need for
nations to be energy independent.

Bargaining Power of Suppliers

Suppliers have a huge power as they can operate as cartels such as Opec, meeting and fixing prices
on the global market. They can influence the imposition of sanctions on competitors to not be able
to compete on a level playing field. Suppliers can collude to decrease production from refineries to
artificially inflate or in some cases maintain a higher prices to protect revenue. Larger oil and gas
producing nations can hold a monopoly like grip on prices. Suppliers know their resources are well
established in the mechanics of the global economy and intend to maintain and grow the revenue.

Competitive Rivalry

Energy companies operate in highly competitive environment, with often low margins and high
investment costs. The search for new untapped mineral deposits is intense with energy companies
searching for valuable resources from drill holes, soil tests and analytical geological data. Energy
companies are looking for ways to lower production and transport costs, develop more efficient
refinery practices and manage risk to ensure the company growth objectives.
Q2 Internal Analysis (Strategic Capabilities and Weaknesses)

BP has the ability to continually innovate and grow by the vertical integration of the company
achieved by acquiring businesses that are in the up and downstream of the organisation. The ability
to lead by innovation, due partly to BP having unique resources in the firm. BP is a company with a
long history of being a reliable supplier of quality fuels.

BP VALUE CHAIN

VRIO

The key to building a sustainable competitive advantage for BP, is to have organisational capabilities,
expertise in the field and an innovating adaptable structure to exploit the resources more efficiently
than others. The Competitive advantage will only last until it becomes imitable. Therefore
Intellectual property and patents play a huge role in protecting investments.

Resources Value Rare Imitable Organisation Competitive

Support Advantage
(CA)
CEO track yes yes no Yes Strong CA
record in Bernard
leadership Looney
Financial yes no Yes but to differing Yes Sustainable CA
resources scales
BP Loyalty Yes, repeat yes Yes, but not as Yes Sustainable CA
customer base successful as BP
Product yes yes yes Yes Short term CA,
portfolio and needs
synergy continuous
innovation
Pricing yes no yes Pricing Temporary CA
Strategy analytics
engine
Risk yes no Yes to various Yes Long term CA
Management degrees
and hedging

BPs strategy is unchanged – it is focused on investing in transition growth engines and, at the same
time, investing in today’s energy system. And integration connects it all.

What are the Unique competencies of BP

Integrating energy systems – harnessing our collective capabilities as the energy system transitions,
helping more customers get the energy they want and creating value for our shareholders.

Partnering with countries, cities and industries – by leveraging relationships and building new
partnerships we aim to provide integrated energy and mobility solutions to help cities and industries
reduce carbon emissions while creating exciting business opportunities.

Driving digital innovation – we innovate with a strong focus on digital to drive operational
efficiencies, empower our workforce and engage better with our customers. This includes building
new businesses through bp ventures and Launchpad.

Strategic Positioning of British Petroleum (BP)

Targeting Net Carbon emission to Zero: BP has effective R&D in place to invent technology for low
carbon emission to comply with the Paris Agreement (British Petroleum, 2020). This strategic
movement has, on one side, enabled the company to make the fuel more workable, and on another
side, has attracted customers’ attention which has resulted in increased sales.

More focus on efficient fuel and renewable energy: The company has made huge investments to
make oil and gas more efficient, which resulted in energy savings and low negative CO2 impact on
the environment (British Petroleum, 2020). The company has also invested in gas renovation and
gas-derived products, which have much less carbon footprint on the ecosystem. BP has invested
more than $650m in renewable fuel, solar energy, bio-power, and wind power in association with 40
companies in Brazil (British Petroleum, 2020). All these strategic movements has put BP to compete
at the frontline and kept the company updated with changing need and technologies.

