Marketing Research

Executive Summary

This paper explores market opportunities in the Canadian oil industry in the event challenges such as decline in oil prices can be addressed. The consequence, for example, due to the decline of oil prices include downsizing to create leaner operations and improve profits. Canada is among the leading oil producers in the world who is not a member of the OPEC oil producing countries. As such, it is normally affected by the price controls introduced by OPEC. On the other hand the emergence of shale oil producers in addition to non-OPEC oil producing countries have contributed significantly to the oversupply thus leading to the decline in oil prices experienced at the moment. However, as oil deposits continue to reduce in other oil producing countries, Canada is in a position to becoming the largest oil producer globally. While there are numerous challenges in the oil industry, the oil sector in Canada needs to examine the political, economic, social, technological, legal and environmental factors that can impact on the growth of its oil and gas industry. In addition, the oil sector in Canada need to increase its bargaining power in the international market by forming alliances with other non-OPEC countries such as the U.S, Brazil and China.

Marketing Research: Canada’s oil industry

1.0 Statement of the Business Problem

The oil prices in Canada keeps declining and this affects profits of companies dealing in oil and gas exploration in the country. In order to deal with the risks that accompany the decline in oil prices, most companies are forced to downsize their workforce as a way of minimizing costs and improving efficiency. However, despite the decline in oil prices that is impacting negatively on the Canadian oil and gas industry, production is expected to improve in 2015 due to the huge investment in the sector over the past few years. Consequently, the industry expects crude production, and including oil sands to increase significantly to averagely 3.8million barrels per day compared to 3.6million in 2014. As one of the leading oil producing countries in the world, Canada’s bargaining power in the oil market globally, is still weak and this affects the growth of the industry domestically.  On the other hand, foreign investors consider Canada as an expensive destination to build infrastructure and produce oil and gas (Dickinson 32). 

Canada is considered inflexible compared to other oil and gas producing countries such as Saudi Arabia. As such, the Canada needs to develop modalities to ensure they can adjust their production volumes and influence the price of oil and gas as a way of countering maneuvers by other OPEC members. On the other hand, while low energy prices affect the Canadian economy, there are also opportunities created as a result of the fluctuation in oil prices. For instance, this is not the first time that the oil industry is experiencing price fluctuations. The trend has continued for the past 20 years and it is important for the oil and gas industry in Canada to note that large quantities of oil can be produced profitably at $60 or $70 a barrel. As such, Company X intending to join the Canadian oil and gas industry can take advantage of the opportunities that come with price fluctuations as a way of realizing success in the sector. Further, the oil and gas industry in Canada is resilient and can weather price fluctuations by focusing on leaner operations and minimizing costs to generate more profits (Dickinson 34).

Fig 1: Fluctuating prices of crude oil globally

Source: The New York Times

2.0 The background of the Canadian oil industry

In Canada, the conventional oil production begun in 1974; however, due to its decline, the oil industry in the country is now focusing on tar sands production.  This has led to the production of over 2million barrels per day and the sector is targeting to produce 5million barrels per day by the year 2020. Canada is in an advantage position in terms of oil production because as production in other oil-producing countries reduces, Canada is experiencing a steady growth in the sector. This further improves investor confidence since, the country has a potential to become the leading oil producer in the world thus earning investors in the sector more profits (Dickinson 35). On another note, large quantity of Canada’s oil is exported to the US and at present, Canada is United States leading oil supplier. The United States demand for oil is high when compared to other world’s biggest economies and this presents opportunities for prospective investors to join the Canadian oil and gas industry. The business environment in Canada also favors prospective investors in the sense that, the country has a legislation that permits small independent oil firms to operate under a free-enterprise tax system and there is less risk of political upheaval or confiscation (Dickinson 35).

