Development of New Efficient Refineries in the Middle East and China

Question: With the development of new efficient refineries in the Middle East and China, Western Oil companies are selling off their existing refining capacity. Explain why this is occurring and what are advantages could accrue to petroleum business from these de mergers. Answer: Any business venture revolves around two things. The running cost and making a profit down the line. As expected the advent of new efficient refineries in the Middle East and China, Western Oil Companies are either selling off their existing refining capacity or scaling down the production cost and overall production of crude. The main reasons for such steps are understood from a very simple logic. Cost of labour and operational cost plays a big role in deciding whether a venture is worth or not. Along with this the development in the field of non-conventional energy all across the world is another factor which is playing a role in deciding whether to run an oil field which is not a very profitable from production, transportation and crude oil price indicators. If the same production level or little less than these oil fields could be maintained with much more efficiency then the overall cost of production could be scaled down and profit margin could be pushed as well. The latest fall in crude oil price is again played a deciding factor and to break even from this price slump Companies definitely needs alternative oil field option to overcome future shock. Question: Critically appraise BPs decision to focus on non-renewable energy against those oil companies which have invested in solar, wind and other diversified energy sources. Answer: British petroleum decision to focus on non-renewable energy compared to other companies which are delving more into solar, wind and other diversified energy source investments is mainly due to profitability issue. After 40 years of casual approach to renewable energy research work BP finally took a call and withdrew from the field of renewable energy source. One of the main factors which played a role in taking this decision was the technological advancement China has made in the field of photo voltaic cells and the cost of production. After the Texas City refinery debacle and the aborted tie up with Rosneft, Russia, British Petroleum didnt want another setback in solar panel business mainly because of the competition from China in the production of cheapest solar panels is now hitting below the belt. BP decided to quit before its too late for them to recover and in any case the skeleton presence was merely to maintain credibility in the field of beyond petroleum. BP once controlled 80% of the oil fields around the world but now it has only 10% stake and as Oil companies need to make a lot of money to maintain their reserves replacement as well as to pay the huge dividends to the investors BP could not but get back to its core business activity. The tiny fraction expenditure of capital that BP invested in renewable energy was never good enough to compete against cut throat price deliverables of solar panels from China.