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Culture And Issues Of Global Oil Industries Engineering Essay

The petroleum industry includes the global processes of exploration, extraction, refining, transporting often by oil tankers and pipelines, and marketing petroleum products. The largest volume products of the industry are fuel oil and gasoline petrol. Petroleum oil is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. Midstream operations are usually included in the downstream category.

Petroleum is vital to many industries, and is of importance to the maintenance of industrial civilization in its current configuration, and thus is a critical concern for many nations. Oil accounts for a large percentage of the world’s energy consumption, ranging from as low of 32% for Europe and Asia, up to a high of 53% for the Middle East.

Other geographic regions’ consumption patterns are as follows: South and Central America (44%), Africa (41%), and North America (40%). The world consumes 30 billion barrels (4.8 km³) of oil per year, with developed nations being the largest consumers. The United States consumed 25% of the oil produced in 2007.[1] The production, distribution, refining, and retailing of petroleum taken as a whole represents the world's largest industry in terms of dollar value.

Governments such as the United States government provide a heavy public subsidy to petroleum companies, with major tax breaks at virtually every stage of oil exploration and extraction, including for the costs of oil field leases and drilling equipment

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Energy Information Administration, Weekly Petroleum Status Report, for the week ending

July 22, 2005, Table 14, p.27. Gasoline price data does not include taxes.

2Oil Daily, Profit Profile, November 15, 2004, p.7.http://en.wikipedia.org/wiki/Petroleum_industry. Available

http://www.siemens.ae/energy-efficiency/fossil-energy.html?stc=aeccc020019d1bcfd7cd0-http://www.fas.org/sgp/crs/misc/R42364.pdf

History:

After my searching for this project I found that Petroleum is a naturally occurring liquid found in rock formations. It consists of a complex mixture of hydrocarbons of various molecular weights, plus other organic compounds. It is generally accepted that oil is formed mostly from the carbon rich remains of ancient plankton after exposure to heat and pressure in the Earth's crust over hundreds of millions of years. Over time, the decayed residue was covered by layers of mud and silt, sinking further down into the Earth’s crust and preserved there between hot and pressured layers, gradually transforming into oil reservoirs. Petroleum in an unrefined state has been utilized by humans for over 5000 years. Oil in general has been used since early human history to keep fires ablaze, and also for warfare.

Its importance in the world economy evolved slowly, with whale oil used for lighting into the 19th century and wood and coal used for heating and cooking well into the 20th Century. The Industrial Revolution generated an increasing need for energy which was fueled mainly by coal, with other sources including whale oil. However, it was discovered that kerosene could be extracted from crude oil and used as a light and heating fuel. Petroleum was in great demand, and by the twentieth century had become the most valuable commodity traded on the world markets

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Energy Information Administration, Weekly Petroleum Status Report, for the week ending

July 22, 2005, Table 14, p.27. Gasoline price data does not include taxes.

2Oil Daily, Profit Profile, November 15, 2004, p.7.http://en.wikipedia.org/wiki/Petroleum_industry. Available

http://www.siemens.ae/energy-efficiency/fossil-energy.html?stc=aeccc020019d1bcfd7cd0-http://www.fas.org/sgp/crs/misc/R42364.

Environment:

Some petroleum industry operations have been responsible for water pollution through by-products of refining and oil spills.

The combustion of fossil fuels produces greenhouse gases and other air pollutants as by-products. Pollutants include nitrogen oxides, sulphur dioxide, volatile organic compounds and heavy metals.

As petroleum is a non-renewable natural resource the industry is faced with an inevitable eventual depletion of the world's oil supply. The BP Statistical Review of World Energy 2007 listed the reserve/production ratio for proven resources worldwide. The study placed the prospective life span of proven reserves in the Middle East at 79.5 years, Latin America at 41.2 years and North America at only 12 years.

