Quicklinks: Summary, products and services | Data | Income and profitability | Expenses | History, strategy and challenges
Summary, products and services
Summary of the energy business: how do energy corporations work? And how do they make money?
Energy corporations are businesses that produce and sell energy, typically electricity or natural gas. They may also be involved in the production of other energy-related products, such as oil, coal, and nuclear power. Energy corporations may be vertically integrated, meaning they are involved in all aspects of the energy business from production to distribution. Many energy corporations are also involved in the exploration and development of new energy sources. Many energy corporations are publicly traded, meaning shareholders can buy and sell their shares on the stock market. Energy corporations may also be privately owned.
What products or services are typically provided by energy corporations? Give examples.
Energy corporations typically provide electricity, natural gas, and oil. They use a variety of processes to extract and refine these products, including drilling, fracking, and mining.
What industrial sector is the energy business part of? What is the market operating environment? Describe its market dynamics in different regions of the world.
The energy business is part of the oil and gas industry. The market operating environment is global, with different dynamics in different regions. The Americas is the largest market for oil and gas, followed by Asia, Europe, Russia and the Middle East. The oil and gas industry is highly competitive, with a large number of companies operating in each region. Global supply and demand determine prices, as do geopolitical factors.
List and description of the five most successful companies in the energy business. How big are they and what is their market value?
- ExxonMobil – ExxonMobil is the largest publicly traded oil and gas company in the world, with a market value of $340 billion. It is also the largest refiner and marketer of petroleum products.
- Royal Dutch Shell – Royal Dutch Shell is a multinational oil and gas company with a market value of $270 billion. It is one of the largest oil companies in the world and has operations in over 90 countries.
- Chevron – Chevron is the second largest oil company in the United States with a market value of $200 billion. It is engaged in every aspect of the oil and gas industry, including exploration, production, refining, marketing, and transportation.
- BP – BP is one of the world’s largest oil and gas companies with a market value of $140 billion. It has operations in over 70 countries and is engaged in every aspect of the oil and gas industry.
- ConocoPhillips – ConocoPhillips is the largest independent oil and gas company in the world with a market value of $80 billion. It has operations in over 30 countries and is engaged in exploration, production, refining, marketing, and transportation of oil and gas.
Data
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Expenditure: typical costs and percentage of spend for energy corporations
- Cost of Goods Sold (COGS): 58%
- Depreciation and Amortization: 5%
- General and Administrative Expenses: 4%
Pricing: Typical pricing of products and services for energy corporations
- Natural gas: $4-$10 per mcf
- Electricity: 6-29 cents per kWh
- Heating oil: $2-$4 per gallon
- Propane: $2-$4 per gallon
Profit: Typical profit margins for energy corporations
- Bottom of range: 5%
- Top of range: 20%
Income and profitability
List of the top three sources of revenue for energy corporations (AKA how do they make money?) – including percentages of income and examples in US dollars for each
- Oil and gas exploration and production: This includes activities such as drilling wells and extracting crude oil and natural gas. In 2018, ExxonMobil’s oil and gas production accounted for 59% of its total revenues.
- Refining and marketing: This involves turning crude oil into finished products like gasoline, diesel, and jet fuel, and then selling these products to customers. In 2018, refining and marketing activities generated 30% of ExxonMobil’s total revenues.
- Chemical manufacturing: This involves using crude oil as a feedstock to produce chemicals like plastics and fertilizers. In 2018, chemicals sales accounted for 11% of ExxonMobil’s total revenues.
Pricing: What are average prices among energy corporations? How do the market and competition affect this?
The average price of energy per kilowatt hour (kWh) in the United States is 10.40 cents, but prices can vary significantly depending on the state, utility company, and type of energy used. For example, natural gas prices in the US range from $4 to $10 per thousand cubic feet (mcf), while electricity prices range from 6 to 29 cents per kWh.
The price of energy is also affected by the market and competition. For example, when there is a high demand for energy, prices will typically increase. However, if there is a lot of competition in the market, prices may decrease. Some examples of products and prices from energy companies are as follows:
- Natural gas: $4-$10 per mcf
- Electricity: 6-29 cents per kWh
- Heating oil: $2-$4 per gallon
- Propane: $2-$4 per gallon
Prices can also vary depending on the specific energy company and type of product.
What are the profit margins in the energy corporation business? In a percentage range.
Profit margins can vary greatly depending on the type of energy corporation and the specific business dealings involved. However, energy corporations typically have high profit margins, often in the double digits. This is because they are able to charge premium prices for their products and services due to the high demand and limited competition. Additionally, energy corporations often enjoy favorable tax treatment and government subsidies, which further boosts their profits. With this in mind, energy corporations typically have profit margins that fall somewhere between 5 and 20 percent
Expenses
What is the cost to build energy corporation facilities?
