Chevron Corporation (NYSE: CVX) is a large multinational corporation involved in all aspects of the oil, natural gas, and geothermal energy industries. The firm is headquartered in San Ramon, California and has operations in over 180 countries (with over half of revenues coming from operations overseas). Among the three subsectors of the energy—upstream, midstream, and downstream—Chevron’s operations include all three, making the firm a fully integrated self-supplier. Chevron is involved extensively in the exploration, production, and transportation of oil and natural gas; the refinement and distribution of oil and natural gas; as well as power generation and energy services. With a market capitalization just shy of $200 billion, Chevron is a behemoth in terms of outstanding equity and is also one of the largest companies in the world by revenue. Our recommendation is to hold our Chevron position, which will be explained in more detail in coming sections.
When performing a Porter’s Five Forces analysis, the threat of substitute products is low. Although alternatives to gasoline such as alternative energy and clean energy are making strides, they are far from being a substitute for the colossal demands for oil and natural gas. The bargaining power of suppliers is also considered to be a low threat. Chevron is fortunate to essentially be its own supplier, due to its involvement in all subsectors of the broader energy sector. While OPEC essentially dictates prices of oil worldwide, only 20% of Chevron’s production occurs in OPEC nations. The bargaining power of buyers is a high risk, essentially because oil is a commodity and the competing gas station across the street can often provide the same product at a slightly lower price. The threat of new entrants is a low risk because the energy industry is mature and capital intensive. Further, existing large companies have a strong hold on market share. Competitive rivalry is high, again because competitors all provide nearly identical products at slightly different prices.
It is important to note the impact of the Organization of Petroleum Exporting Countries on gas prices and the competitive landscape of the energy industry. As seen in the graph following this paragraph, since 2006, United States imports of crude oil have declined at the same time
