Origin Energy vs Woodside Petroleum

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Date Submitted: 08/18/2011 08:07 PM

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Industry Analysis

The industry which Woodside Petroleum and Origin Energy belong to is the Energies and Utilities sector, which on the ASX is the S&P/ASX 200 Energy Index (XEJ). This index consists of firms who are dominated by either following activities: “the construction or provision of oil rigs, drilling equipment and other energy related service and equipment, including seismic data collection; or, companies engaged in the exploration, production, marketing, refining and/or transportation of oil and gas products, coal and other consumable fuels. Woodside is the clear market leader by market capitalization, with $36,663m they are over twice the size of their nearest competitor, Origin Energy ($15,769m). There are few other big players in this sector, such as Santos ($13,595m) and Coal & Allied Industries ($10,350m). Besides these there are 283 other firms listed in this index”.

Within the Energies and Utilities sector, there is a high degree of rivalry among firms due to the large amount of competitors within the industry and the relatively low switching costs for consumers of energy products. However, the industry has no prospective substitute products and low threat of new entrants due to the high start up and exit costs associated with the complex infrastructure and R&D required to achieve adequate economies of scale within the Energies and Utilities sector. Although there is a moderate degree of competition within the industry, future growth due to continued increases in consumption of energy sources ensure the continued profitability of firms within the sector.

The prospects for continued growth in the Energies & Utilities sector appear strong. Daniel Yergin, chairman of IHS-Cambridge Energy Research Associates, forecasts that “global energy demand will climb 30 percent to 40 percent from 2010 to 2030, spurred by rising incomes in emerging markets and global economic growth.” The continued demand for fossil fuel energy in the medium...