The Brief History and Background of Petronas

Petronas is an acronym for Petroliam Nasional Berhad. It was established in 17 August 1974 as the national oil company for Malaysia. Petronas which is wholly owned by the government it is the corporation which is vested with the entire oil and gas resources in Malaysia and is entrusted with the responsibility of developing and adding value to these resources. Petronas has grown from just being the manager or the regulator of Malaysia’s upstream sector into a fully integrated oil and gas production. PETRONAS have been ranked among the FORTUNE Global 500® the largest corporations in the world. Since it was invested PETRONAS has grown to be an international oil and gas company with business interests in 31 countries. As of the end of March 2005, the Petronas Group comprised 103 wholly-owned subsidiaries, 19 partly-owned outfits and 57 associated companies. Together, these companies make the Petronas Group, which is involved in various oil and gas based activities. The Group is engaged in a wide spectrum of petroleum activities, including upstream exploration and production of oil and gas to downstream oil refining; marketing and distribution of petroleum products; trading, gas processing and liquefaction, gas transmission pipeline network operations, marketing of liquefied natural gas, petrochemical manufacturing and marketing, shipping, automotive engineering and property investment. PETRONAS is doing its business with the major strategy of integration, adding value and globalization. Their major facets of business integration are Exploration and Production; Oil, Gas, Petrochemicals, Logistics and Maritime, Research and Technology and Corporate Sustainability.

The market structure of PETRONAS in this context means how PETRONAS fit into the oligopoly market. I will be discussing the characteristics of an oligopoly market and see how PETRONAS match the characteristics. Just to recap oligopoly is the market structure that’s has few producers that produce same type of goods and substitute with each other. Examples of oligopoly are Oil industry which I believe PETRONAS fall under this industry, car industry and cigarette industry. The market is dominated by a few large producers of a homogenous or differentiated product.

CHARACTERISTICS OF OLIGOPOLY

PETRONAS

Type of the product is standardized or differentiated

Control over price is limited by mutual interdependence, or it is considerable with collusion

Conditions of entry has significant obstacles

Non-price competition is typically a great deal with product differentiation.

The table above clearly shows that indeed PETRONAS fit into the oligopoly market structure as it fulfils most of the oligopoly characteristics.

THE MAJOR PLAYERS OF PETRONAS

Petroliam Nasional Berhad (PETRONAS) is 100% owned by Government of Malaysia via Minister of Finance (Inc.).

THE CURRENT TRENDS OF PETRONAS

Petronas have gained unique skill and proficiency in nation building and this, together with their technical and operational competencies have allowed it to be increasingly accepted as the preferred strategic partner by international companies and the congregation countries where Petronas operate. This really suggests that Petronas is realizing their vision of becoming a “Leading Oil and Gas Multinational of Choice”. Petronas has transformed from a domestic-based national oil company into a fully integrated oil and gas multinational corporation and as a corporation it has experienced significant milestones. Below are just some of the highlights of the different years.

Year

Achievements

2006

Signed a joint concession agreement for the North Sidi Kirir Deep offshore exploration block in the Nile Delta, Egypt.

2007

Increased its equity holding in the APA Group to become the single largest shareholder in one of Australia’s biggest energy transmission and Distribution Company.

2008

Signed the main principles towards a new PSC with ExxonMobil Exploration and Production Malaysia Inc and PETRONAS Carigali Sdn Bhd that would allow the two PSC partners to continue their upstream participation in seven oil fields offshore Peninsular Malaysia.

2009

PETRONAS Dagangan Berhad marked its first biodiesel (B5) delivery to Ministry of Defense (MINDEF) and Dewan Bandaraya Kuala Lumpur (DBKL), an initiative in support of the Malaysian Biofuel Industry Act 2007.

PETRONAS Australia Pty Ltd increased its equity holding to 17.23% in the APA Group, making it the single largest shareholder in Australia’s leading gas transmission and Distribution Company.

(Table 1: achievements of Petronas between 2006 and 2009, source: www.petronas.com )

What can be concluded from the above table is that PETRONAS is going places; its market is growing tremendously and there is no doubt that it is not shrinking. PETRONAS have expanded its market to over 30 countries around the world. It has been accepted as the strategic partners by those countries that they are developing their petroleum industry.

HOW DOES TECHNOLOGY AFFECT PETRONAS

Today we live in a world that is controlled by technology. Almost everything that is done there should be technology included in the process. Petronas as well is significantly being affected by the technological changes that are currently happening worldwide. Looking upon the globalization practices that PETRONAS are currently undertaking, technology is affecting this whole process of the organization. When Petronas is producing using technology, production will be more efficient and that will result in supply being increased. That means due to the advance in technology the supply curve for PETRONAS will increase.