Fig2: Canadian oil sands and conventional oil

Source: Next Big Future

3.0 The size and role of Canadian oil and gas industry

The Canadian oil and gas industry is considered as key driver of both Canada and Albertan’s economic growth. For example, the oil and gas sector accounts for a significant part of Alberta’s GDP as well as the country’s business investment and due to the rising demand for oil globally, Canada is bound to become a global economic hub. Further, this provides a significant market segment for investors with an interest in the oil sector. On another note, Canada’s oil sector is unique in the sense that while other OPEC members continue to experience decline in oil and gas exploration, the country has the potential of increasing oil production from the tar sands of Alberta to meet the global demand for oil in the near future. As such, the role of the Canada oil and gas sector in global context remains critical to ensure the world’s largest economies such as the United States is not affected by shortages in oil supply that in turn, also impacts negatively on the global economy (Grant 64).

4.0 The targeted customers

The single largest customer targeted by the Canadian oil and gas industry is the United States. This offers the country a huge investment potential since the United States is the largest consumer of oil in the world.  Other customers targeted by the Canadian oil and gas industry are China, which has the potential to surpass the United States in terms of oil consumption (Avery et al. 344).

Fig 3: Canada’s oil production and consumption

Source: VanCity Buzz

5.0 Canada’s oil and gas industry market share

Over the years, the energy market in North America has changed significantly in terms of the use of technology in drilling oil and also well completion techniques. These changes has transformed the production of oil and gas in North America and notable implications include an increase in demand that has led to the development of LNG expert terminals between the U.S and Canada as a way of increasing supply energy in the North American market.  Both U.S and Canada, can exploit market opportunities presented by the vast oil sands reserves in North America. Despite the current turmoil in the global oil and gas sector, the Canadian oil industry is expected to emerge stronger in the global oil market. In 2014, the global market stood at 92.4million barrels per day (Avery et al. 347). This is a growth of averagely additional 1million barrels per day compared to the previous 4 years. On the other hand, the oversupply in the market is directly linked to the latest fall in prices due to the need to establish market equilibrium. However, the low prices also tend to encourage consumer spending, for instance, buying guzzlers thus increasing the demand for oil in the subsequent years. In essence, the global market that is currently oversupplied is expected to gain the market equilibrium in less than two years. This presents great potentials for the North America oil and gas industries considering their vast reserves (Avery et al. 356).

6.0 Channels of distribution in Canada’s oil industry

Canada’s oil distribution network is largely operated by the multinational companies that include, for instance, Imperial, Shell and PetroCanada Oil. In addition, the downstream oil industry is also divided into three regions that include Ontario, Quebec and Western Canada (Grant 65).

7.0 PESTEL analysis of Canada’s oil and gas industry

7.1 Political factors

There are various political factors that affect oil prices in Canada and this include, for instance, the recent conflicts in Libya and Iraq. The conflicts in both countries contributed to high oil prices globally thus impacting negatively on the global supply. However, when production resumed in both Libya and Iraq, this contributed to oversupply and the fall in oil prices. Other political factors impacting on Canada’s oil and gas sector include OPEC’s influence in the import and export of oil and gas. As a country that has large deposits of oil sand, Canada is not an affiliate of any oil cartel globally. However, the supply of oil in most part of the globe is controlled by OPEC quotas. OPEC plays an important role in controlling the prices of oil globally; however, the existence of non-OPEC oil producing countries has made it difficult for OPEC to control oil prices. For instance, the decline in oil price is contributed by the increase of shale producers in countries such as USA, Canada and China, for example. Further, the overproduction of oil by non-OPEC countries has impacted negatively on OPEC out and this is contributed mainly by the oil sands in Canada and shale oil production in the U.S (Avery et al. 371).

However, it is only in Canada that oil production is expected to increase significantly by 2020. Other non-OPEC countries are expected to face out in the near future due to decline in production. On the other hand, OPEC production is also expected to increase in the subsequent years until 2035. This would allow OPEC to regain its influence globally in the oil and gas market. The oil sector in Canada also faces pressure from environmental and aboriginal bodies, for instance who consider oil sands to harm the environment and health compared to the conventional oil. This has impacted negatively on the mining of oil sands thus contributing to the loss of approximately $170billion by the oil and gas sector in Canada. However, the responsible authority can advocate for a sustainable mining of oil sands by ensuring the mining companies become more transparent and accountable (Avery et al. 373).

