Threats of Substitutes in Oiland Gas IndustryThe force of Threat of substitutesdescribes the availability of other products that can be an alternative forconsumers.
A substitute has a high threat when it offers anattractive price trade-off to the industry’s products or when the buyer’s costof switching to substitute is low.The main substitutes that can beused to produce energy, heating, and fuel for transportation instead of oil andgas are:· Nuclear Energy· Solar Energy· Wind Energy· Coal· Biofuels Oiland gas substitutes need advanced technology and big investments in R&D tobe produced which makes it very hard for companies to switch to producing differenttypes of energy. Furthermore, these alternatives cannot serve the high demandof consumers. It is important also to mention that petroleum is used to produceplastics, polymers, and petrochemicals which makes it irreplaceable for theseindustries.Due to the urgeto reduce greenhouse gas emission, oil and gas companies and governments aretrying hard to shift slowly to clean energy production.
For example, theChinese government aims to have biofuels contribution of 15% of its totaltransportation fuel consumption by 2020. European Union has set a target of 20%for the same period. The graph shows the world energy consumptionfor different energy sources until 2040. As shown, fossil fuel (petroleum, naturalgas, and coal) account for 77% of energy consumed in 2040. The demand ofrenewable energy is steadily increasing to be the first growing source by 2.3%per year until 2040.
Recommendation Thereis a great potential for utilization of alternative energy sources. However,the alternatives will not replace oil and gas in near future. However, Oil andGas companies should invest in R&D to produce energy alternatives in thefuture since Oil and Gas reserves are limited.