Price

P 2

P 1

Q 2

Q1

Quantity supplied

Diagram 1: how technological changes affect the supply of Petronas

However, technology is not the only factor of production existing in the producer’s plant. There exist more complex interrelationships between these factors to be able to exploit the improved efficiency of one. The most crucial of all is governing human resources. Without proper guidance from the leaders of a firm, production efficiency will not hold because of resistance, de-motivation or just a plain technological ignorance. Technology is not 100% automated and human intervention as well as errors is inevitable. Moreover, technology may also be intended for a specific segment of the industry, say, large corporations. As such, aggregate supply may not necessarily increase because small entrepreneurs who cannot afford to buy the technology cannot contribute in increasing supply.

PETRONAS ADVERTISING STRATERGIES

PETRONAS just like any company it needs to draw its business to its potential customers so as such there are certain advertising ways that they use to reach out to its customers and the country as a whole. The advertising strategy that PETRONAS has used is a heart strings commercials, (which of course is advertising using the television as the type of media), this means that PETRONAS has used commercials that often create an emotional ambience that draws you to the advertisement and makes you feel great and or so sad. Normally people are more attracted by products that make them feel good or even sad in some cases. PETRONAS has used one of its commercial the PETRONAS Advertisement: Raya 2006 that has touched so many and the video was uploaded on you tube. Even people who watch a lot of PETRONAS advertisements have said that they enjoy watching them and they are always eager for the new advertisements. Petronas also make commercials for every festival that are always happening in Malaysia example could be of the 49th Merdeka Day. The other way that PETRONAS use to advertise is through billboards and newspapers. For billboards as you drive along the road you will find huge boards advertising PETRONAS and by such somebody can come to know about PETRONAS through this way.

COLLABORATIONS WITH OTHER MARKETS

Petronas is collaborating with some markets and this makes PETRONAS more popular among other markets that they are interacting with.

EDUCATION

PETRONAS recognize the value of education and it believes that it can develop human capability through education. As such Petronas is collaborating with the education sector in the form of awarding sponsorship loans to local and international students. The Petronas unit that is responsible for handling education matters is called the Education Sponsorship Unit. The sponsorship is in the form of convertible loan. Based on the academic results, co-curricular activities, the family back ground and the assessment of the student’s personality PETRONAS just don’t give out sponsorship but it has criteria that students should meet. PETRONAS has 6 human and capital development programs in Malaysia and abroad. These programs are

Educational & Training Institutions: In this program Petronas provide world-class educational and training services to people and the nation through the various institutions they have established such as University Technology PETRONAS (UTP), Academy Laut Malaysia, (ALAM )PETRONAS Management Sdn Bhd (PERMATA) and Institute Technology Petroleum PETRONAS (INSTEP).

Education Sponsorship Unit: This is the unit that is responsible for handling education matters.

PETRONAS e-learning: control the latest information and communication technology (ICT) to provide online training and development programs for Petronas employees. It also offers a wide range of online learning materials, online courses as well as services including eLearning courseware and portal development, designed for professionals.

Petrosains: This interactive Science Discovery Centre that encourages the Malaysian public to learn more about science, and explore the infinite possibilities it offers.

Schools Outreach: this is a program where PETRONAS outreach for certain schools and invests a considerable effort and resources into education-based outreach activities to inspire and develop the community.

Industrial Training: this is the program in which PETRONAS grant students opportunities to partake structured Industrial training.

Students that have awarded the sponsorship after they finish their tertiary studies have their convertible loans converted into full scholarship. These students have a binding contract with Petronas that after they finish school they work for the company for two years and for every year they are sponsored.

MOTORSPORT

Petronas was one of the main sponsors of the BMW Sauber formula one team and it provides fuel and lubricant to the team. Lately last year it was confirmed that it was moving from BMW to the newly-formed Mercedes Grand Prix. Also it is the main sponsor of the Malaysian Grand Prix and the co-sponsors of the Chinese Grand Prix. As part of its corporate social responsibility program, Petronas also brings underprivileged children to watch the race.

CONCLUSION AND RECOMMENDATIONS

CONCLUSION

PETRONAS is a company which falls under the oligopoly type of market structures. Wholly owned by the government, PETRONAS is the country’s one of the company that provide petroleum and gas for the country. PETRONAS from its previous years it has been growing nationwide and worldwide as it has some of its products being used in other countries even outside Asia and as far as Egypt in Africa. It is making a whole lot of profits from its products and as such the country benefits a lot from it. PETRONAS does not only care for the production of petroleum and gas but also collaborate with other markets such as education and provide sponsorship loans to those students which need them. PETRONAS also have established various institutions as their main aim is to enrich the nation with quality education. PETRONAS also participate in somehow entertainment market as it is one of the main sponsors of the newly-formed Mercedes Grand Prix and also main sponsor of the Malaysian Grand Prix.

RECOMMENDATIONS

As PETRONAS is wholly owned by the government and it has been the company that the government has been focusing on, I recommend that it merge with other energy company which is Tenaga Nasional Berhad. If the government for the next decade focuses on Biomass, PETRONAS should merge with companies such as Sime Derby which was recognized as the biomass champion, as I believe this effort coupled with reengineering technology, will reap a sustainable company that will have a good impact for both energy and food sector in Malaysia.