In this study, BHP Billiton has been chosen as a concern administration to analyze the factors impacting its demand and supply maps, how alterations to demand and provide during old two old ages have affected BHP Billiton public presentation, chances and hazards future alterations to demand and provide map might present to BHP Billiton. BHP Billiton is universe ‘s largest diversified natural resources company. BHP Billiton ‘s portfolio consist of find, development and transition of natural resources including Fe ore, coal, manganese, Cu, aluminum, Ni, diamonds, potassium hydroxide, U and crude oil. BHP Billiton has acquired alone place in the resources industry due to their proved scheme.
In this study BHP Billiton ‘s crude oil concern has been considered for demand and supply survey. BHP Billiton has been spread outing its crude oil concern in last few old ages sharply due to high demand of energy in universe market. Figure 1 shows the universe energy growing during last century and demand prognosis for emerging markets in following two decennaries.
As portion of BHP Billiton, their crude oil concern has the strong fiscal base which enables them to put and spread out through economic rhythms and keep a long term position. They invest in big undertakings with multiple chances over a long continuance to maximize its plus value. During last five old ages in a row, they have invested near to US $ 2 billion in development capital.
Factors Affecting BHP Billiton ‘s Petroleum Demand and Supply
In crude oil universe market, demandA fuelled by 1000000s of single houses and domestic users, whileA supplyA influenced by a few, specifically few states and theA Organization of Petroleum Exporting CountriesA ( OPEC ) trust. This consequence in an oligopolistic market for crude oil, A supplyA is limited by a trust to raise monetary values, and even non-OPECA states do non ever react in rational manner. Cardinal alterations took topographic point in last few decennaries in the worldA crude oil market, as control of oil resources shifted steadily off from theA major oil companies to bring forthing states ( Shojai 1995 ) . However, during current decennary new oil finds and deficiency of investing from many host states provided chances to major oil companies to consolidate once more their crude oil market portion.
The worldA oil marketA is the combination of assorted entities and organisations that produce distribute and sell oil and otherA crude oil products.A The worldA oil marketA trades for oil merchandises, any changeA in the worldA oil marketA affects the pricing of oil and otherA crude oil merchandises. The worldA oil marketA can increase or diminish theA priceA of oil and otherA crude oil productsA that are sold globally.
There are several factors which affect the demand and supply maps of BHP Billiton ‘s crude oil concern are discussed below in item.
Global Financial State
The universe crude oil monetary values are linked to planetary supply and demand. The oil monetary values are determined and linked to oil monetary values in universe market. The oil monetary values in universe markets have historically been capable to significant fluctuations. BHP Billiton sells its oil at the predominating market monetary values.
Due to recent planetary fiscal crises followed by a world-wide recession led oil monetary values free autumn from US $ 147/barrel to US $ 33/barrel in twelvemonth 2008. The oil monetary values recovered in twelvemonth 2009, nevertheless due to fiscal uncertainness in planetary economic system which relates to planetary economic growing, peculiarly in the OECD economic systems, the demand for oil was low hence monetary values were sulky. In the twelvemonth 2010, when recession called to be over oil monetary values once more started traveling upward. The demand for oil is now really much influenced by the demand comes from India and China. The influence of speculators and fiscal establishment such as hedge financess and other fiscal investing financess besides contribute to monetary value volatility.
The current economical troubles in USA may ensue in lower oil monetary values and higher monetary value volatility. The demand and supply volatility in planetary oil market has greater impact on fiscal public presentation of BHP Billiton. The impact of possible longer-term sustained low monetary value of oil and shorter-term monetary value volatility creates greater hazard on their fiscal public presentation. Their operating consequences and plus values will be materially and adversely affected by unanticipated diminutions in the prevailing monetary values of oil.
The on-going uncertainness and impact on planetary economic growing, peculiarly in the developed economic systems, may impact future demand and monetary values for oil. The influence of hedge and other fiscal investing financess take parting in oil markets have increased in recent old ages, lending to higher degrees of monetary value volatility. The impact of possible longer-term sustained monetary value displacements and shorter-term monetary value volatility creates the hazard that their fiscal and operating consequences and plus values will be materially and adversely affected by unanticipated diminutions in the prevailing monetary values of oil.
The market place forces of supply and demand determine the monetary value of oil. If demand grows or if a break in supply occurs, there is upward force per unit area on monetary values. By the same item, if demand falls or there is an glut of oil in the market, there will be downward force per unit area on monetary values.
Currency Exchange Rate Fluctuations
The World ‘s oil trading currency and BHP Billiton ‘s oil concern currency is US Dollar. However, BHP Billiton ‘s oil concern is influenced by a broad assortment of currencies due to the geographical locations of their oil production and supply installations based in different continents. The currency exchange rate fluctuation can hold greater consequence on their fiscal public presentation. If the dollar becomes stronger, they are benefitted by really strong consequence nevertheless a weak dollar may hold negative consequence on their consequences finally on impacting demand and supply. In twelvemonth 2010, dollar exchange rate in worsening against most of the universe currency. However the weak dollar may ensue in higher oil monetary values and greater rising prices worldwide which may take down the demand for oil due to its affordability and states may look for option for oil which will hold great impact on BHP Billitons fiscal public presentation.
