6377 International Marketing
I, Francisco Bonilla, hereby certify and warrant:
(a) that this Individual Case Study is my original work;
(b) that I have acknowledged all the sources used in this paper.
(c) I understand that copying of another's work and representing it as my own work is a serious academic offense, and should be treated as such.
Table of Contents
1.2 Executive Summary 3
1.3 Introduction of Norway 3
1.4 Introduction of Statoil 4
1.5 Background of Statoil 4
2.0 Global Macro Environment/ PEST Analysis of Norway PEST 5
2.1 Norwegian Politics 5
2.2 Norwegian Economy 5
2.3 Norwegian Society and Culture 6
2.4 Norwegian Technology 6
3.0 Global Competition Analysis 6
3.1 Porter model of five competitive forces in Norway 6
3.2 Primary competitor: 9
3.3 Secondary Competition. 9
4.0 Entry Strategies Discussion & Evaluation 9
4.1 Entry Strategies 10
4.2 Entry Strategy Selection and Discussion 10
5.0 Statoil Target Market Analysis & Segmentation (in Norway) 12
5.1 Target Market Analysis 12
5.2 Recommended Target Market Segmentation 12
5.3 Recommended Target Market Analysis 13
6.0 Global Marketing Mix Strategies 13
6.1 Statoil Product Strategy in Norway 13
6.1.1 Current Product Strategy with Examples 13
6.1.2 Recommended Product Strategy 14
6.2 Statoil Price Strategy in Norway 14
6.2.1 Current Price Strategy 14
6.2.2 Recommended Price Strategy 15
6.3 Statoil Promotion Strategy in Norway 15
6.3.1 Current Promotion Strategy 15
6.3.2 Recommended Promotion Strategy 15
6.4 Statoil Place Strategy in Norway 16
6.4.1 Current Place Strategy 16
6.4.2 Recommended Place Strategy 17
7.0 Conclusion 17
8.0 References 18
1.2 Executive Summary
Statoil's activities are important, but its focus on other parts of the world such as North America, Brazil and West Africa is increasingly vital for its own survival. Statoil needs to utilize networks and share knowledge with other Corporations and different venues such as renewable energy (e.g. wind farms, solar, etc.). In such an environment, the role of policies becomes key to guide expectations and sustain macroeconomic stability. Norway operates in many other countries such as West Africa, Russia and North America. Countries that operate in Norway are Spain, U.S.A., France and Germany amongst others mainly related to the deep-water drilling of oil and gas. Statoil's secondary competitors had an aggregate production broadly flat in the fourth quarter of 2016 compared with the same quarter in 2015, with Total, Shell and Statoil recording slight growth in the country. While the organic capital expenditure guidance for 2017 is 45% lower than the actual spend in previous fiscal years, this large reduction in spending has not yet translated into lower volumes as companies signal around 5% year-on-year production growth in 2017. The best expansion strategy for Statoil is solar energy, wind farm and natural gas. Solar energy and wind farms will heavily impact future electricity markets in the future. However, it is important to realize that many factors may limit the possibilities of replacing other forms of energy with these two alternative renewable sources of electricity (Wind Power, 2017).
Statoil needs to target customers outside the Norwegian continental shelf such as West Africa, Mexico continental shelf, Canada and Brazil. Mexico has produced oil and gas for more than 100 years, is a top-10 producer of crude oil in the world, and is the home to the largest discovery ever made in the Western hemisphere. Investors estimate that Mexico is one of the countries with the largest yet-to-find resources in any basin worldwide, with sizeable parts of the country, onshore as well as offshore, significantly underexplored. Norway activities are important, but its focus on other. Norway needs to utilize networks and share knowledge with other countries, different industries and in the academic world. It will supplement and improve its understanding of macroeconomic developments that can have great positive industry impact (Statoil May Consider Pemex, n.d.).
1.3 Introduction of Norway
Norway is an important energy partner in the global economy. Speaking about the perspectives for Norwegian and global business opportunities, there is need for more concrete project proposals to grow business. There is a high potential for increased growth, indicating that the presence of more than 100 Norwegian companies in Europe creates opportunities in areas such as shipping, maritime, oil and the gas industry. Norway is rich in oil and gas and sees tremendous opportunities. However, the projected oil reserves are expected to deplete at a fast rate. This forces Norway to seek investments outside its borders with the purpose of maintaining an acceptable rate of return in oil and gas reserves.