However, some examples of the cost to build facilities for energy corporations include:
- Building a natural gas processing plant can cost between $500 million and $1 billion
- Constructing a nuclear power plant can cost upwards of $10 billion
- Building a wind farm can cost between $1 million and $100 million
- Constructing a solar power plant can cost between $1 million and $10 million
- Constructing a hydroelectric dam can cost between $1 million and $10 billion
What is the staffing cost for a energy corporation business? With specific annual costs and examples in US dollars.
The staffing cost for an energy corporation business can vary greatly depending on the size of the company and the location of its operations. For example, a small energy company in the United States might have an annual staffing cost of $50,000, while a large energy company with operations in multiple countries might have an annual staffing cost of $500 million or more. Factors that can affect the staffing cost for an energy corporation business include the number of employees, the salary levels of employees, the cost of benefits, and the cost of training and development.
List and description of the top three ongoing expenses for energy corporations. What percentage does each represent?
The top three ongoing expenses for energy corporations are:
- Cost of Goods Sold (COGS): This represents the cost of raw materials and other direct costs associated with producing and selling products. For energy corporations, COGS typically includes the cost of oil and gas. In 2017, ExxonMobil’s COGS was $186.9 billion, representing 58% of their total expenses.
- Depreciation and Amortization: This represents the gradual reduction in value of assets such as buildings, equipment, and vehicles. For energy corporations, depreciation and amortization expense can be significant due to the large amount of capital expenditures required to maintain and grow operations. In 2017, ExxonMobil’s depreciation and amortization expense was $15.3 billion, representing 5% of their total expenses.
- General and Administrative Expenses: This represents the costs of running the company, including salaries, office space, and professional services. For energy corporations, general and administrative expenses can be significant due to the large size and complexity of their operations. In 2017, ExxonMobil’s general and administrative expenses were $13.4 billion, representing 4% of their total expenses.
History, strategy and challenges
What is the history of the energy business? With examples for each continent of the world.
One of the earliest examples is the British East India Company, (founded in 1600). The company had a monopoly on trade in the East Indies, granted the British government, and it quickly became one of the most powerful companies in the world. Other early examples include the Dutch East India Company and the French East India Company.
The energy corporation business reached its height in the late 19th and early 20th centuries, when a wave of mergers and acquisitions created a handful of giant companies that controlled the majority of the world’s energy resources. These companies, known as the “Seven Sisters,” included British Petroleum (now BP), ExxonMobil, Royal Dutch Shell, and others. The Seven Sisters dominated the energy industry for much of the 20th century, but their power began to decline in the 1970s as new oil-producing countries emerged and the world’s energy markets became more globalized.
Today, the energy corporation business is still dominated by a few large companies, but there is much more competition than there was in the past. There are now energy companies operating in every continent of the world, and the industry is constantly evolving as new technologies are developed and new sources of energy are discovered.
What business strategies are used by companies in the energy corporation business?
The main business strategies used by companies in the energy corporation business are cost leadership, differentiation, and focus, as follows:
- Cost leadership: This strategy is about achieving a lower cost structure than competitors in order to offer lower prices and be more profitable. This relates to Porter’s Five Forces as it is about achieving a competitive advantage through lower costs.
- Differentiation: This strategy is about offering a unique product or service that is not offered by competitors. This relates to Porter’s Five Forces as it is about creating a barrier to entry for competitors.
- Focus: This strategy is about focusing on a specific market or customer segment and tailoring the offering to meet their needs. This relates to Porter’s Five Forces as it is about achieving a competitive advantage through specialization.
The business secret some energy corporations use to make money is?…
The business secret some energy corporations use to make money is by using their monopoly power to charge high prices. These companies use their market power to keep prices high, which allows them to earn large profits. This secret is not well known, but it is how some energy corporations make money.
What recent challenges or dramatic events have been faced by companies in the energy corporations business?
The energy business has faced many challenges in recent years, including the Fukushima Daiichi nuclear disaster in Japan, the Deepwater Horizon oil spill in the Gulf of Mexico, and the ongoing crisis in the Ukraine. The most dramatic event was the Fukushima Daiichi nuclear disaster in Japan, which led to the shutdown of all nuclear power plants in the country. This had a major impact on the energy industry, as nuclear power is a major source of energy in Japan.
These events have led to increased regulation and scrutiny of the energy industry, and have also resulted in higher costs for companies in the sector.
Other challenges faced by the energy industry include the rise in global temperatures, which has led to an increase in demand for energy, and the need to find new sources of energy as traditional sources such as coal and oil become increasingly scarce. The rise of renewable energy sources has put pressure on traditional energy companies to adapt their business models.