BHP Billiton ‘s operating costs are influenced by the currencies of those states where oil production installations are located and besides by those currencies in which the costs of imported equipment and services are determined. The Australian dollar, UK lb, US dollar etc are the few most of import currencies act uponing operating costs of BHP Billiton. They present their fiscal consequences besides in US dollar and their adoption and keeping hard currency currency is US dollar. Hence the fluctuations in US dollar will hold a important impact on BHP Billiton ‘s fiscal public presentation.
Demand from India and China
Despite the planetary fiscal crises begin in twelvemonth 2007, followed for recession, Indian and Chinese economic system shown better resiliency, which let oil monetary values travel up in twelvemonth 2009 upto US $ 80/barrel. India and China has emerged as a planetary consumer for oil demand because of their population. The India and China have become a important beginning of planetary demand for oil production. In twelvemonth 2009, 16 % of entire planetary oil demand fuelled from India and China entirely. The demand from Western Europe and US ( OECD economic systems ) for oil has been driving planetary oil demand over the past decennary. Now the oil demand from Asia peculiarly India and China are major driving factors for higher oil monetary values. There continued growing of GDP more than 9 % even during the extremum of recession brought the oil monetary values from US $ 33/barrel to presently US $ 83/barrel. The strong economic growing and substructure development in India and China in past twelvemonth has led higher demand for oil. BHP Billiton is a major trading spouse with India and China for its other trade goods such as Fe ore, Cu, aluminum etc, which gives them border over other companies. Their incorporate selling offices incorporate all the maps required to pull off merchandise selling and distribution from the point of production to concluding client bringing.
However a lag in economical growing of India and China ‘s may ensue in lower monetary values and lower demand for oil, hence cut down BHP Billiton ‘s grosss. In response to their increased demand for oil, India and China are progressively seeking strategic autonomy in oil, including investings in bing concerns or new developments in other states. These investings may adversely impact future oil demand and supply balances and monetary values which hamper the fiscal public presentation of BHP Billiton.
World Political Events Including War
BHP Billiton ‘s oil concern is dispersed across many continents. The oil is preponderantly found in parts, where there are greater opportunities of struggles. Majority of the oil bring forthing states are confronting terrible political and commercial instability. BHP Billiton besides operates in emerging markets, which may affect extra hazards that could hold an inauspicious impact upon the profitableness of their operation.
There are assorted hazard factors are associated with oil supply and demands. These included, escalation in tenseness between Iran and USA due to Iran ‘s atomic programme, possible war between Arab Nations and Israel, insurgence in Nigeria, political infighting between Russia and Ukraine, possible terrorist onslaughts in OECD states or emerging states, civil agitation due to high rising prices, nationalization of assets, renegotiation or nullification of bing contracts trades, rentals, licenses or other understandings, and alterations in Torahs and policy, every bit good as other unforeseeable hazards. In many developing states and struggle zones, there is a greater hazard of corruptness due to high net income border in oil concern and engagement of civil retainers in this moneymaking concern. Due to the any of the abovementioned hazard related to oil production may greatly act upon the BHP Billiton ‘s supply and demand scenario and finally impacting their fiscal public presentation. Any oil concern like BHP Billiton ‘s oil concern is a long-run investing which, require long-run financial stableness.
Due to recent planetary fiscal crises, many authoritiess presently confronting excess load of debt and support duties and they may necessitate excess resources of gross and financess. Hence they may set extra rates of revenue enhancement, higher royalties or resource revenue enhancements to a degree which become unviable for production of oil. If this happen to other companies BHP Billiton may acquire extra gross to shortage in supply nevertheless if any of the BHP Billiton ‘s operation affected by these sort of hostile state of affairs it may negatively impact the fiscal consequences and cut down the awaited hereafter returns and overall degree of prospective investing in those states.
In BHP Billiton ‘s attention, the current Petroleum Resource Rent Tax ( PRRT ) in Australia will be extended to all Australian oil and gas undertakings, including the North West Shelf. This statute law is proposed to be introduced into Australian parliament in late 2011, and so for the beginning day of the month of the new revenue enhancement government to be 1 July 2012. Any possible increase/decrease in revenue enhancement alterations in the hereafter may impact their fiscal public presentation.
Oil concern could be independently affected by new authorities ordinance, such as controls on imports, exports and monetary values. Increasing demands associating to regulative, environmental and societal blessings can potentially ensue in important holds in building and may adversely impact upon the economic sciences of new oil and gas undertakings, the enlargement of bing operations.
Natural Disaster and Calamities
Most of the oil production installations are associated with high hazard of jeopardy. BHP Billiton have its geographic expedition, production, fabrication, processing and logistical operations in many geographic locations both onshore and offshore. These operational procedures may be capable to operational accidents such as port and transportation incidents, fire and detonation, loss of power supply, railway incidents, loss of good control, environmental pollution and mechanical failures.
