Threats of Substitutes in Oil
and Gas Industry
The force of Threat of substitutes
describes the availability of other products that can be an alternative for
consumers. A substitute has a high threat when it offers an
attractive price trade-off to the industry’s products or when the buyer’s cost
of switching to substitute is low.
The main substitutes that can be
used to produce energy, heating, and fuel for transportation instead of oil and
and gas substitutes need advanced technology and big investments in R&D to
be produced which makes it very hard for companies to switch to producing different
types of energy. Furthermore, these alternatives cannot serve the high demand
of consumers. It is important also to mention that petroleum is used to produce
plastics, polymers, and petrochemicals which makes it irreplaceable for these
Due to the urge
to reduce greenhouse gas emission, oil and gas companies and governments are
trying hard to shift slowly to clean energy production. For example, the
Chinese government aims to have biofuels contribution of 15% of its total
transportation fuel consumption by 2020. European Union has set a target of 20%
for the same period.
The graph shows the world energy consumption
for different energy sources until 2040. As shown, fossil fuel (petroleum, natural
gas, and coal) account for 77% of energy consumed in 2040. The demand of
renewable energy is steadily increasing to be the first growing source by 2.3%
per year until 2040.
is a great potential for utilization of alternative energy sources. However,
the alternatives will not replace oil and gas in near future. However, Oil and
Gas companies should invest in R&D to produce energy alternatives in the
future since Oil and Gas reserves are limited.