Executive Summary
The paper discusses the various external environmental aspects regarding the geographic, demographic, socio-cultural, political, economic, legal, technological, and global factors influencing the U.S. Oil & Gas Equipment & Machinery Industry. Factors like access to labor, increased supply of Oil & Gas and lower demand, low prices of oil, increased demand for technological advancements, high political instability in prospect markets, higher globalization, giving way to high competition, OPEC bloc controlling the oil production and trend towards renewable energy sources have a vast effect on the revenues, costs, profits, and opportunities for the US O&G Machinery and Equipment Industry. The paper highlights the challenges, opportunities, threats, and prospects for the U.S. Oil & Gas Equipment & Machinery Industry in light of the current environment. The analysis shows the magnifying effects of various external environmental factors on the industry and provides insight about the future trend of the industry.
General Environmental Analysis
The health of the U.S. Oil & Gas Equipment & Machinery Industry is dependent on the health of capital investments in the O&G extraction sector which is itself relying on the oil prices. Therefore, it can be established that oil prices affect the U.S. Oil & Gas Equipment & Machinery Industry. In 2010, Texas was the state which employed the most employees in the whole industry accounting for more than 60% of the employees. Texas was also the leading state regarding revenues.
The U.S. Oil & Gas Equipment & Machinery Industry is dependent on many external factors. Therefore, the external environmental analysis is conducted in this paper to look for the impact of these factors (Harrison, 2013). Any decline in the drilling activity around the world affects the U.S. Oil & Gas Equipment & Machinery Industry. All the smaller business which flourished on the high crude oil prices are either bought out or have gone out of business.
Today, the United States is considered as the third largest exporter of the Oil & Gas Field Machinery & Equipment Industry by closing its exports to about $23 billion to the world population. There are however many factors which affect the prospects and consequently the growth of the U.S. Oil & Gas Equipment & Machinery Industry. The astonishing upturn of the industry demand and supply cycle, translating into the decline of oil prices and slow industry growth has affected the US segment as well. Furthermore, with globalization, even though the industry gets opportunities in foreign lands, it does not come without its cons as well. The need for facing the local content requirements, trade restrictions, local labor requirements impact the competitiveness of the U.S. Oil & Gas Equipment & Machinery Industry exports (High Beam Business, 2018).
STEEPLED Analysis
Socio-cultural Segment
The first socio-cultural factor is the regulations for environmental protection. The U.S. Oil & Gas Equipment & Machinery Industry are constantly controlled, regulated, and influenced by various organizations. The EVA has placed firm restrictions on the company’s advertising the crude oil which consequently has an impact on the cost of oil production as well. It affects the industry by driving the profits down (High Beam Business, 2018).
Technological Segment
The first factor is the trend towards deep drilling. With the ever-changing technology, the need for adopting the latest technology is not merely a luxury but a need for staying relevant to the market. These technological changes often make its ancestors obsolete, making a challenging environment for its industry. A study predicted that the ultra-deepwater drilling would be increased from 3% in 2000 to 24% in 2015. The new drilling tends were more inclined towards deep-water and offshore drilling. It is based on the new advancements in the technology making deep drillings possible. The oil companies have been breaking each other records by digging deeper than the other. It all started when shell Oil broke the record in 1987 by digging &520 feet of water. Chevron broke it in 2003. Now more than 59% of the crude oil is produced in the US from deep wells. It only happens because of the available machinery and equipment which enables these companies to dig deeper. Machinery on the whole accounts for $407 billions of shipments (Nicholson, 2013).
Another factor is the need for efficiency and safer equipment. Companies also look for exotic material for their equipment to improve efficiency. Like JIP produced a titanium drill pipe and fitted it with the fatigue resistant tool joints, weighed half than steel, and was resistant to chemicals. Then companies also look for more reliable and safe equipment. It all leads to U.S. Oil & Gas Equipment & Machinery Industry to continually make better equipment and machinery.
Environmental Segment
The second factor is the high awareness of society towards renewable energy sources. The decline in the demand for the natural gas and oil can be linked to the high demand of the renewable energy sources like solar, biogas and wind. The increase in the social awareness of the society has led them to look for and make their governments append more on renewable energy sources than on energy sources like oil, natural gas, etc. (Sutorius & Frank, 2016).