Expanding business to emerging economies: Another potential strategic approach of BP is to

introduce advanced and improved energy products and services in collaboration with new partners
in new countries (British Petroleum, 2020). Such strategic movement with new and improved
products provides a company with enough energy and strength to grow (Rothaermel, 2016). This has
enabled the company to bring new growth, and huge revenue flow to the financial portfolio. The
company has targeted emerging economies such as India, Indonesia, and China to have an impact on
their economic growth on the growth of the company itself. As part of the movement, BP has made
an agreement with Reliance Industries to establish a retail service network and aviation fuel across
India.
Application of Artificial Intelligence (AI) in energy management: BP has launched advanced
technology in energy management, and Artificial Intelligence (AI) is one of them (British Petroleum,
2020). As part of a strategic move, BP has invented Grid Edge, which has enabled the company to
build a system of predicting, controlling and optimizing the energy profiles of a building. BP has
invested more than $5 million in the project.

Source: Google BP Share price, 2023

BP Plc is trading well and has a share price increase of 36.17% in the past 12 months
SAFe test

Suitability

The strategy of BP to acquire Archaea Energy makes great sense as they are both in the energy
sector with BP looking to develop resilient hydrocarbons and transition growth engines in bioenergy.
BP and Archaea Energy share the same vision of a sustainable solution to the generation and storage
of energy.

Nick Stork, CEO of Archaea stated the company was founded with a mission to build the worlds
leading RNG company to reduce global emission and make multi-generational sustainability impacts.
This falls in line with the values of BP and its CEO Bernard Looney. The meeting of the minds in both
organisations added to the high resources of BP help to make the outcomes a success.

Acceptability

The strategic plan is acceptable for the stakeholders and the investment will bring growth and
stability to the business for the long term vision of sustainable renewable natural gas. The fact that
waste destined for landfill is being used for good and capture of methane to power the turbines,
leaving a lower carbon footprint than current hydrocarbon manufacture and refinery costs.

Feasability

The success of the Archaea acquisition rests on several factors. The ability for the legal avenues to be
crossed to ensure compliance with Competition and Market Authority regulations. The scalability
and due diligence to confirm the stated procedures, costs and energy capture figures correlate with
the actual verifiable tests that BP can substantiate.

In order to make the Biowaste section of BP to be viable, it must be scalable and the purchase of
land for processing biowaste, the health and safety implications, risk management and building of
infrastructure as well as sites to hold and store energy must be considered.
References

BP, (2022). What we do, BP at a Glance

https://www.bp.com/en/global/corporate/what-we-do/bp-at-a-glance.html

(Accessed: 12th April 2022).

BP, (2022). Statistical Review of World Energy 2022

https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-
economics/statistical-review/bp-stats-review-2022-full-report.pdf

(Accessed: 18th March 2023).

International Energy Agency, (2022). World Energy Outlook, Key Findings

https://www.iea.org/reports/world-energy-outlook-2022/key-findings

(Accessed: 8th March 2023).

McKinsey & Company, (2022). Global Energy Perspective 2022

https://www.mckinsey.com/industries/oil-and-gas/our-insights/global-energy-perspective-2022

(Accessed: 5th April 2023).

Politico, (2022). EU agrees Russian Oil Price cap after Poland backs plan

https://www.politico.eu/article/eu-agrees-russian-oil-price-cap-after-poland-backs-plan/

(Accessed: 17th March 2022).

Reuters, (2023). Oil & Gas Industry earned $4 Trillion last year says IEA

https://www.reuters.com/business/energy/oil-gas-industry-earned-4-trillion-last-year-says-iea-
chief-2023-02-14

(Accessed: 1st March 2023).

The Guardian, (2023). Why is Shells UK windfall tax payment so low?

www.theguardian.com/business/2023/feb/02/why-is-shells-uk-windfall-tax-payment-so-low

(Accessed: 14th March 2023).

The New York Times, (2021). Cyberattack Forces a Shutdown of a Top US Pipeline

https://www.nytimes.com/2021/05/08/us/politics/cyberattack-colonial-pipeline.html

(Accessed: 15th March 2023).

United Nations Climate Change Conference, (2015). COP21 The Paris Agreement

https://unfccc.int/process-and-meetings/the-paris-agreement

(Accessed: 20th March 2023).