As the soaring oil price becomes unpredictably high throughout 2007, energy users are looking for alternatives to avoid high production and consumption costs.
The stubbornly crude oil has been hovered above $ 90 in 2007 peaking at $ 99.29 on November 2007. Now, as the year turns to 2008, it appears that this trend steadily continues.
To the oil users such trend forces them to shift their attitudes on oil usages. Industries relying on oil for their production inputs face the imminent lost on their operational costs if the trend remains persistent.
Even PLN, the Indonesian power company, has accelerated its plans to develop new generation plants using mix energy sources combining gas and coal as its inputs. This is in line with the national energy policy targeting the reduction of oil usages for power generations down to 30 % by 2025.
So, from the oil and gas company perspectives, maintaining oil businesses for power generations, although yields large cash in the short term, may probably lead into business declines in the long term should the oil price incline.
The geopolitical condition in the
Parallel to the nightmare, OPEC, the oil producer cartel, stubbornly keeps the production rate at its current output leaving the oil supply shortened.
It is not surprising that these have conditioned major oil companies to start revamping their business portfolios. In fact, companies such as BP and Shell have started diversifying their business portfolios for quite some time. History has it said that the success of Shell in becoming a major leading energy (instead of oil and gas) company lies on its strategic efforts in energy diversifications and widening its ‘radar’ over future global issues. The recent transformation of Chevron ‘Human Energy’ confirms that the energy future is no longer confined to fossil sources.
For these reasons two options have been sought for. Companies are diversifying either by selling variant hydrocarbon sources such as gas and coal or exploring renewable energy businesses.
While transitioning into a renewable energy company is considered to be more sustainable in the long run amid environmental issues, it is noticed that developing renewable energy businesses yields lower investment to revenue ratios, at least for the time being.
Likewise, turning into coal businesses requires adjustments in the organizational structure and core competencies. Oil companies may find it difficult to compete with incumbent coal producers as they are more adept in opening up field concessions, negotiating with relevant government representatives, finding suppliers and selling the outputs. Even with overlapping opportunities such as in developing Coal Bed Methane, companies putting interests on this new method has yet to acquire new capabilities and expect incentives from the government.
Thus, given the likelihood that gas would become the energy ‘diamond’ in the near future, capitalizing resources into gas extraction and production businesses is perhaps the realistic option confronted by oil and gas companies.
It is no surprise that ExxonMobil preferred to keep overseeing the Natuna gas block through negotiating for a contract extension.
At a glance, with more shares conceded to the Indonesian government in the new contract, it appears that ExxonMobil is declining its future profits.
Unlike the previous scheme, the company will not have the luxury over gaining a larger share. Furthermore, the state owned enterprise Pertamina will also take part in the contract share leaving the ExxonMobil share smaller.
Yet, one needs to recall that the reserve in the block is considered to be the largest in the Southeast Asian region. ExxonMobil can gain benefits from the contract by dealing over a longer term.
Not to mention that
This sets a win – win solution both for the MNE and the state. High oil price demanding the shift to alternative energy sources creates opportunities for ExxonMobil to gain profits from gas businesses over a significant time period while to the government of
