Business Strategy for Oil Refinery Company in Facing Challenges in The Crude Oil Refining Industry

Abstract

The development of the energy industry in a developing country in Asia is undergoing a transition process from oil and gas energy to electrical energy and renewable energy. Based on Government data, the share of oil and gas will decrease from the current 32% to 20% in 2050, this is in line with the increase in penetration of electrification and other energy diversification. However, the demand for oil and gas will continue to increase significantly due to the increase in population. PTM, an energy company in a developing country, one of its refineries supplied 26% of domestic fuel demand by the end of 2021. The company is facing several challenges that affect its business, especially in one of its domestic oil refineries. Domestic crude production (upstream) is predicted to decline by up to 40% in the next 10 years so to meet the need for crude as raw material for refineries, it must be met through imports. Most of the imported crude is sour crude (high Sulfur), while the existing refinery is designed to process sweet crude (low Sulfur) which is more expensive than sour crude, so it will reduce the company's profit in the future. The demand for fuel and petrochemical products in the country is currently still high, where the country still imports 40% of fuel products and 40% of petrochemical products. Besides, the company is faced with the fact that Most refineries use old technology, Lower complexity than international competitors, and Lower conversion rate results in low profit. Therefore, the company requires a business strategy to face the above business challenges in order to generate better profits and become more competitive in the future. This study aims to find the appropriate business strategy for the company. This study uses VRIO Analysis and Business Model Canvas to determine the company's internal business environment, using PESTLE and Porter's Five Forces to determine the company's external business environment. Then summarized through SWOT Analysis and using a business strategy formulation through 3 stages: Stage 1 (Input) consisting of Internal Factor Evaluation (IFE) Matrix and External Factor Evaluation (EFE) matrix, stage 2 (Matching) consisting of SWOT Matrix and Internal-External (IE), Stage 3 (Decision) using Quantitative Strategic Planning Matrix (QSPM). Finally, the result of The Quantitative Strategic Planning Matrix (QSPM) is Market Development. Market Development is the appropriate strategy for the company and was chosen as the first priority strategy, namely increase crude processing capacity & flexibility, and upgrade refinery technology. With these strategies, the company is expected to be more competitive and generate better profits in the future.