Competitive warfare The impact of electric cars on the oil & refinery industry and their countermeasures
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- Sean PHILIPP and Peter HAISS
- Introduction and outline
- Current energy demand
Paper accepted for presentation at the 10th Global Conference on Business and Economics, Rome, Italy, Oct.15-16, 2010
Abstract Current developments in the automotive industry and in the energy sector, particularly in the field of electric vehicles, are putting both industries under severe pressure. While e-mobility is a strategic opportunity for the automotive industry, for the oil & gas industry it is rather a threat of substitution in the Porter (1980) scheme. Drawing on Transaction Cost Economics (Williamson, 1981) and Strategic Disruption Theory (Averyt & Ramagopal, 1999), we hypothesize that the oil & gas industry will actively tackle the issue. We discuss possible strategic reaction patterns of companies attempting to maintain their market position like diversification and prolongation, and provide a case study on new intruders and national initiatives. We conclude that the oil & gas industry will react in a dual mode by (1) trying to turn the threat into an opportunity (e.g. demand public subsidies for the transition) and by (2) trying to delay the switch to e-cars. JEL Classification: L91 Keywords: oil and gas industry, automotive industry, electric vehicles, competition, renewable energy Competitive warfare - The impact of electric cars on the oil & refinery industry and their countermeasures Sean PHILIPP and Peter HAISSAbstractCurrent developments in the automotive industry and in the energy sector, particularly in the field of electric vehicles, are putting both industries under severe pressure. While e-mobility is a strategic opportunity for the automotive industry, for the oil & gas industry it is rather a threat of substitution in the Porter (1980) scheme. Drawing on Transaction Cost Economics (Williamson, 1981) and Strategic Disruption Theory (Averyt & Ramagopal, 1999), we hypothesize that the oil & gas industry will actively tackle the issue. We discuss possible strategic reaction patterns of companies attempting to maintain their market position like diversification and prolongation, and provide a case study on new intruders and national initiatives. We conclude that the oil & gas industry will react in a dual mode by (1) trying to turn the threat into an opportunity (e.g. demand public subsidies for the transition) and by (2) trying to delay the switch to e-cars. Introduction and outlineThe main focus of this paper is to show how the development of alternatively fuelled cars and in particular the introduction of electric vehicles might affect oil and gas companies in the future, including possible countermeasures. Given the presence of crude-oil based products in our daily life and especially its dominant position in the fuel market, there are two parties with a particular interest in the “black gold” – oil and refinery companies and automotive manufacturers. Nowadays more than ever these two groups see themselves threatened by a very popular trend: “Green” thinking. When the first people who followed the idea of a sustainable and environmentally friendly lifestyle tried to promote their idea 20-30 years ago, not many listened. Today, in 2010, this has changed. Many people nowadays are aware of the impact of their actions and are willing to change their habits. With the introduction of the first hybrid mass-production vehicles approx. 15 years ago and the gradual introduction and development of electric vehicles oil and refinery companies, as well as car manufacturers, see themselves in an endangered position. The formerly very safe haven, oil companies long time saw themselves in, is more and more put under severe pressure. Environmental issues are very important to people and governments alike and need to be treated with great attention. Thus, the oil and automotive industry was put under ever growing pressure to make their products more ecological and efficient. Not surprisingly, this is also the right time for even better solutions in individual traffic – i.e. the introduction and development of electric vehicles suitable for daily use. This paper will attempt to give an insight in how oil and gas companies as well as automotive manufacturers might react to these new developments. The first part of the paper gives an overview of the current energy situation and points out the likely impact of various market risks for the oil industry. We discuss risks for oil and gas companies in the future and different approaches of handling these risks. We particularly emphasize the move towards e-cars. The following part summarizes the theoretical background the papers draws on, i.e. Porter’s (1980, 2008) theory of market forces and Williamson´s (1981) theory of transaction cost economics. On the grounds of these theories we discuss different strategic reaction patterns for the oil and gas sector to recover and strengthen their market power. We hypothesize that the oil industry will apply countermeasures to ward off the threat of substitution. In analogy to Arping & Diaw (2008), D´Aveni (1999), Creane & Miyagiwa (2009) and Schneider (2008) we thus particularly include concepts of strategic disruption and methods of market entry deterrence in the discussion. The paper also includes a case study on Tesla Motors, Inc., and on public incentives for the introduction of electric vehicles. We conclude that oil companies react in a dual mode to the threat of substitution of gas engines by e-cars by (1) using strategies like diversification and prolongation in trying to turn the threat into an opportunity and by (2) trying to delay the switch to e-cars. Current energy demandThe following will give an overview over the World’s current energy demand, especially focused on liquid fuels and the transportation sector including predictions for the future. World energy demand and consumptionAccording to the International Energy Administration (IEA, 2009), the proportion of gasoline consumption has been on a quite constant level, whereas the proportion of heavy fuel oil has constantly been decreasing over the last two, three decades. This development resulted in an increasing use of middle distillates. However, since the middle 1980’s there has been a constant rise in the global total oil consumption. The following graph shows a fragmentation of the world’s liquid fuel consumption, divided into four categories – residential/commercial, electric power, industrial and transportation. As the graph shows, the predictions for consumption in the first three categories remain at approximately the same level. The clear increase in consumption results from the soaring energy consumption of the transportation sector. 
Figure 1: Global liquids consumption 2006-2030 Source: Energy Information Administration, International Energy Outlook, 2009 Download 0.64 Mb. Share with your friends:
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