For the first time in its history, the national oil company of a certain developing country took steps to publicly trade a portion of its stocks. While the company would remain primarily government owned, stocks purchased by institutions and individuals would help it raise needed revenue. In order to attract those investors and give them confidence, the oil company needed to develop a new strategic vision and roadmap for growth. Its leadership team wanted to follow the example of industry giants by increasing crude oil production and refining capabilities and then launching a profitable chemical business that was tightly integrated with their core operations. To achieve those goals, they knew they needed objective knowledge of evolving market conditions and expert advice about how to capitalize on current and future opportunities.
In 2008, this national oil company reached out to multiple firms in search of expert analysis and comprehensive information content spanning the entire petrochemical industry value chain from below the wellhead to retail stores. After a careful review, the company's evaluators chose Chemical Consulting. Soon, the oil company's in-house chemical team was meeting with S&P Global experts to begin work on a flexible two-pronged approach.
Expand Oil Refinery Capabilities
Their first priority was to boost production of crude oil and enhance the company's refining capabilities. Company managers set aggressive production goals and made major investments – equivalent to millions of US dollars – in their refining operations. In their part of the world, they produce heavy crude oil so the company had to expand its refining capabilities to produce marketable products such as gasolines and distillates. Over the next few years, the national oil company upgraded two of its biggest refineries and positioned itself to launch a new chemical business.
Explore Global Chemical Markets
A portion of the national oil company's increased crude oil production could now be dedicated to manufacturing various chemical products. Like Shell, Exxon, BP and other multinational industry titans, this oil company could reap additional value from a complementary new line of business. The question now was which markets they should target and which chemicals to produce.
Company managers initially asked one Chemical Consulting team to develop a screening study with a high-level assessment of market opportunities. A year later, in 2009, the company kicked off the next phase of the project by requesting additional information. Another team of Chemical Consulting experts conducted more detailed commercial analysis and feasibility studies on the top-rated opportunities as well as providing specific, updated recommendations.
As a result, the company avoided sinking billions of dollars into the pursuit of markets that no longer favor them and is now focusing on dynamic new market opportunities.
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Manage Resources and Risks
One key recommendation from Chemical Consulting focused on the idea of establishing a partnership with either a trading company or another chemical firm. To launch a new chemical business would require the national oil company to address a whole series of high-stakes challenges – financial, technological, commercial and more. The capital investment would be significant, projected at up to $4 billion US dollars. Specialized technologies would have to be licensed. Distribution channels would need to be developed.
By teaming with a major global player, this national oil company could tap into additional resources, shorten its organizational learning curve and distribute the substantial costs and risks inherent in this venture. A partner (or partners) could be invaluable in helping the national oil company reach international markets.
The company's management team agreed and hired both an investment bank and law firm to work with S&P Global experts. Together, they would advise the company on which prospective partners might be the best match, what steps would be needed to reach an agreement, and any issues that might need to be resolved.
Shale Gas: A Game Changer
Over the next two years (2010-2011), the national oil company team continued working with S&P Global to lay the groundwork for their chemical business launch and update the commercial opportunities analysis. By 2012, however, it was clear that a seismic shift in global energy markets would have a major impact on their plans.
The emergence of United States shale gas as viable new feedstock was revolutionizing the competitive landscape. Past assumptions about the costs of producing certain chemicals in the US versus developing countries were suddenly turned upside down. Now it seemed that it would be difficult for this national oil company to compete profitably, while relying on conventional heavy crude oil feedstock, with US chemical manufacturers who could force prices down on chemicals derived from shale gas.
Fortunately, the oil company's senior management team was able to see these emerging risks in advance and adjust their plans accordingly – based on broad, deep business intelligence and expert advice from Chemical Consulting. As a result, the company avoided sinking billions of dollars into the pursuit of markets that no longer favor them and is now focusing on dynamic new market opportunities.
Uncover Dynamic New Opportunities
In 2013, the national oil company's senior executives began actively exploring chemical manufacturing market opportunities that might be either unaffected or even enhanced by the emergence of shale gas. For example, while the US shale boom is forcing down prices on chemicals such as ethylene, it may be opening up greater opportunities to develop new biofuel-based chemicals such as bioethylene, based especially on demand from consumer companies.
The national oil company's managers are also looking at recently implemented innovations at their refineries such as Fluidized Catalytic Cracking (FCC), which already produces higher yields of diesel, to see how they may also expand the range of chemical products that can be cost-effectively manufactured.
Poised for Success
Today, this national oil company is ready to move ahead with plans to launch a chemical manufacturing business that will complement its successful oil production and refining operations. Its shareholders can feel confident knowing that the company's leadership team has the world-class information and insights it needs from S&P Global.
