Marketing Management - Gorgon Liquefied Natural Gas - Case Study Example

Marketing Management - LNG Name Class Unit Executive summary This report analyses Gorgon LNG project located in Western Australia at the northern Carnarvon basin. The report looks at the market position of the LNG produced at the gorgon project which is owned by chevron. The report analyses data on the product, the existing competition and its distribution. According to the report, urbanisation and increase in world population have led to dwindling crude oil. This has led to an increase in demand for LNG. Natural gas has been seen as the fuel for the future coupled by demand for clean energy. The report cites that LNG has a growing market worldwide. There has been growing competition in the world LNG market. There have been new discoveries of LNG which leads to more competition. In distribution, the report cites that between 2014 and 2020, it is expected that there will be more than 150mtpa of newly constructed floating LNG globally. The number of countries producing LNG is also expected to increase. It is expected that by 2020, 23 new markets will join the LNG trade which will be a great boost to LNG. The report then looks at both internal and external environment analysis. The main strength for Gorgon LNG project is its high potential as it has about 40cf of gas. The main weakness lies on high cost of production which keeps on rising. Opportunities lie on Australia position on the Asia pacific market which gives it a great market position. According to the report, the main threat to the project is new LNG discoveries in other countries as well as the high cost of exploration and development of LNG in Australia. The report looks at the market mix for the project based on the objectives. Lastly, integrated marketing communication (IMC) is looked at. The project have utilised IMC especially through press release to gain a competitive advantage in the market. The press release also helps in marketing Chevron as a company with great capabilities in LNG exploration. Table of Contents Executive summary 2 Table of Contents 3 Introduction 4 Market situation 4 Competition 5 Distribution 5 SWOT analysis for chevron LNG project 5 Strengths 6 Weakness 7 Opportunities 7 Threats 8 Goals for sales volume, market share and profit 8 Marketing strategy (with justifications based on objectives) 9 Product 9 Price 10 Place 10 Promotion 10 Integrated marketing communication 11 References 12 Introduction Gorgon Liquefied Natural Gas (LNG) project is located in the Western Australia at the northern Carnarvon basin. The project involves the development of the gas fields in Greater Gorgon, creation of subsea gas gathering infrastructure and coming up with a LNG plant on the Barrow Island. Natural gas has become a very important source of energy due to rapid pressure on the available hydrocarbons. Natural gas is less polluting due to its low level of CO2 emissions. The gas can be transported over long distances and stored easily (Colombo et al., 2010). Gorgon LNG project is Australia fourth LNG export development. Gorgon was discovered in 1981 and the first well was drilled. Later, several wells have been discovered and production of LNG started in 2014. Gorgon LNG project started is operated by Chevron who are wholly owned subsidiary of Chevron Australia PTY ltd (Wilkinson, 2008). This market analysis will look at Gorgon project in Australia for LNG. The report will analyse the market situation through data on product, competition and distribution. The report will then carry out a SWOT analysis, look at the objectives, marketing strategy. Lastly the report will give a brief discussion on integrated marketing communication. Market situation The rapid growth in world population and urbanisation combined with the dwindling crude oil supply has led to an increase in demand for LNG (Theodoropoulos, 2010). Australia LNG from Gorgon filed presents a great possibility for Australia to be the main producer of LPG gas in the Asia Pacific Region. There has been an expansion of the world energy market and increase in demand for clean energy. Gorgon project presents Australia with an opportunity to take a great share of world LNG market. Australia has been the fourth largest LNG exporter globally behind Qatar, Malaysia and Indonesia. In future, it is expected that Australia will overtake Qatar by the end of 2017 due to current ongoing projects (Wilkinson, 2008). Natural gas has been cited as the fuel for the future. The LNG market is the fastest growing energy source worldwide. Competition By 2035, global consumption of LNG is expected to rise to 38%. Most of LNG has been from Middle East, Indonesia and Russia. In the recent years, developments in LNG are expected to lead to more competition. Australia, Papua New Guinea and some parts of Africa have started LNG projects. Canada is also a major supplier with over 4000TCF. Globally, there are 18 LNG exporting countries and 25 importing countries (Theodoropoulos, 2010). At the moment, major LNG competitors are located in Algeria, Malaysia, Indonesia, and Qatar. The discovery of LNG in East Africa and Eastern Mediterranean are set to compete with Australia for the global market. Distribution Between 2014 and 2020, it is expected that there will be more then 150mtpa of newly constructed floating LNG globally. The number of countries producing LNG is also expected to increase. It is expected that by 2020, 23 new markets will join the LNG trade which will be a great boost to LNG (Douglas-Westwood (Firm), 2008). SWOT analysis for chevron LNG project Before concluding that Gorgon LNG project by chevron have a major market potential for LNG gas, it is vital to understand the environment they are operating in. This