The change of government in Norway in recent years has marked a slight increase in the country's political risk. This is not because the color or ideology of the government changed from red-green to blue-blue, but because Norway moved from a government with a majority in the Parliament to one backed by a parliamentary minority. Political decision-making is therefore viewed as a bit less predictable going forward than it has been over the last 8 years. Political succession is obviously more of a risk factor elsewhere. It is most likely to cause instability in countries where political structures are weak, non-transparent and unaccountable, and where personalities tend to matter more than institutions. When a dominant political figure leaves the scene in such a country, this can sometimes cause disruption at the top, upsetting the balance among various elite groups, or spur calls for more radical change from below.
The Standing Committee on Finance and Economic Affairs in the Parliament of Norway and representatives from the Norwegian Embassy stay in touch with the investments it makes. The Committee is responsible for the monetary and economic policies of Norway, including oversight of the nation's tax system (Prepare for the North, n.d.).
1.4 Introduction of Statoil
Statoil supports the \"Heroes of tomorrow\" program. It is a unique, long-term program, which is highly advertised in Norway's TV commercials supporting its campaign to grow its brand recognition. Its main focus in on education. Statoil plans to ramp up North American production to over 500,000 barrels per day by 2020; over three times its current production in Norway. Its “Never satisfied” brand campaign in the region is an essential tool to help the company meet these goals (Statoil, n.d.). The Norwegian oil adventure has never been more exciting. Several major discoveries, technological innovations and solid industrial competence deepen the company's faith in the future. This forms the basis for its Norwegian marketing campaign.
To every large oil and gas corporation, the macroeconomic development is important, as long-term economic forecasts are crucial for projects and strategic decisions for growth. International ups and downs have direct impact on demand, and the economy in Europe illustrates this clearly. Statoil's activities are important, but its focus on other continents and provinces is increasingly vital for its own survival. Statoil needs to utilize networks and share knowledge with other Corporations and different venues such as renewable energy (e.g. wind farms, solar, etc.). It will supplement and improve its understanding of macroeconomic developments that can have great impact in its investment portfolio (Bloomberg, n.d.).
The main objectives of oil and gas companies is to raise their cash flow, cut their capital expenditure and try to save their balance sheet. Recently, these have been highly impacted by the low oil prices, which have fallen over the last two to three years.
1.5 Background of Statoil
The profitability of Statoil's international operations has sparked much discussion, especially in the Norwegian media over decades. Since the merger with Hydro in 2007, the company has invested heavily in international growth, while the Norwegian continental shelf has remained the company's cornerstone.
Statoil\'s emphasis on standardized development concepts for small, marginal fields continues at full strength. The mature fields on the Norwegian Continental Shelf (NCS), such as Statfjord, have been in production for several decades and are highly profitable due to low entry costs. This pattern is the same internationally. Statoil has fields that have already been in production for many years and are making nice profits. Statoil spent 14 years generating positive cash flow on the NCS. It is expecting similar trend for some of its international positions. The direct sales team in Midstream Natural Gas (NG) is set to further grow Statoil's direct sales of gas to large industries, independent power producers and local distribution companies in Europe as well. Natural gas is key to solving Europe's energy challenges going forward, delivering on cost competiveness, security of supply and the climate challenge (Big Oil's Recovery, n.d.).
2.0 Global Macro Environment/ PEST Analysis of Norway PEST
Each fiscal year, Statoil publishes a macro and market outlook, with contributions from a variety of researchers across the company. The latest outlook implies a gradual improvement in global growth due to policy actions, after the 2016 setbacks in low oil prices. Key macroeconomic figures tend to fluctuate quite substantially and the economic outlook is associated with risk and uncertainty, often amplified by market, business and consumer sentiment. In such an environment, the role of policies becomes key to guide expectations and sustain macroeconomic stability (Statoil, n.d.).
2.1 Norwegian Politics
• Opportunity: Norway has managed to keep its monarchy political tradition just like Sweden and Denmark, its neighboring countries (Norway, n.d.).