Their operations and geographic locations may besides be capable to unexpected natural calamities such as temblors, inundation, hurricanes and tsunamis. The impact of these events could take to breaks in production and loss of installations more than countervailing premiums saved and adversely impact their fiscal consequences and chances.
In any market state of affairs, supply and demand instabilities can impact monetary values in both the short and long term. If the supply is disrupted, as it was after Hurricanes Katrina and Rita in 2005, short term demand for the merchandise may transcend the supply on manus and set upward force per unit area on monetary values. Consumers all over the universe may detect a rise in oil monetary values due to shortage in supply. Due to these natural catastrophes there is instability between supply and demand. These natural catastrophes put upward force per unit area on monetary values, as supply gets affected but demand remained high.
Health, Safety, Environmental and Community Legislation
Hazard related to oil ingestion has initiated assorted statute laws and ordinances by different authoritiess and administrations like United Nations in attempt to maintain environment clean and cut down the emanation of C gases greatly act uponing the demand for oil.
Assorted states have put an excess duty and revenue enhancement in attempt to cut down the ingestion of oil. Due to recent oil leak in Gulf of Maxico from BP ‘s seaward oil platform has initiated a tougher ordinance on deep H2O oil geographic expedition. The allowing demand for oil substructure can besides impact its demand.
As BHP Billiton is a major manufacturer of C gases due to its oil concern. Their oil operations are carried out both onshore and offshore. The oil industry is extremely regulated industry by wellness, safety and environmental Torahs. As many regulative criterions and safety processs are invariably developing, BHP Billiton may be exposed to unexpected and increased judicial proceeding, conformity costs and unanticipated environmental rehabilitation disbursals. Potential wellness, safety, environmental and community events that may materially impact their operations include aircraft incidents, light vehicle incidents, detonations or oil leaks, incidents affecting nomadic equipment, flight of fouling substances, community protests or civil agitation.
Longer-term wellness impacts may originate due to unforeseen workplace exposures by employees or site contractors. These effects may make future fiscal compensation duties. These possible conformity costs, judicial proceeding disbursals, regulative holds, rehabilitation disbursals and operational costs could negatively impact our fiscal consequences.
Alternative Energy Source
The increased demand for oil has resulted in increased production of petroleum. This scenario in recent old ages has resulted in bing militias being depleted at an accelerated rate. As BHP Billiton ‘s oil grosss and net incomes are related to oil production, hence their consequences and fiscal conditions are straight related to the success of their geographic expedition and acquisition attempts, and their ability to replace bing militias.
There are utmost uncertainnesss inherent in gauging oil and gas militias, and geological, proficient and economic premises that are valid at the clip of appraisal may alter significantly when new information becomes available. The impacts of the planetary fiscal crisis may impact economic premises related to reserve recovery and necessitate modesty restatements. Reserve restatements could negatively impact their consequences, fiscal status and chances.
As universe economic system retrieving from recent recession, therefore the demand for oil is picking up. More demands for oil is fuelling up from BRICS ( Brazil, Russia, India, China and South Africa ) states every bit good as US. However BHP Billiton has adopted a balanced attack towards planetary economic system in short term.
In twelvemonth 2010, the emerging economic systems such as BRICS are demoing great possible for enlargement. However in these states rising prices became a major issue. As in these states, economical growing has picked up its full gait, their several authoritiess are now concentrating towards rising prices control steps.
Chinese authorities has late implemented growing quieting steps to command the rapid enlargement of economic system. China has adjusted its financial policy towards a more balanced attack ; ingestion led growing instead than investing dependance growing. These steps may decelerate down China ‘s growing and finally poignant demand for oil.
On the other manus, Indian economic system has adopted more balanced attack. There demand led by immense substructure development may fuel for higher demand of oil. The
However the uncertainness continues to environ the developed universe as authoritiess adjust financial policies following a period of important stimulation and subsequent addition in autonomous debt degrees. Significant public disbursement cuts and higher revenue enhancements have been announced in Europe, nevertheless are yet to be to the full implemented, connoting the inevitable negative impact on growing from financial consolidation remains in front. Industrial end product, a nucleus step of economic activity, remains good below old extremums despite the positive impact attributable to re-stocking that now appears mostly complete. In the absence of any extra stock list accommodation, betterment in end demand is indispensable to drive overall economic growing.
In the short term and long term, BHP Billiton can bank upon its immense modesty of oil and its production capacity which may turn out as a cardinal factor in maximizing their net income and bring forthing better fiscal consequence in its oil concern. The quest for oil will be keep lifting from developing states which will maintain oil monetary values higher. Overall the demand for oil will be higher hence BHP Biliiton can anticipate strong growing for its oil concern in long term. As long term monetary values determined by the fringy cost of supply, BHP Billiton ‘s place at the lower terminal of the cost curve is expected to underpin strong borders and better fiscal public presentation.
Appendix A: Mention List
Fluor Corporation – Annual Report and Financial Statements 2008 & A ; 2009
Foster Wheeler AG – Annual Report and Financial Statements 2008 & A ; 2009
www.rauters.com / finance
www.businessweek.com / companies
www.ft.com / companies