Economic Segment
The first economic factor is the decline in oil prices. The U.S. Oil & Gas Equipment & Machinery Industry are affected by the other economies of the world. Like in the past years, the world is witnessing the drop in the prices of oil by 75% because of higher production from the OPEC countries, Russia and the United States. The Natural Gas market is also witnessing the decline in prices in the United States. In the last decade, the industry had witnessed significant growth in the O&G market. However, the current decline in the prices has resulted from the low demand of energy production and industry’s slower growth rate. It can be considered as one of the most dramatic changes of events which have affected the US and global O&G industry significantly. The suppliers and O&G companies are finding it challenging to reduce their costs and preserve profits in this challenging lower price environment (Trade.Gov, 2017).
The second factor is the economic opportunities. This challenging environment has led to fewer opportunities for the U.S. Oil & Gas Equipment & Machinery Industry as well. A study has found that the most lucrative markets for the U.S. Oil & Gas Equipment & Machinery Industry regarding the biggest potential for export include the UAE, Canada, Australia, Mexico, and Saudi Arabia in the mentioned order. The projected 2019 market size and market characteristics of the following markets shape the type of economic opportunities and consequent growth it is going to witness in the future (International Trade Administration, 2016).
Political Segment
The first political factor is the political instability. The environment of a market represents the opportunities or threats present in a market. The economic and political stability is always a foundation which is needed to grow the business. The political status of any market highly influences the U.S. Oil & Gas Equipment & Machinery Industry. It can be seen by looking at some of the country market cases. Like for instance, Iraq represents a high risk/high reward market for the U.S. Oil & Gas Equipment & Machinery Industry. It has a market size of $2.8 billion, which is quite substantial. However, the political instability and concerns over its security raise threats for the industry opportunities. Iraq can yield potential significant profits for the U.S. Oil & Gas Equipment & Machinery Industry. However, there are some grave risks associated with it in the form of import regulations, corruption, political turmoil, etc. These factors influence the business prospects of the U.S. Oil & Gas Equipment & Machinery Industry.
Legal Segment
The legal factor is the high regulations and law and order situation of a market. It is shown in a country which is a strong prospect of a lucrative market for the U.S. Oil & Gas Equipment & Machinery Industry in Argentina, considered as a High Risk/Low Reward market in $1.5 Billion of business opportunity. It is also marked by a history of poor law and order situation, numerous reforms formed by the new administration asking for stricter regulations, and cases of credit defaults (International Trade Administration, 2016). By considering this as a market, the companies entering into it will have to make some coping mechanisms for the mentioned problems.
Ethics Segment
The factor discussed in this section is the social awareness of the companies towards the ethical obligations of the businesses. The increasing trend of the environmental sustainability to be made part of the business operation is lowering the demand for the oil and gas energy sources, thus affecting the associated industries. It is also asking companies to incorporate environmental sustainability into their business functions.
Demographic Segment
Demographic factors have a major effect on Industry. The workforce, population, its age group, education affects the growth potential regarding its workforce. The access to good labor and its costs affects the business costs.
The demographic factor that is going to be discussed is labor. By 1994 more than half of the companies of the industry went out of business or merged with bigger companies. It continued in the latter decade as well. By 2001, the total workforce for the industry was 27,666. The decline in the establishments did not lower the number of employees, and it increased. By 2007 it had raised to 44,800. About 63% of the whole workforce is the production workers.
The industry is dependent on blue-collar workers like assemblers, welders, machine builders, and machinists. The main employment opportunities found in the decade of 2000 was in the technical support and services field as compared to the production of new units. Significant cuts were made in all segments of the workers in the later years (National Research Council, 2015).
Global Segment
The first factor is the increase in globalization. Then the localized effects are going to be discussed as well. The globalization of the industries has to lead to make new markets available to the foreign companies. Outsourcing and investing in cheaper-labor markets is the new trend for the industries. The Global oil and gas industry is witnessing many challenges and opportunities because of the globalization phenomenon as well. There are some localization and anti-globalization participants who are making the environment more challenging. The coordinated production of the OPEC countries has created an environment which does not favor the U.S. Oil & Gas Equipment & Machinery Industry. The production cuts by OPEC and the resulting high prices have forced the US oil producers to reconsider the then-marked-feasible projects.
