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APA
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Business & Marketing
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Research Paper
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English (U.S.)
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Topic:

Business & Marketing: LUKOIL

Research Paper Instructions:

LUKOIL is a major international vertically-integrated oil & gas company, accounting for 2.1% of global output of crude oil. The strong position, which the Company enjoys today, is the fruit of 20 years work to expand the reserve base, increasing business scale by seeking out and executing strategic transactions.


LUKOIL Today

ü       2.1% of global production of crude oil

ü    The largest privately owned oil & gas company in the world by proved oil reserves

ü    3th largest privately owned oil & gas company in the world by oil production

ü    16.3% of Russian crude oil production and 16.7% of Russian crude oil refining 

ü    One of the biggest Russian oil business groups with $139 billion revenue and net income in excess of $11 billion


Exploration & Production Segment

LUKOIL is implementing oil & gas exploration and production projects in 13 countries. Proved reserves as of December 31, 2012 were 17.3 billion barrels of oil. 90.6% of Company’s proved reserves and 89.8% of marketable hydrocarbon production are in Russia. The Company is also taking part in projects in 5 countries outside Russia. Most activity is concentrated in four federal districts of the Russian Federation: the North-West, the Volga, the Urals and the South.

The Company's main resource base and oil production region is Western Siberia which accounted for 44% of proved hydrocarbon reserves and 49% of LUKOIL’s hydrocarbon production in 2012. International projects account for 9.4% of Company’s proved hydrocarbon reserves and 10.2% of marketable hydrocarbon production.


Refining & Marketing Segment

Refining & marketing is LUKOIL's second major business segment. By developing this segment the Company lowers its exposure to high price volatility on the crude oil market and enhances its competitive position in main business regions by production and sale of high-quality petroleum products with high value-added.

LUKOIL currently produces a wide range of high-quality petroleum and gas products and petrochemicals, selling them via wholesale and retail in over 30 countries. Has oil refineries in 6 countries (including share in the ISAB refinery complex and Zeeland Refinery). Overall capacity of LUKOIL Group refineries at the end of 2012 was 77.1 mln tons of crude oil per year. The Company owns 4 oil refineries and 2 mini-refineries in Russia, as well as 4 gas-processing plants. The Company's Russian assets also include 2 petrochemical plants. Overall capacity of Russian oil refineries of LUKOIL Group at the end of 2012 was 45.7 mln tons per year (335 mln barrels per year). As of July 2012 all of LUKOIL ’s Russian refineries had switched to production of automotive gasoline that fully meets Euro-5 specifications. This enabled savings in 2012 on excise rates, which are differentiated according to fuel quality.

Euro-5 gasoline ensures so-called ‘clean exhaust’, reducing emission of sulphur oxides and the products of incomplete combustion of aromatics (including the particularly dangerous carcinogen and mutagenic, benzopyrene).

Power Generation Sector

 

Power Generation sector comprises all aspects of power generation, including delivery and marketing of electrical energy and of heat produced at power plants. The nucleus of the segment is the Russian power generating company, UGK TGK-8, which was acquired by LUKOIL in 2008, but it also includes companies producing electricity and heat in Bulgaria, Romania, and Ukraine. LUKOIL Group has power generating capacity of 4.0 GW. The Group’s electricity output in 2012 totalled 15.4 billion kWh. Heat production in 2012 was 14.7 million Gcals.


Innovation Policy

Innovation and the application of new technologies are among the main competitive strengths of LUKOIL. The Company’s specialists both design new technologies and work to modernize existing technologies.


Total Research and Development financing increased in 2012 and accounted for more than $157 million (comparing with more than $140 million in 2011). A project to create innovative technologies for improvement of oil recovery rates through integration of heat and gas methods was presented in 2012 in the framework of cooperation between RITEK and the Skolkovo Foundation. A RITEK subsidiary, RITEK-ITs, was set up for purposes of project implementation and became a participant of the Skolkovo Foundation in 2012.


The Group continued to work closely in 2012 with the Russian Corporation of Nanotechnologies (RUSNANO) on commercialization of nanotechnologies with applications in the oil & gas industry. RITEK carried out joint work with RUSNANO during the accounting year on innovative developments for extraction of difficult reserves in Bazhenov formations. Testing of mini-GTL technologies was also carried out as part of R&D work on techniques for refining of associated petroleum gas into liquid hydrocarbons.

 

Questions:

1.         What theories of trade help explain Russia’s position as an oil exporter? Describe how the theory/ies relate to the situation of Lukoil.

2.         How do global political and economic conditions affect global oil markets and prices?

3.        Discuss the following statement as it applies to Russia and LUKOIL: “Regardless of the advantages a country may gain by trading, international trade will begin only if companies within that country have competitive advantages that enable them to be viable traders—and they must foresee profits in exporting and importing.”

4.        In LUKOIL’s situation, what is the relationship between factor mobility and exports?

5.        Why do you think LUKOIL’s first foreign direct investments were in countries nearby to Russia (e.g., former Soviet republics and satellite countries)? 

Research Paper Sample Content Preview:

Business & Marketing: LUKOIL
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Part A
1 What theories of trade help explain Russia’s position as an oil exporter? Describe how the theory/ies relate to the situation of Lukoil.
Russia’s position as an oil exporter can be better explained using the competitive advantage theory. Russia is under the competitive advantage theory over competition from the oil industry since it has been verified that the country has more crude oil reserves than any other country on earth (Rogers, 2012). The competitive advantage comes in when one looks at the laws of supply and demand. Oil is not only the most traded liquid on earth but it is also the most needed liquid as far as its uses are concerned. Therefore, in any form of country to country deal, Russia will always have a bargaining chip to cling to when it comes to signing business deals. The countries which decide to conduct trade with Russia will always have the oil in mind because as the price of fuel gets higher in Africa, the Middle East, and South America more and more countries will opt to sign oil contracts with Russian companies.
The same competitive advantage theory applies to Lukoil in terms of political climate. Countries in Africa, Middle East and South America such as Afghanistan, Iraq, Nigeria and Venezuela are countries which have been providing oil for a long time but lately their countries have been associated with a lot of political unrest (Henderson, 2013). Consequently, Lukoil is able to provide certainty for countries around the world who are customers to these countries.
2 How do global political and economic conditions affect global oil markets and prices?
Global political conditions have a very huge impact on global markets and oil prices because when political tensions arise many oil exporting countries tend to hold back their reserves and consequently prices of oil always rise (Henderson 2013). In fact, every time there is a threat of war oil prices always skyrocket. The skyrocketing of prices particularly emanates from the fact that oil suppliers always suspect that there will be disruption in the supply of crude oil. Many countries always have oil reserves and when there is a threat of war, they all tend to open up those reserves which are also a measure to stabilize skyrocketing prices during the times of speculation about war.
Economic conditions affect global oil markets especially when global economies are shaping up. This is actually a simple matter of supply and demand. When there is a more demand for oil, traders usually raise the prices. For example, in the last decade, Asian economies especially the Chinese economy have risen to new heights and as a result there is a huge demand for oil in the country (Henderson, 2013). The Indian economy has also prospered greatly in the last decade and its consumption of oil also has increased (Henderson, 2013). On the other hand, oil drilling is also a fact...
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