will help in mapping the challenges that they may face. Carrying out SWOT analysis will help in understanding both internal and external environment. The internal environment will access Chevron Gorgon LNG project strengths and weakness. The main issue will be looking at the magnitude of Gorgon LNG and its ability to serve the global energy needs especially in the Asian market where the demand is high. It will also look at the project ability to generate revenues which can help in enhancing Australian economy and the ability to ensure that the welfare of Australians is enhanced beyond their energy needs. The external environment will look at the broad environment under which Chevron Gorgon LNG plant will operate (Wilkinson, 2008). This helps in identifying both threats and opportunities facing the sector. The main areas to look at are changing demographics, political issues, community, economy, laws and regulations and current technology trends. Strengths Gorgon LNG project is and its nearest infrastructures have a great potential. Studies show that it has about 40cf of gas which places Australia in a very prime position to meet the demands in the sector. The operation is expected to generate in excess of $2 billion during its operations. Gorgon LNG project is expected to put Australia on the scale of the large LNG producing countries. There is strong support politically for the Gorgon LNG project (Wilkinson, 2008). This makes the project to enjoy smooth implementation. The project have utilised high technology that will ensure that it minimise atmospheric emissions. The project has been cited to be the most energy greenhouse gas efficient worldwide. The project is one of the first to use underground CO2 storage. The project is a great milestone in the gas processing development worldwide (Wilkinson, 2008). This is due to its huge capacity and extensive use of technology. Weakness The cost of production is expected to be high due to extensive use of technology, construction of underground CO2 storage. The project faces challenges in its development due to the nature of Barrow Island which surrounds it (Colombo et al., 2010). The island and its species have to be protected from any damage. Gorgon LNG project deals with subsea gas gathering system which may lead to high costs in exploitation (Wilkinson, 2008). Barrow Island is a nature reserve that was set up in 1910. This is due to the flora and fauna it has. The island is reserved as a class A nature reserve which is the highest level of protection. The Gorgon project on Barrow Island thus poses a major challenge to development. The activities associated with development such as volumes of cargo and personnel movements are the main cause of concern (Wilkinson, 2008). Regulations procedures and process for the project will consume a lot of cash. This is due to fact that there will be requests for pipeline construction, oil facilities which takes time. There are also regulatory procedures in the export market for LNG which takes revenue and time (Australian Energy Regulator, 2007). Opportunities LNG from Australia is strategically positioned due to its access to strategic markets in Asia (Dahl, 2004). The Asia pacific market presents a great opportunity for the Gorgon LNG project. There is rapid population growth and urbanisation which gives LNG a great opportunity to satisfy growing market needs. Crude oil supplies have been dwindling leading to high demand for the LNG supplies (Douglas-Westwood (Firm), 2008). This presents Australia with an opportunity to become leader in the LNG production at Asia pacific region. Gorgon project presents Australia with an opportunity to supply the growing global LNG market. Australia has a great investment environment which gives opportunities for international LNG development (International Energy Agency, 2004). The projects are able to enjoy high government support. Threats The recent discoveries of LNG in offshore East Africa present an increase in competition. The discovered resources could be up to 70mtpa which poses a major competition. There have been rising economic issues which increases cost of LNG development. Initially, LNG projects were carried out with capital less than US$200 million/mtpa capacity. At the moment, the estimated costs range from US$1,200 million/mtpa up to US$2,600 million mtpa. The cost is thus more than double the cost that was used in the old development activities. This presents development of the project a challenge due to bottlenecks and spiralling construction costs. Analysis has been able to prove that East African and North American projects are at a better position than the Australian projects (Wilkinson, 2008). This is due to lower unit costs which average less than US$2,000 per tonne as opposed to Australia projects which averages on more than US$3,000 per tonne (Colombo et al., 2010). Goals for sales volume, market share and profit Providing 40Tcf of gas from the Gorgon field to enable Australia play a major role in world LNG supply. Create job for more than 6000 people. To provide a 6MSm3 per day of the domestic gas to Australia onshore domestic gas supply. To create three LNG trains in the Barrow Island that has capability of producing 5 million tonnes annually. Benefit Western Australia by approximately $40billon from the project. Lead to an increase in Australia GDP by $64billion. Marketing strategy (with justifications based on objectives) Product Product is the physical good or service that is offered to the consumer. In marketing, product is a key element (Davenport & Jeanne, 2007). Product has four stages which are introduction, growth, maturity and decline. In this case, Australia Gorgon LNG project will provide gas to Australia and world market. LNG is in