• Threat: European politicians have taken important steps since the end 2016. It is however a big challenge to rebalance public finance without choking growth. Moreover, the elevated Japanese debt and high US debt coupled with dysfunctional US President Trump politics with no credible US medium term debt deal in sight may prove even more disturbing over the next years to come (Donald Trump, 2017).
2.2 Norwegian Economy
• Threat: Statoil's results are affected by lower market prices for oil and gas, both on the Norwegian Continental Shelf (NCS) and internationally as also noted in several Bloomberg articles. The price of crude has reduced by almost USD 50 per barrel and this affects the entire market. The prices achieved for its international production have declined in the same way as for its Norwegian production. Statoil also realized a somewhat lower price for international liquids production, with pressure on margins especially for Natural Gas Liquids (NGL) production in North America, while the gas price reduction was somewhat lower for the international segment than for the NCS. Generally, there is a high focus on reducing costs in the company and this applies to Statoil's international activities as well. The articles below highlight the turbulent petroleum reserves and current prices damping Statoil's profits (Bloomberg, n.d.).
• Opportunity: Although Norway is a social welfare economy, it remains amongst the lowest tax rate countries in the European Union (EU), making it a very attractive country to invest in.
2.3 Norwegian Society and Culture
• Opportunity: Social networking (such as personal web sites, blogs, Facebook, MySpace, Twitter, online group discussions, text messaging, message boards or chat rooms) are used by employees for personal and business purposes (Norway, n.d.).
• Opportunity: Social media is used in everyday business. Norway enjoys a fair income distribution amongst its citizens.
2.4 Norwegian Technology
• Opportunity: Statoil understand how the use of internet social network sites and blogs can shape the way the public views a company's products, employees, vendors, partners and customers. Companies respect the right of any employee to maintain a blog or post a comment on social networking sites. However, they are also committed to ensuring that the use of such communications serves the needs of its business by maintaining its identity, integrity and reputation in a manner consistent with its values and policies.
• Opportunity: Norway is the home of new inventions and technology especially in deep-water petroleum drilling and exploration. It is constantly changing and improving mobile technology. Norway is rich in high technology especially related to GPS-position to regulate the position of drill ships. This technology makes it possible for drill ships, supply vessels among other ships, to use such technology to accurately position its ships in its deep-water projects.
3.0 Global Competition Analysis
Norway operates in many other countries such as West Africa, Russia and U.S.A.
Countries that operate in Norway are Spain, U.S.A., France and Germany amongst others mainly related to the deep-water drilling of oil and gas.
Total, ExxonMobil and ConocoPhillips are one of the three major oil and gas companies operating in Norway. Many of these are certainly from the oil and gas sector. However, there are several other sectors represented further down on the list; energy, banking, insurance and groceries. Statoil, Exxon Mobile and ConocoPhillips also operate in USA. Statoil alone has invested over 25% of its portfolio in USA (Statoil, n.d.).
3.1 Porter model of five competitive forces in Norway
The key takeaways from both primary and secondary competitors as of 2016 fiscal year end include on aggregate, the earnings of the peer groups increased year-on-year for the first time since the third quarter of 2014, supported by a recovery in upstream profitability. The investment returns on average capital employed may have hit bottom in the third quarter of 2016, as the fourth quarter saw a slight recovery of 0.2 percent points from the record low of 1.8%.
Statoil's free cash flow remains negative, but continued to trend up for the fourth consecutive quarter. ConocoPhillips and Shell were the only peers to achieve positive free cash flow this quarter. Most peers aim to be cash flow neutral in 2017 if oil prices average $55 per barrel for the year (Statoil, n.d.).
Five Forces Analysis:
The oil and gas industry is a very competitive and low margin industry. Porter's five forces framework can be used to gauge oil, gas and renewables industry. Buyer demand continues to grow due to high demand arising from a growing population. However, it is a very mature market. There are many options for consumers in this industry, therefore, the switching costs for buyers is very high. The investments needed for rivals to enter this market are high.
Threat of New Entrants: New entrants are the low threat to the oil and gas industry because the market has been greatly matured. It is very costly for new competitors to enter into this market due to a very high fixed cost, which include inventory, logistics, and geological & seismic data; a very high capital investment is needed.