The Hubbert peak theory, which introduced the concept of peak oil, questions the sustainability of oil production. It suggests that after a peak in oil production rates, a period of oil depletion will ensue. Since virtually all economic sectors rely heavily on petroleum, peak oil could lead to a partial or complete failure of markets.[19]

According to research by IBIS World, biofuels (primarily ethanol, but also biodiesel) will continue to supplement petroleum. However output levels are low, and these fuels will not displace local oil production. More than 90% of the ethanol used in the US is blended with gasoline to produce a 10% ethanol mix, lifting the oxygen content of the fuel

____________________________________________________________________________

Energy Information Administration, Weekly Petroleum Status Report, for the week ending

July 22, 2005, Table 14, p.27. Gasoline price data does not include taxes.

2Oil Daily, Profit Profile, November 15, 2004, p.7.http://en.wikipedia.org/wiki/Petroleum_industry. Available

http://www.siemens.ae/energy-efficiency/fossil-energy.html?stc=aeccc020019d1bcfd7cd0-http://www.fas.org/sgp/crs/misc/R42364.

Governance:

National Oil Companies (NOCs) play an important role in the world economy. They produce most of the world's oil and bankroll governments across the globe. Although NOCs superficially resemble private-sector companies, they often behave in very different ways. Oil and Governance explains the variation in performance and strategy for NOCs and provides fresh insights into the future of the oil industry as well as the politics of the oil-rich countries where NOCs dominate. It comprises fifteen case studies, each following a common research design, of NOCs based in the Middle East, Africa, Asia, Latin America and Europe. The book also includes cross-cutting pieces on the industrial structure of the oil industry and the politics and administration of NOCs. This book is the largest and most systematic analysis of NOCs to date and is suitable for audiences from industry and academia, as well as policy makers

____________________________________________________________________________

Energy Information Administration, Weekly Petroleum Status Report, for the week ending

July 22, 2005, Table 14, p.27. Gasoline price data does not include taxes.

2Oil Daily, Profit Profile, November 15, 2004, p.7.http://en.wikipedia.org/wiki/Petroleum_industry. Available

http://www.siemens.ae/energy-efficiency/fossil-energy.html?stc=aeccc020019d1bcfd7cd0-http://www.fas.org/sgp/crs/misc/R42364.

Strategy:

All NOCs began with geological prospecting and oil extraction and progressed toward vertical integration by developing oil processing and distribution at home and abroad.

Koneig,M. Democratic governance in multicultural societies. UNESCO. Available http://www.unesco.org/most/ln2pol2.htm (27 November 2012) According to a rule-of-thumb in oil business, transfer into the field of oil processing and sales assures additional profits and a guaranteed access to the oil market, especially when investing into the key consumer countries. Vertical integration reduces transaction costs and helps companies to control the entire chain from the oil well to the gas pump. This also serves to smooth over the effects of abrupt oil price fluctuations, because oil product prices are more stable.

Those NOCs that have been unsuccessful in vertical integration may have a hard time. Nigeria, for example, perpetually suffers from oil product shortages. Four NNPC oil refineries are incapable of meeting the internal demand for fuel and Nigeria, blessed with hydrocarbons, is forced to purchase fuel abroad. In an attempt to resolve the problem, from 1999 through 2007, Nigeria’s government had invested 1 billion dollars into oil processing but so far without any particular results.

Saudi Arabia’s Aramco displays a better example of vertical integration. The company plans to raise extraction from 10 million barrels per day in 2006 to 15 million by 2025 and to have a constant reserve extraction capacity of 1.5-2 million barrels per day. For this purpose it intends to expend about 50 billion dollars. But the Aramco is moving away from its formerly raw product emphasis.

Already by the 1980s the kingdom’s leaders decided they needed to seek their country’s independence by means of diversification and control over their base of clients. For this purpose control over oil refineries had to be established which would process 50 percent of the oil extracted. To date, Aramco boasts five refineries in the country with a capacity of 1.4 million barrels per day and 2 joint ventures with ExxonMobil and Shell, which together process 500,000 barrels of oil daily. In addition it has stakes in several refineries abroad (in the U.S. Greece and South-East Asia) with a total capacity of 1.65 million barrels per day

____________________________________________________________________________

Energy Information Administration, Weekly Petroleum Status Report, for the week ending

July 22, 2005, Table 14, p.27. Gasoline price data does not include taxes.

