BP and Consolidation of Oil Industry, 1998-2002 Essay

1474 Words Sep 23rd, 2013 6 Pages
BP and Consolidation of the Oil Industry, 1998-2002

Executive Summary BP should sell its business and start a new business, a clean energy production, because it would lose profits from oil supply. Oil industry had not developed in perfect competition; oil price was easily controlled since oil industry was oligopoly, many consumers exist and the government protected oil industry from competition. However, oil industry is facing perfect competition; oligopoly formation of oil industry would come to perfect competition because OPEC started apart from each other. This perfect competition tends to be price competition since oil is commodity. To maximize the profit, competitors would increase supply with low prices, and the
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The president Obama declared that state budget of $50 billion should be allocated to clean energy development and consumption of clean energy could be double from 17% to 35%. If oil supply remained constant and its demand decreased due to the regulations, the world oil price would decrease. On the other hand, substitutes of oil products have spread over the public. Since government has encouraged industry to develop clean energy, other energy sources has been innovated: hydroelectricity, solar energy, wind energy, wave power, or geothermal energy. Such new energy meets government’s requirements that energy reduces carbon dioxides emission. As a result, consumers have obtained variety of choices; some can choose hybrid cars or electric cars and houses with solar systems. Buyers started to acquire bargaining power. Finally, the oil industry will diminish in near future because oil will be depleted. In fact, in 2001, the ratios of reserves to production, one of the measures of the remainder of years how long will oil be produced from proven reserves, predict 15 for non-OPEC and 80 years for OPEC. Although the ratios do not precisely show the lasting years, oil reserves do not last forever. Corporations of oil industry need to be concerned about alternative businesses. BP needs to ponder upon its future. BP has originally efficient exploration and production. Return on sales of exploration and production dominates over

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