Threats of Substitutes: There are many competitors with similar products. However, consumers are more sensitive to those who comply with stricter environmental, health and safety rules and regulations.
Bargaining Power of Supplier: Firms in this industry have their own supply chain ranging from upstream, midstream all the way to downstream (refining). The supplier completion is fierce. Therefore, there is a very low switching cost when the oil and gas prices fall low. There is a lot of room for contract negotiations.
Buying Power of Buyers: Large companies like BP and Statoil continuously bargain service contracts. They carry a very high buying power.
Industry Rivalry: It is important for any industry to acknowledge the changes in trends within the oil and gas economy. The oil and gas industry is not recession proof. The current low oil and gas prices has forced many competitors to file for bankruptcy.
Industry Competitors: Successful firms are those who can manage a diversified investment portfolio, which includes oil and gas as well as renewables such as wind farm and solar energy at low costs. These are busy times in projects and field development. Statoil has never had a project portfolio as big as now (Statoil, n.d.).
Rivals Anticipated Strategic Moves: According to a new external benchmarking study Statoil holds its own with regards to regularity on our facilities, but we still have some way to go before we rival the most effective operators (New Energy Outlook, n.d.).
Strong Buyer Power
Strong Buyer Power – It should remain focus on growth
Largest in the oil & gas market
Competitive with few entries. Renewable business will continue to grow
Large Suppliers Power
Continue to be #1 in comparison to Statoil
Firms can switch between suppliers easily with low switching cost.
Growth at maturity level, other suppliers may enter due to brand differentiation / loyalty
Threat of New Entrants
Huge Capital investments
Difficult for new entrants and potential competitors
Threat of Substitutes
Capability to launch new products
Customers are loyal to brand
Environmental trends may cause customers to try renewables
Intensity of Rivalry
Growth is at the peak of maturity of oil & gas reserves
Brand loyalty exists
Challenging due to environment aspect
Growth of profit margin will remain low due to low oil & gas prices
3.2 Primary competitor:
• Great customer service
• Strong brand recognition in Norway
• Superior technology
• Strong ties to Norwegian government
• Robust brand recognition
• Strong penetration strategies
• Wide variety of products (e.g. downstream, upstream, midstream)
Both firms have a great market share.
• Low-performing stock
• Over 50% government owned
• Poor public image (e.g. Macondo incident)
• Unable to adapt to different countries tastes and preferences
Both Statoil and BP operate with a high brand recognition.
As Statoil and its competitors continue to adapt to market changes in the oil & gas industry, it is important to understand its performance in relation to peers to stay competitive at all times.
In addition to its regular annual financial coverage, in fiscal year end 2016, Statoil has also analyzed how peers have on average reduced new project break-evens by roughly a third, and lowered the oil price required to cover their annual capex and dividends by nearly half since 2014.
3.3 Secondary Competition.
Statoil's secondary competitors had an aggregate production broadly flat in the fourth quarter of 2016 compared with the same quarter in 2015, with Total, Shell and Statoil recording slight growth. While the organic capital expenditure guidance for 2017 is 45% lower than the actual spend in 2014, this large reduction in spending has not yet translated into lower volumes as companies signal around 5% year-on-year production growth in 2017
4.0 Entry Strategies Discussion & Evaluation
Statoil has made the final investment decision to build the world's first floating wind farm: The Hywind pilot park offshore Peterhead in Aberdeenshire, Scotland. This marks an important step forward for offshore wind technology, and potentially opens attractive new markets for renewable energy production worldwide. The decision triggers investments of around $200 million, realizing a 60-70 percent cost reduction per megawatt (MW) from the Hywind demo project in Norway (Wind Power, 2014).
4.1 Entry Strategies
Strategy #1: Direct funding in the Hywind, Scotland is Statoil's first strategy. It is a unique offshore wind technology developed and owned by Statoil. The concept has been verified through six years of successful operation of a prototype installed off the island of Karmøy in Norway. Hywind with its simplicity in design is competitive towards other floating designs in water depths of more than 100 meters.