The future trend in the market is that the global production of natural gas and oil has outpaced the global demand. The year 2016 was considered positive for the US LNG exporters; however, the future cannot be predicted with the same faith. The market with an oversupply of natural gas and oil is bound to make it challenging in the future. However, within the next five years, the U.S. Oil & Gas Equipment & Machinery Industry is expected to increase its global market from $166 billion to $205 billion in 2020 (Maida, 2017) whereas, another study shows that it could reach $350 billion in 2020 (PR Newswire, 2017).
Summary/Conclusion
Summing up, the U.S. Oil & Gas Equipment & Machinery Industry is facing a challenging time because of the decline in oil prices and slow industry growth. However, there are many factors which influence its prospects for growth and business opportunities. It includes the demographic factor of labor access. It also includes the political factor of stability of their potential markets and imposed regulations. The socio-cultural factors leaning towards environment protection moves against the U.S. Oil & Gas Equipment & Machinery Industry and towards renewable energy sources.
The economic factors of low crude oil prices and high reward market opportunities provide prospects and challenges for the industry. The constant need for technological advancement for efficiency, safety, and improved production of oil needs the industry to provide with the latest technological equipment and machinery. The global factors like the OPEC bloc and its pro-localization policies giving them the control of crude oil prices provide a challenging environment for the U.S. Oil & Gas Equipment & Machinery Industry.
For the U.S. Oil & Gas Equipment & Machinery Industry, the prospects are bright regarding the new opportunities lying in the markets of the UAE, Saudi Arabia, Mexico and Canada and Australia. However, there are also challenges associated with slower economic growth, low demand, high supply, and lower prices. The policy makers with their government resources can impact for its support in export. Within the next five years, the U.S. Oil & Gas Equipment & Machinery Industry is expected to increase its global market. With the globalization, Chinese, German, Korean, O&G equipment manufacturers will give strong competition to the U.S. Oil & Gas Equipment & Machinery Industry. However, the US industry is expected to beat them with their high-quality equipment and services.
Reference
Harrison, A. (2013). Business Environment in a Global Context. Oxford.
High Beam Business. (2018). Oil and Gas Field Machinery and Equipment. Retrieved April 16, 2018, from High Beam Business: https://business.highbeam.com/industry-reports/equipment/oil-gas-field-machinery-equipment
International Trade Administration. (2016). 2016 Top Markets Report Upstream Oil and Gas Equipment. Retrieved April 16, 2018, from https://www.trade.gov/topmarkets/pdf/Oil_and_Gas_Executive_Summary.pdf
Maida, J. (2017, October 18). Top 5 Vendors in the Global Sliding Sleeves Market From 2017 to 2021 | Technavio. Retrieved from https://www.businesswire.com/news/home/20171018006121/en/Top-5-Vendors-Global-Sliding-Sleeves-Market
National Research Council. (2015). Emerging Workforce Trends in the U.S. Energy and Mining Industries: A Call to Action. National Academic Press.
Nicholson, J. R. (2013). Made In America: Machinery. Retrieved from http://www.esa.doc.gov/sites/default/files/machineryindustryprofile_0.pdf
PR Newswire. (2017, December 4). The global market for mining and oil & gas field machinery manufacturing reached $265 billion in 2016 and should reach $324.1 billion in 2020 at a compound annual growth rate (CAGR)of 5.2% for the period of 2016-2020. Retrieved April 16, 2018, from Business Insights Global: https://www.prnewswire.com/news-releases/the-global-market-for-mining-and-oil–gas-field-machinery-manufacturing-reached-265-billion-in-2016-and-should-reach-3241-billion-in-2020-at-a-compound-annual-growth-rate-cagrof-52-for-the-period-of-2016-2020-30056
Sutorius, R., & Frank, M. (2016). The drivers of global energy demand growth to 2050. Retrieved April 16, 2018, from https://www.mckinseyenergyinsights.com/insights/the-drivers-of-global-energy-demand-growth-to-2050/
Trade.Gov. (2017). 2017 Top Markets Report Upstream Oil and Gas Equipment. Retrieved from https://www.trade.gov/topmarkets/pdf/Oil_and_Gas_Top_Markets_Report.pdf
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