Permian Basin Oil and The Market Environment

Crude oil is a global commodity, one supply interchangable with another, taking refinability factors into consideration, namely the “sweet” designation for low sulfur content. Such a universal product would seem divorced from the concepts of marketing with little possibility of differentiating one producer’s offering from another.

It turns out that marketing plays a crucial role in the production, shipment and sale of crude oil. The petroleum boom in the Permian Basin of Texas and New Mexico exemplifies the marketing factors at work, revealed through analysis of the macro-environment, the external market forces affecting all oil producers.

Technological: This market force is the primary driver of the Permian Basin boom as crude oil is extracted there through fracking, the process of injecting high-pressure liquid into shale formations to crack the rock and release oil and gas deposits. Developed after World War II, hydraulic fracking has improved and proliferated in recent years, tapping American reserves once thought impossible to exploit profitably (see following on Economic forces). Strikes in the Permian Basin, along with other major shale regions such as the Bakken Formation in North Dakota and the Anadarko-Woodford Shale in Oklahoma, have elevated the United States to top ranking among oil producing nations. 

Economic: As mentioned above, the presence of oil reserves alone does not dictate a country’s production capacity. Producers must be able to extract and transport the crude profitably. For decades, Saudi Arabia reigned over other producers with its geologic and geographic advantages—oil that is easy to pump; ample and accessible sea coasts for tanker shipment to worldwide customers.

The Saudis have neutralized these advantages more recently due to state budgets that can only balance under high oil prices (see following on Political forces).  In 2016, the Saudis used a traditional weapon to hurt competitors saddled with higher costs—production boosts to depress oil prices. American shale drillers were deemed particularly vulnerable due to their reliance on expensive fracking. Instead, American producers became more cost-efficient. The Saudis blinked due to their inflated break-even costs, cutting back production to raise global prices. 

Political-Legal: Saudi Arabia’s state budget seeks to maintain a safety net for its citizens while asserting its dominance in Mideast geopolitics. As the country earns most of its revenue from oil, internal and external political pressures have added what amounts to enormous fixed costs to its petroleum production.

In America, the political climate is encouraging more oil production and pipeline construction such as those linking the Permian Basin with the Gulf Coast. In what would have seemed inconceivable during the oil crises of the 1970s, the United States is now surpassing Saudi oil production at lower total costs, with the Permian Basin leading the way.

Ecological: This force encompasses two considerations—the presence of natural resources necessary for the marketing offering and the effect of the marketing enterprise on the environment. Per the former, new discoveries have greatly expanded estimates of the Permian Basin’s already prodigious reserves.

Regarding effects on the environment, dire reports of global warming amass, citing the burning of fossil fuels in raising the planet’s temperature. Fracking, the technology behind the Permian Basin boom, presents specific environmental negatives through its heavy use of water and triggering of earthquakes. Shifts in Social-Cultural and Political forces in response to ecological concerns (see following) could knock out this Technological force advantage.

Socio-Cultural: Permian Basin oil companies must maintain favor in the court of public opinion. The boom has strained local infrastructure and economies (e.g., Motel 6 rooms going for hundreds of dollars per night). North Dakota experienced similar upheavals with development of the Bakken Formation. Oil companies need to contribute to the liveability of the Permian Basin.

Even with other market environment forces benefiting Permian Basin oil companies, public opinion may tip decisively against the use of fossil fuels (see Ecological forces above), possibly shaping the Political force to generate legislation and regulation averse to oil production and consumption. With this, the Socio-Cultural force is the most volatile dynamic in the Permian Basin’s market macro-environment. 

Proverbs 4:25 NIV
[25] Let your eyes look straight ahead; fix your gaze directly before you.

How can Christian marketers use analysis of the macro environment to develop new marketing approaches? How can they overcome being “tied to the past,” a trait that could arise from Christians’ appreciation of tradition?

How can Christian marketers anticipate and mitigate negative effects of their endeavors? How does such an approach call for servant leadership?  

Drilling tower image: RuhrfischMarcellus Shale Gas Drilling Tower 4CC BY-SA 4.0

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