Statoil will install a 30 MW wind turbine farm on floating structures at Buchan Deep, 25 km offshore Peterhead, harnessing Scottish wind resources to provide renewable energy to the mainland. The wind farm will power around 20,000 households. Production start is expected in late 2017.
Statoil is proud to develop the world's first floating wind farm. Its objective with the Hywind pilot park is to demonstrate the feasibility of future commercial, utility-scale floating wind farms. This will further increase the global market potential for offshore wind energy, contributing to realizing its ambition of profitable growth in renewable energy and other low-carbon solutions (Norway to Build Wind Farm, 2013).
Strategy #2: Licensing agreements is Statoil's second strategy. It needs to secure key energy security partners in the UK and Europe in order to pursue a broad range of activities relating to energy production and sales in Britain and Europe. Statoil is a leading supplier of natural gas to the British market, with a market share around 20 percent. Statoil also has commitments on the UK Continental Shelf, comprising of the development of the Mariner oil field, operatorship for the Bressay project and holding several exploration licences. Statoil's Global Strategy and Business Development division is based in London (Statoil Net Rises, n.d.).
Strategy #3: Joint venture is Statoil's third strategy. The costs of solar-power generation are falling rapidly. This is good news, especially to the 1.3 billion people, mostly in India and Africa, who do not have access to electricity and live in areas with much sun, but poor infrastructure.
Just like other types of renewables, the costs of solar-power generation are very low, or zero, when the equipment is installed and operational and the sun is shining. The growth in electricity generation from such sources has already helped change the electricity market in Europe considerably, and the industry is facing novel business models, challenging price mechanisms and declining revenue. It seems as if they do not quite know how to deal with the new realities. Statoil will need to create new ventures so that it can overcome these challenges.
In order for the world to reach the goal of reducing the global rise in temperature and at the same time meet the energy demand of an increasing number of people with rising energy consumption, a larger share of the final energy consumption must be electricity based on low-emission sources and a lower share of the energy consumption must be coal (New Energy, n.d.).
4.2 Entry Strategy Selection and Discussion
The best expansion strategy for Statoil is solar energy via joint venture agreements. Solar energy will heavily impact future electricity markets. It is however important to realize that many factors may limit the possibilities of replacing other forms of energy with solar energy:
• The ratio between the investment need (capacity) and electricity generation is high – and the ratio between actual and theoretical maximum production, the capacity factor, is low.
• It is dark 12 hours per day on average all year round all over the globe – this means that a high share of the demand must be met by backup power in the form of electricity generation or power stored in batteries, water or other means. It costs a lot, and a lower degree of utilization will increase the costs of alternative solutions. Today, 97% of the storage capacity is pumped water. The current overall storage capacity corresponds to less than 3% of the production capacity (New Energy, n.d.).
• Future lithium-ion batteries will become more effective than existing batteries, maybe 2-3 times more effective. New technology may further improve their effectiveness, which is positive. However, the costs of extensive battery use are not known. Existing batteries contain minerals that are partly toxic, hazardous and scarce. An average electric car contains five times more of the dirtiest coal, graphite, than an ordinary car. Most of this coal can be found in China, and provinces in China are shutting down their mines for pollution reasons. Primarily found in Kongo, cobalt is another mineral used in batteries. Both cobalt and graphite have been pointed out by the EU to be among critical raw materials with a considerable risk of insufficient supply. Production and handling of batteries on a much larger scale will be a challenge, and will be neither free nor clean. The same applies to Tesla's new Powerwall battery, which costs 12 times more than a corresponding power generator (New Energy, n.d.).
• With zero electricity generation cost a regulation of the markets is needed to attract commercial investors – capacity tariffs, grid regulation, limited rate of return, etc. This is not easy, not in Germany, and especially not in emerging economies. Likewise, a regulation is required to ensure energy efficiency in a situation with zero el-price during parts of the day.
The world's energy system is huge. It is changing slowly and growing continuously, while huge amounts of old capital equipment needs to be replaced regularly. In 1970, 85% of the energy was based on coal, oil and natural gas and the energy consumption was 40% compared to the present level. Today, around 80% of the energy supply is based on fossil fuels. Sun, wind and geothermal energy represent 1% of the supply (New Energy, n.d.).
