THE IMPLICATION OF PETROLEUM MARKETING
Marketing is the way companies interact with consumers to create relationships that are beneficial to both parties. Businesses use marketing to identify their audience before advertising to them. Today, this
is most visible through social media interactions and contests. The petroleum industry includes the global processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines), and marketing petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum (oil) is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. Midstream operations are usually included in the downstream category.
Marketing is critical for organic growth of a business and its central role is in creating, communicating, capturing and sustaining value for an organization. Marketing helps a firm in creating value by better understanding the needs of its customers and providing them with innovative products and services. This value is communicated through a variety of channels as well as through the firm’s branding strategy. Effective management of customers and pricing allows the firm to capture part of the value it has created. Finally, by building an effective customer-centric organization a firm attempts to sustain value over time.
Our faculty addresses a broad array of topics in all of these areas. Our work attempts to get a better understanding of how consumers use information and make choices and how these choices affect the firm’s strategy for new product development, customer relationship management, branding and other marketing efforts. We examine issues related to branding, business marketing, global marketing, distribution channels, pricing, direct and interactive marketing, sales management and return on marketing investment. Some of our faculty specializes in specific industries such as retailing, agribusiness, social enterprise, media, arts and entertainment.
There are several new developments in marketing that offer opportunities for us to make important contributions in the future. The current economic crisis is changing consumers’ current and future purchase and consumption patterns. Search engines have changed the way consumers obtain information and make decisions and they are also dramatically changing the advertising industry. Social networks and user generated content have opened a new way for consumers to engage with each other as well as with brands and companies. There are significant changes in the attitudes of consumers and companies about social issues. Consumer preferences and choice of products are increasingly influenced by social factors. Companies are recognizing that there is a large market at the “bottom of the pyramid” and marketing to these consumers may require a new framework. These and related developments provide great opportunities for the marketing faculty to make a significant impact in the future.
Petroleum is vital to many industries, and is of importance to the maintenance of industrial civilization in its current configuration, and thus is a critical concern for many nations. Oil accounts for a large percentage of the world’s energy consumption, ranging from as low of 32% for Europe and Asia, up to a high of 53% for the Middle East.
The Nigerian petroleum marketing sector is part of the downstream oil industry. It involves the import, export, sale and distribution of petroleum products such as premium motor spirit (PMS), household kerosene (HHK), automotive gas oil (AGO), liquefied petroleum gas (LPG) and low-pour fuel oil (LPFO). Petroleum products dominate Nigeria’s energy consumption mix, averaging 77% of the total over the last five years. Natural gas is beginning to show a material market share, accounting for 8% of the total in 2007.
Demand for petroleum products has been driven by economic growth, increase in vehicular traffic, and inadequate supply of electricity. At eight million BTU (British thermal units) per capita, Nigeria’s energy consumption is relatively low, compared with the 40.5 million BTU per capita average for our sample emerging market countries. According to the government, Nigeria requires 10,000 MW of power, but the maximum supplied via the national grid is only 3,000 MW. The lack of progress in developing Nigeria’s electrical power supply has led to a growing proportion of energy supply being privately generated via PMS- and AGO-powered generators.
The industry is supplied through imports and locally refined products by both the major and the independent marketers. The major marketers accounted for 70% of products distributed in 2008, according to data from the Nigerian National Petroleum Corporation (NNPC). They include the state-owned NNPC Retail, multinational petroleum marketing companies such as Total, Mobil and Chevron, and the largest indigenous operators, African Petroleum (AP), Oando and Conoil. The independent marketers comprise a large number of indigenous operators.
Domestic supply is through the nation’s three refineries, Warri (WRPC), Kaduna (KRPC) and Port Harcourt (PHRC), which process crude oil allocated by the federal government. Due to lack of maintenance and bureaucracy, the local refineries continue to operate well below their estimated capacity. In 2008, the average capacity utilisation of all three refineries was 22%, with an average over the last five years of 25%. Efforts have been made by the government over the years to encourage private sector investment in the sector. The previous administration granted licences to private companies for the construction of private refineries. The government later revoked these licences, citing non-performance, as the construction of the proposed refineries had not proceeded as expected.
Inadequate local supply necessarily makes Nigeria highly dependent on imported petroleum products. We estimate that imports account for close to 70% of total satisfied demand. The importation of PMS and HHK into Nigeria is regulated by the government, which has tried to encourage private sector participation through the issuance of import quotas, based mainly on importers’ and marketers’ storage and distribution capacity. Subsidies are paid to the importers where the cost of sourcing is higher than the price which has been set by the primary governmental agency responsible – the Petroleum Product Pricing Regulator Agency (PPPRA). Major and independent marketers collaborate to source refined petroleum products from different parts of the world. As private sector participation has grown in the government’s scheme, NNPC’s share of imports has fallen from over 90% in 2006 to 65% for PMS and 83% for HHK in H1 2008. The indigenous companies, Oando, AP, and MRS, have grown their share at the expense of the multinationals who have been deterred by the incessant challenges the scheme presents, such as delayed payment of import subsidies by the government.
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^ New York Times, 2010 July 3, “As Oil Industry Fights a Tax, It Reaps Subsidies,” http://www.nytimes.com/2010/07/04/business/04bptax.html?_r=1
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^ a b Shirin Akiner, Anne Aldis. The Caspian: Politics, Energy and Security. Routledge, 2004. Page 5.
^ United States Congress, Joint Economic Committee. The Former Soviet Union in Transition. M.E. Sharpe, 1993. Page 463.
^ Quoted from: Tatyana Saiko. Environmental Crises. Pearson Education, 2000. Page 223.
^ Frank, Alison Fleig (2005). Oil Empire: Visions of Prosperity in Austrian Galicia (Harvard Historical Studies). Harvard University Press. ISBN 0-674-01887-7.
^ a b http://www.lclmg.org/lclmg/Museums/OilMuseumofCanada/BlackGold2/OilHeritage/OilSprings/tabid/208/Default.aspx Oil Museum of Canada, Black Gold: Canada’s Oil Heritage, Oil Springs: Boom & Bust
^ Turnbull Elford, Jean. Canada West’s Last Frontier. Lambton County Historical Society, 1982, p. 110
^ Sarnia Observer and Lambton Advertiser, “Important Discovery in the Township of Enniskillen,” 5 August 1858, p 2.
^ Extraordinary Flowing Oil Well, Hamilton Times, Author Unknown, “Extraordinary Flowing Oil Well,” 20 January 1862.
Marketing of petroleum products is an important step in every nation’s economy. It is of great importance in the development of key sectors and the revitalization of major infrastructure. These processes where highlighted in the above text and carefully explicated above. It is hoped therefore that the points seen can be of great importance to world petroleum sector especially the marketing of the various products associated with petrol.