2Oil Daily, Profit Profile, November 15, 2004, p.7.http://en.wikipedia.org/wiki/Petroleum_industry. Available

http://www.siemens.ae/energy-efficiency/fossil-energy.html?stc=aeccc020019d1bcfd7cd0-http://www.fas.org/sgp/crs/misc/R42364.

Organization:

Every organization has its own approach, objectives and operation style which they try to retain when they enter different countries. Over the last 30 years, oil and gas companies have continually adapted their organizational models to address the strategic priority of the times. Opening new frontiers was top-of-mind from the late-1970s until mid-1980s, when resource nationalization, oil embargos, and record oil prices convulsed the industry. Organization structures favored functional designs, which enabled innovation for emerging growth opportunities in the North Sea and West Africa.

The oil crisis in 1986 and fears of long-term oil price decline in the early 1990s triggered downsizing and cost-cutting initiatives. Business focus on squeezing existing assets became critical. During this period, organization structures evolved towards an asset-based model, which gave strong autonomy and accountability to local operations with very limited corporate oversight.

In the late-1990s and early-2000s, the industry witnessed another major oil crisis and a consolidation wave, requiring companies to become more efficient. This goal prompted a shift towards matrix organizations to harmonize practices and achieve more consistent operational performance.

Since 2003, prevailing high oil prices (relative to historic prices) combined with increasing resource nationalism has pushed companies to go after new resource plays and position for long-term growth. This has required leveraging key competencies, developing focused technology agendas, and ensuring strong project control. Oil and gas companies today mostly follow a hybrid organization. Units that require a high degree of specialized skill or control are centralized, for example, mega-projects and exploration. Units that require local knowledge follow a decentralized model. The chosen organization models, however, depend on the company’s culture and challenges.

Most recent organizational changes in oil and gas companies have occurred in response to specific business challenges, including:

Delivery of complex, risky and resource intensive mega-projects

Steady increase in exploration cost and portfolio risk

Maintaining plateau production in mature assets

Suboptimal field development processes

High variability in drilling performance

Shift towards unconventional resources

Future technical skills shortage due to “crew change”

Poor production forecasting capabilities

Performance:

The performance of multinationals in international business will be different from one company to another. While some companies may do very well, others may fail. Further some multinationals may do good business in one country but may not be successful in another.

The oil company Saudi Aramco, for example, has been using the XHQ real-time operations intelligence platform for years. It allows Aramco to optimize production processes and improve business procedures. In early 2011, Siemens and Saudi Aramco agreed to strengthen their cooperation for efficient use of fossil energy resources in Saudi Arabia. The cooperation covers low-emissions gas turbines, high-efficiency steam turbines, compressors, and blowers – and grants Saudi Aramco improved access to Siemens Oil & Gas Division’s rotating equipment and services.

A further example of efficiency in the use of fossil energy resources in the Middle East is the extension of its oil removal product and service offering in Saudi Arabia. For this, Siemens and MyCelx Technologies have reached an exclusive distributorship and service agreement that allows for the economical recycling of large volumes of water used in the petrochemical and oil and gas industries.

____________________________________________________________________________

Energy Information Administration, Weekly Petroleum Status Report, for the week ending

July 22, 2005, Table 14, p.27. Gasoline price data does not include taxes.

2Oil Daily, Profit Profile, November 15, 2004, p.7.http://en.wikipedia.org/wiki/Petroleum_industry. Available

http://www.siemens.ae/energy-efficiency/fossil-energy.html?stc=aeccc020019d1bcfd7cd0-http://www.fas.org/sgp/crs/misc/R42364.

Issues / Problems:

International business brings with it a whole lot of problems and challenges which have to be overcome in order to succeed. Further the solutions applied to a problem may succeed in one culture and fail in another. Therefore the problems need to be addressed keeping in mind the culture of the people to which it is related. In this regard An evolution of intelligent detection methods applied in the oil industry, using geological and geophysical data will be given. The most challenging problems of exploration and production may require application of advanced technologies. Our focus in this paper will be to highlight applications of soft computing and artificial intelligence. Specifically, the strength and weakness of human intelligence versus machine intelligence and the need for combining human and machine intelligence is visited. The role soft computing methods (neural networks, fuzzy logic and evolutionary computing) that can play in establishing “hybrid” intelligence for addressing E&P problems is emphasized.