Bloomberg New Energy Finance estimates that only around 20% of the electricity, around 6-8% of the energy, will be based on sun and wind power in 2030, despite huge investments in new capacity. More than half of this is onshore wind power, and around one third is solar energy. In Germany, solar energy contributed 6% of electricity supply in 2014 (New Energy, n.d.).
5.0 Statoil Target Market Analysis & Segmentation (in Norway)
Statoil's market analysis consists of Market Analysis Liquids (MAL), Technical Oil Analysis (TOA), Market Analysis Gas (MAG), Macroeconomic and Energy Analysis (MEA) and North America Market Analysis.
Statoil's target market focuses in originating trading opportunities and managing the crude, liquid natural gas and midstream marketing portfolios. Managing gas lifting and balancing agreements, supply planning and capacity booking Managing gas lifting and balancing agreements, supply planning and capacity booking. Statoil focus is also in the trading analysis, market analysis and macroeconomic analysis as well as managing midstream legislative, regulatory and policy issues. The main objective is, off course, driving the process to develop comprehensive business strategies for each commodity it markets.
5.1 Target Market Analysis
• Gas Commercialization: Statoil is involved in the formulation and evaluation of options for gas sales from its recent findings in Tanzania and Brazil. Statoil conducted a review of fundamentals in the gas markets, estimating supply and demand as well as the incremental gas needs in the different sub-regions of the markets. Statoil also assessed the relative economics of competing fuels such as coal, oil, nuclear, and renewables. Its comprehensive review allowed its customers to optimize its commercialization plan.
• New demand segments for gas in Europe: Statoil studied the commercial drivers and opportunities for the potential penetration of gas in the transportation sector. Together with colleagues from the oil analysis unit, Statoil foresees a faster growth of alternative-fuel powered vehicles such as hybrid, plug-in, full electric, and even gas-powered. This is accompanied by a decline in traditional gasoline and diesel cars. In line with these findings, we predict that LNG-powered engines will take a significant portion of both road freight and shipping markets (Statoil, n.d.).
• Demand for Solar Power: Solar energy and batteries require space and volumes – which are scarce in the world's biggest cities where the electricity must be provided by grid-based power supplies from sources outside the cities that fortunately are also partly renewable.
• Challenges for Solar Power: With zero electricity generation cost a regulation of the markets is needed to attract commercial investors – capacity tariffs, grid regulation, limited rate of return, etc. This is not easy, not in Germany, and especially not in emerging economies. Likewise, a regulation is required to ensure energy efficiency in a situation with zero electricity during parts of the day (Statoil, n.d.).
5.2 Recommended Target Market Segmentation
Demand for natural gas segment is growing in all the major European, American and Asian consumer regions, and the market forward curves show rising prices in coming years. Statoil is today the second largest supplier of natural gas to Europe, marketing about 75% of all produced gas from the Norwegian continental shelf (Statoil, n.d.).
The main part of these volumes – about 80-90% – is sold under long-term contracts concluded in the 1980s and 1990s with large European buyers. The bulk of these contracts gas have an oil indexed pricing, and developments in the oil price are accordingly significant for the export value of Norwegian gas. Additional gas volumes are typically sold in the spot market. Spot-market prices are relatively high in an historical perspective, even though prices have declined from the 2008 peak. Price growth forecasts build in part on expectations that total global demand for gas will increase by about 30% during the next two decades, largely driven by an increased gas demand for electricity generation.
In Europe alone, which is Statoil's core market, consumption in the power sector is expected to grow around 20% up to 2030. Statoil has additional gas for sale over the coming decade as volumes in some of its existing sales contracts start to decline and other contracts will expire (Statoil, n.d.).
5.3 Recommended Target Market Analysis
Market liberalization in Europe also gives Statoil access to new customer segments, such as large end-users. The power segment is regarded as an interesting sales channel. Over 30% of European power capacity is more than 40 years old and needs to be replaced. Gas represents a very competitive option compared to alternative energy sources and gas does not require subsidies. Gas is also attractive from a climate perspective, with carbon emissions declining up to 70% if an old coal-fired power station is replaced by a modern gas fired power station. Statoil is positioned in this new market segment. Prices are relatively high, demand is expected to grow in all markets and we can access several alternative channels when marketing new volumes.