the growth phase of its lifecycle. In the growth phase, there is high demand for the product (Petroleum Economist Ltd, & Shell Gas & Power, 2001). LNG has a growing market both in Australia and internationally. The domestic use of LNG gas in Australia has been growing while the export market is expanding. Australia LNG project at Gorgon have great potential to help in domestic and international market. The export market for LNG in Australia is expected to expand to 2700PJ by 2020 (Wilkinson, 2008). Western Australia where the project is nearly located depends on LNG than most of the states. Price This refers to the amount a customer is charged for the product. The LNG price is based on the world energy market (Petroleum Economist Ltd, 2004). The world gas price will determine the ability of the Gorgon project to help Australia meet their target in increasing their GDP. The oil and gas prices are set by the market competition by oil traders. There is no fixed price which exist (Adelman, 2002). Despite this, natural gas prices are lower in Australia as compared to other parts of the world. Place This refers to the storage, distribution channels and the inventory control. Gorgon LNG plant has been designing adequate infrastructure to distribute gas from its wells in Burrow Island. The project has spent more than $43 billion. The project have developed extensive natural gas infrastructure to enhance distribution. Gorgon project have two full containment tanks with capacity of 180,000m3 each (Colombo et al., 2010). The company have a Jetty located 4km offshore with two LNG carrier berths. This shows that the project have well designed distribution and storage infrastructure (Wilkinson, 2008). Promotion This involves publicity, public relations, exhibitions and advertisement among others. Through promotional mix, the product is placed in the mind of the target audience. Gorgon LNG project have gained a lot of publicity. This is due to the magnitude of the project and the expected benefit it have on Australia natural gas production. Through Chevron, the project has achieved massive public relation. The company have also been using press releases to explain the scope of the project and its impact on the oil and gas market. This has helped the project to gain worldwide recognition. The publicity and PR have enabled the target market to get insight of Australia LNG supply. Integrated marketing communication Integrated marketing communication involves use of all marketing communication tools in a coordinated manner. IMC is supposed to give a firm competitive advantage. The components of IMC are consumers, communication channels and results. Media is used to create awareness. In this case, Gorgon LNG project have used media extensively to create awareness. The message is passed through public relations and other publicity means. The message has been consistent (Raman & Naik, 2005). The same message about the advantages of the project and expected output has been displayed in all media channels. While Gorgon LNG project was being implemented, there was a lot of press coverage. The project advantages and progress have always been given a lot of attention both globally and locally. All communication programs used are coherent and targeted at the stakeholders. This has enabled Australia to gain positive publicity on their capability on LNG production. IMC have also been used as a tool to market Chevron as a firm with great capability in handling major projects. Conclusion This report has looked at Gorgon LNG project in Australia. The project is owned by Chevron which is an oil and gas company. Gorgon LNG project have great potential in expanding Australia LNG production. The project will enable the country supply domestic and global market. Through this, it will be possible to increase Australia GDP and create employment. The project faces challenges due to high cost of exploration and increasing competition in natural gas market. Through use of appropriate market mix, it will be possible to achieve the set objectives. Through use of IMC, the project has been able to market Australia as a major LNG supplier and Chevron as a firm with great capabilities in LNG exploration. References Adelman M.A 2002, World Oil Production & Prices 1947-2000, in Quarterly Review of Economics and Finance. Australian Energy Regulator 2007, State of the Energy Market, Melbourne, p. 259. Colombo, L., Cursan, M., Dell’orto, L., Piccinelli, C & Riboldi, L 2010, Gorgon Natural Gas Project, Norwegian University of Science and Technology, Department of Petroleum Engineering and Applied Geophysics Report. Dahl, C 2004, International Energy Markets, PennWell. Davenport, T. H & Jeanne G. H 2007, Competing on Analytics: The New Science of Winning. Boston: Harvard Business School Press. Douglas-Westwood (Firm) 2008, The world LNG market report, 2008-2012: Prospects, technologies, world markets. Canterbury: Douglas-Westwood. International Energy Agency 2004, Security of gas supply in open markets: LNG and power at a turning point, Paris, OECD. Nugroho, K. W 2004, Review of geological and petroleum prospectivity of sedimentary basin in Western Australia. Curtin University of Technology. Petroleum Economist Ltd 2004, Fundamentals of the global LNG industry, London, Petroleum Economist Ltd. Petroleum Economist Ltd & Shell Gas & Power 2001, Fundamentals of the global LNG industry, London, Petroleum Economist Ltd. Raman, K & Naik, P.A 2005, Integrated Marketing Communication in Retailing, pp. 339-353. Theodoropoulos, T. E 2010, The secret world of energy: Oil, gas & petrochemicals, Athens, Greece: Public Gas Corporation S.A. Wilkinson, R 2008, Gorgon JV expands Barrow Island LNG capacity, Oil and Gas Journal, Vol.106, no. 2, pp.33-34. Read More