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Sinopec Corp SWOT & PESTLE Analysis

Last Updated : 06 May, 2017

OVERVIEW

Name of the Company: Sinopec Corp

Business Sector: Oil and Gas

Operating Geography: China, Global

About the Company: Sinopec Corp. is one of the largest integrated energy and chemical company based in Beijing, China. The scope of its business mainly covers oil and gas exploration and production, extraction, pipeline transmission and marketing etc. The company is China's largest producer and supplier of refined oil products (including gasoline, diesel and jet fuel, etc.) and major petrochemical products. Sinopec had 690,000 employees in 2011 and is increasing in size year by year.

Revenue: RMB 1,930.9 billion (FY 2016)

SWOT & PESTLE Analysis

The SWOT Analysis for Sinopec Corp. is given below:
Strengths
Weaknesses
1. Stable and remarkable growth
2. New innovation and research
3. Improving the efficiency
4. Successful international operations
5. Committed to quality and efficiency
1. Does not feature in the top league
2. Need for a sustainable model
Opportunities
Threats
1. Leading mixed ownership reform
2. Increasing consumption of oil in China
1. Problems in implementing an efficient energy model
2. Severe competition
3. Fluctuations in price
4. There are several challenges in oil exploration
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Strengths

1. Stable and remarkable growth: While both share price and market capitalization increased, Sinopec Group, with Sinopec Corp. as its core asset, ranked third on the Fortune Global 500 list for 2014. Sinopec has maintained a favourable growth momentum throughout the years. The operating revenue of the company has increased by 12.8% in 2014, from the year 2011. Sinopec financed its capital needs through the issuance of bonds based on market conditions, which effectively improved its capital and debt structure, enhanced enterprise value and supported the rapid development of the company.

2. New innovation and research: It enhanced its capabilities in innovation and achieved a series of strategic research advances with practical applications. The breakthroughs in the research into shale gas development, new type of coal-to-chemical conversion, new materials, energy conservation and environmental protection have helped Sinopec to further improve their industry structure and product mix.

3. Improving the Efficiency: The company focuses on improving the efficiency of upstream exploration, in particular through the development of unconventional oil and gas exploration and the construction of liquefied natural gas facilities. Sinopec fully upgraded the quality of refined oil and were the first to make all of their gasoline and automobile diesel products meet the GB IV national standard; some regions have upgraded product to the GB V.

4. Successful international operations: Sinopec has paid great attention to international operations. The Group accelerated its “Going Global” pace and achieved great progress. Presently, the Group has cooperation agreements with many countries, including Iran, Saudi Arabia, Gabon, Kazakhstan, Yemen, Ecuador, Angola, Oman, Libya, Niger and Mali, to exploit and develop their local oil and gas projects.

5. Committed to quality and efficiency: Sinopec is committed to development through the improvement of internal quality and efficiency, and they maintain their core strategy of driving growth by innovation, in order to transform Sinopec into a scientific and services based company. They hope to gradually shift the industry structure from “petroleum and chemicals” to “energy and materials,” changing the value creation model from a focus on manufacturing to a focus on innovation and services.

Weaknesses

1. Does not feature in the top league: Even though Sinopec has 11 refineries with processing capacity is up to 107 tons per year, Sinopec doesn’t even feature in the list of top 10 companies in the world, in terms of processing speed.

2. Need for a sustainable model: Availability of oil and petroleum resources is getting increasingly difficult over the years. In order to have sustainable business model, the company needs to look for some sustainable options in its value creation model.

Opportunities

1. Leading mixed ownership reform: Sinopec led mixed-ownership reform in China with the marketing business, aiming to transform the segment into a market orientated business through joint efforts with private investors. The initiative laid the foundations for invigorating Sinopec, further increase their competitiveness, advancing the transition to a new model of business and ensuring sustainable growth. Sinopec’s marketing business has established mixed-ownership operations by restructuring and introducing private capital

2. Increasing consumption of oil in China: Along with China’s massive economic development, China’s oil consumption has increased year after year, especially, in the high energy consumption secondary industries. More energy availability has been translated into the improvement of China’s social life, increasing ownership of personal cars, and the quickening pace of construction that characterize a well-off developing society. Sinopec can focus on exploring the new energy sectors like unconventional gas and oil exploration.

Threats

1. Problems in implementing an efficient energy model: There are various challenges in implementing an effective Energy Conservation model. There are also global standards in place to keep the level of CO2 Emissions in check. In recent years, the global energy supply has become tighter and tighter and the pressure on the environment has sharply increased. Soon, energy becomes a major bottleneck to China’s economic development while the international pressure caused by the environment will only grow. So it is an inevitable choice that China should look for alternative sources of energy such as wind, biomass, and solar power, and develop both new, ideally renewable energy sources.

2. Severe competition: In the global arena, there are major international players who dominate the petroleum industry. In China, several state-run players like CNPC, CNOOC have captured a large chunk of market share in the petroleum and oil industry.

3. Fluctuations in price: The company requires intensified analysis and forecasting of macro-economy and market trends, in order to actively respond to the significant fluctuations in international crude oil prices and other oil products prices.

4. There are several challenges in oil exploration: Many developed oilfields entered into a stage of high water-cut and high levels of exploitation with declining levels in production; the shortage in petroleum resources is still the main restricting factor for the development of many oilfields; the drilling situations becomes more and more complicated, making the existing technology in-adaptable, finally, reconstruction can turn out to be arduous because of the aging and severely corrosive ground systems of old oil fields.