6.0 Global Marketing Mix Strategies
1. Product – Statoil should focus on more gas production and wind farms.
2. Price – Gas prices should be competitive.
3. Place – Norway expansion and replacement of coal is a must.
4. Promotion –Health, Safety and Environment (HSE) should be Statoil's best business practice.
6.1 Statoil Product Strategy in Norway
6.1.1 Current Product Strategy with Examples
o Statoil enjoys a healthy oil and gas reserve replacement ratio. It seeks common business processes, common information systems and flow of correct information across geographical locations. It provides the best practice business processes and interfaces to support people in Statoil in making sustainable decisions and quality in financial reporting based on most up to date and correct information at the right time.
o Statoil provides road maps for information flow, roles, responsibilities and interfaces between people and IT-systems and the control regime in Statoil's global natural gas value chain.
o The fast depletion of oil and gas reserves makes it extra challenging extracting from its current locations. It is forced to seek new opportunities such as in North America, Africa and Brazil.
o Health, Safety and Environment are a global challenge. The public has become more cognizant of the potential environment and health impact on the environment forcing many oil and gas companies to incur more costs in the production process. Statoil along with the association of oil and gas producers (OGP) and International Petroleum Industry Environmental Conservation Association (IPIECA) have actively participates in both the OGP Safety committee and the joint OGP/IPIECA Health Committee where global challenges for the Petroleum industry is discussed in the hopes to minimize the environmental challenges faced in the oil and gas global economy.
6.1.2 Recommended Product Strategy
Statoil should focus on wind farm. Statoil has successful installed the first wind turbine in 2017. Operator Statoil and partners Masdar and Statkraft set the first turbine in production, which delivered electricity to the UK National Grid. This is a significant milestone for one of the largest offshore wind farms in Europe. Statoil is particularly satisfied with the on-time deliveries and the HSE performance so far. About 67 foundations were installed on the Dudgeon Bank of UK in 2016, along with the cables and the offshore substation that collects the power generated by the wind turbines. This work involved as much as 2,000 vessel days and almost the same number is anticipated this year for the installation of turbines (Norway to build eight wind farms, 2017).
6.2 Statoil Price Strategy in Norway
6.2.1 Current Price Strategy
• Strengths of current price strategy:
o Norwegian offshore wind power offers the most energy. However, to remain one of the major players within offshore wind, the levers should be the same as within oil and gas - a strong focus on cost reduction. The wind industry typically has lower margins than the oil and gas industry. Therefore, using proven technology and working closely together with the supplier industry are success factors. As the wind industry has matured, size has become important to drive down costs in own activities. Statoil needs to continuously optimize its asset portfolio to maximize value and return to its shareholders.
o Wind farm is environmentally friendly as it produces zero emissions. The International Energy Agency (IEA) predicts more than USD 50,000 billion investments up to 2035 in order to meet energy demand and stay within the carbon emission limit of a sustainable development path. Over the next 20 years investments will be required across all areas of the energy industry – including renewables, oil and gas, energy efficiency and energy infrastructure. Statoil in Norway is well in its way to meet this mark (Norway to build wind farms, 2017).
• Weaknesses of current price strategy:
o The cost of wind power is high. If wind farm projects are not subsidized by the government, companies could lose money.
o Many consumers who value the environment must assume the high costs and the risks when untouched nature is devastated. This is what many refer to as the high social costs of wind power development (Wind Power, 2014).
6.2.2 Recommended Price Strategy
The key to the best pricing strategy in Norway is to have the Norwegian government subsidize its wind farm development. In comparison to other European Union countries such as Sweden and England, where the price of electricity from wind farm is higher in comparison to Norway. Sweden, for example, enjoys a 20 to 25 percent better tax benefits for wind power. Norway's best bet is to create subcontractors such as large specialized vessels supporting wind power (Norway to build wind farms, 2017).
6.3 Statoil Promotion Strategy in Norway
6.3.1 Current Promotion Strategy
Statoil current promotion strategy is its offshore competence, marine operations, high HSE standards and successful project execution. These are Statoil's core competitive advantages when engaging in the offshore wind segment, a segment with a good outlook for technology advances and cost reduction in the long term.
