Abstract
The driving forces in the international oil industry have changed over time. The “threat for new entrants” was the determinant force until the 1960s, during the period when the majors dominated the industry through cartels. It was replaced by the “bargaining power of producers” when OPEC gradually acquired control over oil prices by nationalizing concessions in the 1970s. However, a “threat of substitute products” arose, posed by both non-OPEC oil and by alternative energies such as nuclear and natural gas. At the same time, the “bargaining power of buyers” increased as more non-OPEC oil was traded through spot and futures markets. As a result, OPEC lost control by the mid 1980s, and “intra-industry competition” has since become the determinant force in the current oil industry.
Lacking oil reserves of its own, Japan has depended on the majors for its oil supply. The Japanese government tried to form an integrated national oil company, but that effort failed due to opposition from Japanese refineries. Those same oil companies have been protected by government regulations that restricted foreign participation. As a result, the Japanese oil industry possessed few assets in the upstream, while the downstream industry became inefficient and congested. After market liberalization in 1996, the “intra-industry competition” became intense in Japan, and M&A and alliances between oil companies were observed. It appears that for oil companies to survive in the global competition, it is necessary to (a) achieve both vertical and horizontal integration among oil companies, including trading companies, (b) purchase concessions in proven oil fields, where a high return is expected, and (c) establish outlet networks in Asia, where further growth in demand is expected.
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