Sinopec Corp. SWOT analysis has been conducted by Shobhna Dixit and reviewed by senior analysts from Barakaat Consulting.

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The PESTLE Analysis for Sinopec Corp. is given below:
Political
Economical
1. Governments bilateral and multilateral agreements and international relationships1. China’s massive economic development leading to a high spending customer group
2. Weak global economic recovery
Social
Technological
1. Various social responsibility initiatives taken by the company
2. Sinopec supported the United Nations Global Compact China network, hosting two sessions of the China Summit on Caring for Climate
3. The company sincerely cares for its staff, actively participating in public welfare initiatives
1. During the past three years, Sinopec has won seven National Awards for Technological Invention, including one first-place award
2. Several domestic and foreign patents in technological development
3. Breakthroughs in research & exploration
Legal
Environmental
1. New laws in place after restructuring of petroleum industry
2. Compliance with overseas laws
1. Energy bottleneck
2. Clear water, Blue Sky Schemes
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Political

1. Governments bilateral and multilateral agreements and international relationships: The Government’s international relationships will impact the company’s global collaborations and joint ventures and comprehensive efforts, including oilfield production, technical services, refinery and pipeline construction.

Economic

1. China’s massive economic development leading to a high spending customer group: In line with China’s massive economic development, China’s oil consumption has increased year after year, especially, in the high energy consumption secondary industries. More energy availability has been translated into the improvement of China’s social life, increasing ownership of personal cars, and the quickening pace of construction that characterize a well-off developing society.

2. Weak Global economic Recovery: The weak recovery in global economic slowdown will have a negative impact on the international trade and exports of the company, as the consumption pattern has shown a downward slope.

Social

1. Various Social Responsibility initiatives taken by the company: Sinopec has established a Social Responsibility Management Committee to guide the Company on sustainable development. The company has continued to fulfill their social responsibilities in all aspects of their business.

2. Sinopec supported the United Nations Global Compact China network, hosting two sessions of the China Summit on Caring for Climate: Sinopec has joined the Global Compact LEAD and the Caring for Climate initiatives. They conscientiously followed the ten principles of the Global Compact, and made ten voluntary commitments at the Rio+20 Summit. Sinopec supported the United Nations Global Compact China network, hosting two sessions of the China Summit on Caring for Climate.

3. The Company sincerely cares for its staff, actively participating in public welfare initiatives: They took the lead in publishing a corporate environment conservation white paper and an Environmental, Social and Governance report for shale gas development, setting an example for Chinese enterprises to collectively cope with climate change. The Company sincerely cares for its staff, actively participating in public welfare initiatives and promoting development that benefits both the business and its various stakeholders.

Technological

1. During the past three years, Sinopec has won seven National Awards for Technological Invention, including one first-place award: During the past three years, Sinopec has won seven National Awards for Technological Invention, including one first-place award; 12 National Awards for Science and Technology Progress, including one special prize and three first-place awards; and two National Gold Patent Awards.

2. Several domestic and foreign patents in technological development: They have obtained a total of 6,850 domestic and foreign patents. These achievements demonstrate the effectiveness with which the Company has embraced technology to further its development.

3. Breakthroughs in research & exploration: With regard to growth mode transformation, commercial operations at the Fuling shale gas project, China’s first sizable shale gas field commenced ahead of plan with a production capacity of 2 billion cubic meters per year, making China the first country outside North America to develop shale gas for commercial use. The new business of coal-to-chemical conversion and the research and production of higher-value-added products were developed. Sinopec increased exploration investment and used advanced technological innovation to achieve significant success in exploration. The company made new exploration breakthroughs in the Leikoupo group in the northeastern part of Sichuan province. It also made significant progress in exploration in Xinjiang Tahe-Tuoputai region, and exploration discoveries in new strata series in the Eastern old region and Western new blocks.

Legal

1. New Laws in place after restructuring of petroleum industry: After restructuring of the petroleum industry, local companies were able to undertake exploitation and production in accordance with the new law, some attaining rapid development. Since the “Renewable Energy Law” was enacted, China has established a policy framework to support renewable energy and issued a series of supporting policies and rules. In January of 2006, the NDRC promulgated such policies as: “The Guidance Catalogue of Renewable Energy Industry Development”; “The regulations of renewable energy,” and “The management provision of the renewable energy prices and the cost-sharing”.

2. Compliance with Overseas Laws: During oil and gas explorations in other countries, the company has to comply with the overseas law while extracting crude oil and other petroleum products.

Environmental

1. Energy Bottleneck: In recent years, the global energy supply has become tighter and tighter and the pressure on the environment has sharply increased. Soon, energy becomes a major bottleneck to China’s economic development while the international pressure caused by the environment will only grow.

2. Clear Water, Blue Sky Schemes: Climatic changes due to environmental pollution will call for strong international laws to curb carbon emission by the companies. Sinopec plans to invest more than USD5 billion to implement the Clear Water, Blue Sky Scheme and the Energy Efficiency Doubling plan in order contribute towards environment protection.

Sinopec Corp. PESTLE analysis has been conducted by Shobhna Dixit and reviewed by senior analysts from Barakaat Consulting.

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