The current portfolio is located in the UK, which is the world\'s leading offshore wind market. Sheringham Shoal has been in operation since 2009 and Dudgeon is planned to be in full operation by the end of 2017. Together, Sheringham Shoal's 88 turbines and 317MW capacity, and Dudgeon's 67 turbines and 402MW capacity, will generate an estimated 2.8 TWh annually, roughly equivalent to the annual electricity consumption of 650,000 UK homes (Norway to build wind farms, 2017).
6.3.2 Recommended Promotion Strategy
The recommended promotion focus for Statoil's offshore wind business should be northwest Europe. Longer term positioning will, in addition to Europe, be in growth markets such as Japan and US, specifically for the floating wind concept (Norway to build wind farms, 2017).
Statoil has achieved a lot in a short time period. It has proven that it can generate value throughout the asset development phase, construction and ultimately the operation phase with positive net operating income. Success is all about seeking industrial solutions, reducing costs and increasing competitiveness.
Using its experiences from Sheringham Shoal, the Dudgeon project is on track to reduce the cost of electricity produced by 26%. Statoil has also positioned itself as one of the major industrial players in the offshore wind industry (Norway to build wind farms, 2017).
6.4 Statoil Place Strategy in Norway
6.4.1 Current Place Strategy
• Two strengths
o Conveniently positioned in North America, Norway and West Africa. An upstream company like Statoil has in principle two choices when it comes to selling its commodity: Selling oil and gas more or less directly from the wellhead or choosing its own transport solutions, storage, processing/ fractioning and sale to the highest bidding customer - in other words, tailor the products to each individual customer and the market situation.
o Strategically partnered with other oil and gas companies such as Repsol, Talisman, Anadarko and Chesapeake. Statoil is a major gas player in northeast US. The company has established profitable value chains to the customer, and has flexibility to handle risk and take advantage of the market opportunities. In North-America the Marcellus (Ohio, Pensylvania, West Virginia) and Eagle Ford (Texas) shale gas fields, the oil and gas fields in the Gulf of Mexico and the oil resources in Canada have made Statoil a considerable upstream player. In North-America Statoil has become a large enough upstream player to be able to play a more active and commercial role in the midstream market. It will increase its earnings and profitability in a market where smaller players depend on midstream players. Not to mention that it will make Statoil more competitive in the fight for new upstream projects (Statoil May Consider Pemex, n.d.).
• Two weaknesses
o Oil and gas prices are too low in the current regions of Pensylvania, Ohio and West Virginia, where gas production is most predominant. The challenge in this part of the country is to ensure capacity in the infrastructure to lucrative markets on the US east coast. Statoil has been early in securing pipeline transport from Marcellus. In a few years, the company will be able to transport gas to New York and the Toronto area in north-eastern Canada.
o Statoil may not be able to compete with other low-cost producers such as Anadarko and Chesapeake. Statoil needs to enter into long-term sales agreements with other producers. But in order to do that, the company must be sure that it can deliver what the customer requires. Therefore, Statoil needs to buy volumes from other smaller/low-cost companies, so-called third-party volumes. This would reduce the risk of making delivery commitments, reduce the unit costs in the value chain and allow the traders to utilize short-term gains in the market (Nations Encyclopedia, n.d.).
6.4.2 Recommended Place Strategy
Statoil needs to target customers outside the Norwegian continental shelf such as Mexico continental shelf. Mexico has produced oil and gas for more than 100 years, is a top-10 producer of crude oil in the world, and is the home to the largest discovery ever made in the Western hemisphere. Investors estimate that Mexico is one of the countries with the largest yet-to-find resources in any basin worldwide, with sizeable parts of the country – onshore as well as offshore – significantly underexplored.
Since the energy reform passed, Mexico has shown that it is firmly open to business, welcoming new operators and partners alongside the national oil company, Pemex. Authorities have successfully executed three open and increasingly competitive bid rounds which have expanded the universe of companies operating in Mexico from one to more than 20. Statoil participated in the first two tenders for opportunities in shallow water (Statoil May Consider Pemex, 2016).
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