However they have not encountered similar problems in any other country which shows that international business is different from one country to another .

____________________________________________________________________________

Energy Information Administration, Weekly Petroleum Status Report, for the week ending

July 22, 2005, Table 14, p.27. Gasoline price data does not include taxes.

2Oil Daily, Profit Profile, November 15, 2004, p.7.http://en.wikipedia.org/wiki/Petroleum_industry. Available

http://www.siemens.ae/energy-efficiency/fossil-energy.html?stc=aeccc020019d1bcfd7cd0-http://www.fas.org/sgp/crs/misc/R42364.

Discussion:

Based on the above study it is very clear that international business is very complicated process which requires very careful handling, use of different strategies, different resources and the need for careful study of the culture of the people before making an entry into a specific

country. Further even within a society the culture of the people may vary from one group to another such as the African American culture varies from the Asian American culture.

Due to this reason the company has to do in-depth research and develop clear objectives before they spend their financial and human resources for marketing their product.

____________________________________________________________________________

Energy Information Administration, Weekly Petroleum Status Report, for the week ending

July 22, 2005, Table 14, p.27. Gasoline price data does not include taxes.

2Oil Daily, Profit Profile, November 15, 2004, p.7.http://en.wikipedia.org/wiki/Petroleum_industry. Available

http://www.siemens.ae/energy-efficiency/fossil-energy.html?stc=aeccc020019d1bcfd7cd0-http://www.fas.org/sgp/crs/misc/R42364.

Way Forward:

International Business is unique since it differs from one country to another and also it varies from one period to another and from one generation to another. This is because the youth may have specific requirements which will not match with the adults of the same society. Further the requirements and needs may change from time to time on account of which companies have to be careful in entering a country. Also in the present day the use of social media is very important whereas the same thing was unheard of a decade ago. Hence companies such as Pepsi need to be constantly updating their knowledge of a community and the changes that take place in order to enjoy continued success.

____________________________________________________________________________

Energy Information Administration, Weekly Petroleum Status Report, for the week ending

July 22, 2005, Table 14, p.27. Gasoline price data does not include taxes.

2Oil Daily, Profit Profile, November 15, 2004, p.7.http://en.wikipedia.org/wiki/Petroleum_industry. Available

http://www.siemens.ae/energy-efficiency/fossil-energy.html?stc=aeccc020019d1bcfd7cd0-http://www.fas.org/sgp/crs/misc/R42364.

Conclusion:

International business is very essential in the present day since companies cannot continue exist just be depending on one particular community. They need to become global for which knowledge and use of culture is very important of their success. petroleum industry is the result of competitive pressures and the inherent nature of the oil business. Vertical integration is displayed as a device to lower costs by overcoming the disabilities that market contracting can experience. Allegations of market power were examined and dismissed on both theoretical and empirical grounds. The evidence points to an industry that is highly competitive. The conclusion reached is that vertical divestiture is an entirely inappropriate policy for improving the competitive performance of the petroleum industry, and of energy markets in general. There is a strong affirmative rationale for a vertically integrated industry structure. By applying the relevant tools of economic analysis, and by examining the available evidence, the case for vertical divorcement fades entirely, according to Dr. Teece. He feels that, by retarding technological innovation, vertical divorcement could stultify productivity improvements and jeopardize the development of new sources of energy. In short, vertical divorcement offers nothing to benefit the American consumer or to reduce the dependence of the United States on the OPEC cartel. It is more likely to increase product prices and increase the U.S. dependence on foreign oil. If lower prices and less dependence on foreign supplies are the intended policy objectives, then vertical divorcement should be abandoned as a serious policy alternative.

____________________________________________________________________________

Energy Information Administration, Weekly Petroleum Status Report, for the week ending

July 22, 2005, Table 14, p.27. Gasoline price data does not include taxes.

2Oil Daily, Profit Profile, November 15, 2004, p.7.http://en.wikipedia.org/wiki/Petroleum_industry. Available

http://www.siemens.ae/energy-efficiency/fossil-energy.html?stc=aeccc020019d1bcfd7cd0-http://www.fas.org/sgp/crs/misc/R42364.

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