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Crude Oil Trading eCommerce solutions Team One
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Project Overview Traditional value chain Case study of four approaches to e- facilitated value chain Findings and conclusions
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Petroleum Value Chain
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Raw Products Trading Value Chain Domestic physical trading International physical trading Risk management / hedging Scheduling (pipeline & marine within US) Chartering (international) Demurrage & Stock Loss Contract administration Accounting / transactions processing Margin
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The market Petroleum products trading Second largest consumable commodity Roughly $1.8 trillion in gross trade revenues * $0.8 trillion in physical trading of crude oil $1.0 trillion in physical trading of refined products This estimate is conservative – could underestimate trading velocity. The paper, or financial market, is more than five times larger than the physical market. * Banc of America Securities
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SellerBuyer Crude Oil Trading Today
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Four case studies
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Integrated Oil Company Markets 1.5 Million BPD of Crude Oil Produced from 25 Countries Refinery Capacity of 1.0 Million BPD Global Crude Trading Staff of 109 Launched Crude Oil Marketing Website in December, 2000 General overview
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Where does Chevron add value? Domestic physical trading International physical trading Risk management / hedging Scheduling (pipeline & marine within US) Chartering (international) Demurrage & Stock Loss Contract administration Accounting / transactions processing Margin International physical trading Contract administration Chartering (international) Risk Management / Hedging Scheduling (pipeline & marine within US) Demurrage & Stock Loss Accounting / transactionsprocessing Domestic Physical Trading
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www.chevron.com/ crudemarketing/ Buyers Sellers Competitors Anyone Brochure Site Crude Oil Details Office Locations Contact Data/E-mail Capability Internet Business Model
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Target Market Refiners Producers Governments General Public Competitors
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Information Crude Oil Information Interaction Search Engine E-mail to Crude Oil Trading Teams Download Assay Data Value Added
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Distinctive Competence Industry Expertise New Crude Introduction Process High Acid Crude Marketing Competitive Advantage Terminal Operator Worldwide Coverage Joint Ventures in Key Markets (Far East) Headquarters in SF Bay Area Technological Innovation
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Good start on brochure site Inconsistent level of detail Limited use Team Evaluation “It’s too early for Chevron to partner with a provider as only the best will win. I see us building our own site initially at fairly low cost without all the bells and whistles and then moving to a third party site once it becomes well established.” Chevron Trader
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General Overview Founded January 2000 Based in Miami, Florida Offices in New York, Houston, and London International market Larger sales (cargos vs. barrels) Privately owned; independent Arthur D. Little owns 10%
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Domestic physical trading International physical trading Risk management / hedging Scheduling (pipeline & marine within US) Chartering (international) Demurrage & Stock Loss Contract administration Accounting / transactions processing Margin International physical trading Contract administration Chartering (international) Where does PEPEX add value?
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www.pepex.net Buyer 1 Buyer 3 Buyer n Seller 1 Seller 3 Seller n Sealed bidding Focuses on physical trades Strategic alliances with related service providers Nominal transaction fee paid by bidder (1 cent per barrel) Internet business model
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Target market Large international producers and consumers of crude oil and refined petroleum products National oil companies Government s Major oil corporations Utilities Airlines Trucking service companies Energy marketing companies
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Distinctive Competence Industry expertise International experience Combo cargos Competitive Advantage First mover Neutral ownership Exception request processing Technological Innovation Crosslinks platform Multiple round and double-blind bidding options ** Search engine ** ** Patent pending
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Can they get enough critical mass quick enough? Are vision & distinctive competence aligned? Are they anticipating market changes? Will the market tolerate transaction fees…now?…future? Future channel conflict/cannibalization? Does ultimate value lie with back office service providers? Team evaluation
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Incorporated February 2000 Located in Portsmouth, Houston, and London Minority interests owned by Equiva, ARAMCO, Williams, and Conoco Trades power, crude oil, and refined petroleum products in the US market General Overview
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Domestic physical trading International physical trading Risk management / hedging Scheduling (pipeline & marine within US) Chartering (international) Demurrage & Stock Loss Contract administration Accounting / transactions processing Margin Contract administration Where does HS add value? Domestic Physical Trading
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www.HoustonStreet.com Buyer 1 Buyer 2 Buyer 3 Buyer n Equiva Williams Conoco Seller n Blind auction bidding Focuses on physical trades Strategic alliances with related service providers Nominal fee paid by buyer Internet Business Model
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Target Markets US Crude Oil Traders US Electricity Traders US Refined Products Traders
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Added Value Connecting suppliers and consumers in an efficient manner. The value step in the value chain is small, therefore there is not a lot of incremental value to be gained Integrated producers do not benefit as much from e-trading sites, only getting rid of small imbalances in supply or demand For power, generation and transmission are the bigger economic impact
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Distinctive Competence Experience in running auction sites Competitive Advantage Liquidity from producer investors Economies of scope Technological Innovation State-of-the-art technology through Sapient alliance
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HoustonStreet Team Evaluation Industry consolidation will happen, and may be starting now HS has no offer of replacing the back room operations of the suppliers Therefore, major source of revenue is the partners HS not viable long-term in the global market Team Evaluation
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Founded January 2000 Based in Houston, Texas Domestic energy commodities Raw Products; crude oil, natural gas and power Refined products; jet,gasoline,and heating oil Neutral site General Overview
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Where does RedMeteor add value? Domestic physical trading International physical trading Risk management / hedging Scheduling (pipeline & marine within US) Chartering (international) Demurrage & Stock Loss Contract administration Accounting / transactions processing Margin Contract administration Risk Management / hedging Domestic Physical Trading
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Business Model www.RedMeteor.com Buyer 1 Buyer 2 Buyer 3 Buyer n Seller 1 Seller 2 Seller 3 Seller n A transactional database Integration platform for other eMarkets Integration platform for customer mid- to back-office systems
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Target Market US Gas Traders US Power Traders US Crude Oil Traders US Refined Products Traders
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Distinctive Competence Visionary leadership (morph to the market strategy) Multiple channel brokering (web-based products with traditional brokerage house) Competitive Advantage First mover Neutral ownership Fast deal entry and striking Physical, financial and over-the –counter interaction Economies of scope Technological Innovation Best of breed hardware and software: Oracle8i on Sun Solaris platform Easily modified Java presentation
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First mover advantage Conscious plan to evolve from current brokerage fee model to customer value- added services model (clearing, credit, and integration services) Exchange engine designed to accommodate any commodity Team Evaluation
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Independent Sealed bid Targets buyers & sellers International Cargo only Service alliances First mover Independent Brochure Targets large buyers US, International Product depth Services breadth They’re Chevron Customer investors Auction Targets “everybody” US Product depth Services breadth Economies of scope Independent Auction Targets “everybody” US Product depth Services breadth Morph strategy Comparison Waiting for the shake-out Buy a funeral plan (need cremation services?) Making money with power now, but will it last???
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Where is it all headed? Consolidation (providers and products) Brokers and traders must adapt to eCommerce or face extinction (change or die) Revenues will shift from transaction fees to pay-for-service
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Questions & Comments Team One
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