7.2 Economic factors

Economically Canada’s oil industry presents both opportunities and threats with regard to its sustainability. Further, oil production tends to vary from country to country thus the competition globally becomes stiff. Globally, Canada is the ranked third in terms of their oil reserves after Venezuela and Saudi Arabia that are ranked first and second respectively. The oil sector in Canada targets major customers such as the United States and China. These two countries are considered the largest consumers of oil globally. As a result, prospective investors in the sector are in a better position to generate significant income from oil export to other destinations (Grant 66). However, the increased demand for oil in a country such as China will depend on its continued economic growth. Conversely, a decrease in China’s economic growth can hurt Canada’s economy due to oversupply and a decline in oil prices.  Economically, Canada’s oil industry also faces threat from OPEC and other cartels that are influenced by China. These cartels, for instance, can unite to reduce the prices of oil below Canada’s break-even level. This can eventually push Canada out of the international market because it is not in an alliance with other oil producing countries. On the international front, it is also important for Canada’s oil sector to consider the constantly changing global economic environment and the opportunities and threats of the industry at present and in the future (Grant 67).

7.3 Social factors

Globally, Canada is considered to have the highest oil consumption per capita, where approximately 2.05million barrels are used per day. This is due to the cold climate that forces consumers to a lot of energy for domestic and industrial purposes. On the other hand, the sector is also facing pressure from Greenpeace movements for the need to reduce carbon footprint. Environmental groups regard the mining of oil sands as a major contributor to greenhouse gas emission.  Further, the local communities are also affected by the mining of oil sands and it is important for the responsible authorities to ensure that they live in a clean environment. For instance, a significant step taken by the responsible authorities include to introduction of legislations that ensures pipeline safety systems are enhanced. On another note, the changes that occur in the social environment also affect the progress of oil sector in Canada.  As such, the government and firms operating in the oil sector need to adapt to such changes (Nejat et al. 846).

7.4 Technological factors

Technological advancement plays an important role in ensuring that Canada’s oil industry can increase its production compared to competitors in North America such as Venezuela and Mexico. Through application of the latest technology, the oil sector in Canada can extract large quantities of oil to meet market demand both domestically and internationally (Gattinger 322).

7.5 Legal and environmental factors

The oil industry in Canada is largely affected by legal suits regarding land ownership. Most oil companies operating in Canada are facing legal suit from indigenous communities who claim ownership to the resource laden lands.  Further, concerns are also mounting regarding emission regulations in the oil sector. As such, the responsible authorities need to ensure that the oil companies reduce the level of   greenhouse gas emissions. Other environmental factors that can affect the oil industry in Canada include natural disasters such as flooding, for instance (Nejat et al. 851).

8.0 Recommendation and conclusion

While oil sector in Canada presents business opportunities for investors, there are also challenges that need to be addressed. This is important to ensure that the oil sector in Canada becomes the leading exporter globally compared to rivals from OPEC countries and other cartels. As such, the actions needed to improve the oil sector in Canada include

  • Introduction of legislation that promotes fair trade in the country’s oil sector
  • Creating alliances with non-OPEC oil producers as a way of increasing bargaining power in the international market
  • Ensure there is transparency and accountability regarding how the oil sector is managed
  • Increase initiatives meant to protect the environment
  • Engage in corporate social responsibility practices meant to improve the lives of communities living around mining fields.
  • Fast-track the settling of legal of legal suits regarding ownership of lands where oil is mined

As a country, Canada has one of the largest reserves of sand oil and this places it in a vantage position to attract investors into its oil and gas industry. Further, as oil deposits continue to decline in OPEC producing countries, Canada is strategically place to gain competitive advantage over rivals in the near future thus making it the ideal investment destination for prospective investors.

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