Malaysia
National Petroleum Corporation be called for short is Petronas. Petronas is a
national oil and gas company that was established in August 17, 1974. Petronas
pertain to state-owned enterprises and it was fully owned by the Government of
Malaysia. Petronas also agreed with Petroleum Development Act passed by
Congress to grant the all Rights of ownership and control of oil resources in
Malaysia. Apart from that, Petronas have been designated as the territory of
all oil and gas development company. As a wholly government-owned holding
company, Petronas grasp all the country’s oil and gas resources, it also has
the responsibility to develop and add value to these resources. Through three
decades of development, Petronas has grown into a multinational integrated oil
and gas company, owns 3 subsidiaries under Petronas Trading Co., Ltd, Petronas
Gas Ltd and Malaysia International Shipping Co., Ltd. There have more than 100
subsidiaries in overseas and it was ranked among Fortune Global 500’s largest
corporations in the world (CNN Money, 2013). The income and profit of Petronas
also ranked as 133th and 16th respectively in the world.
National
Petroleum is engaged in a wide spectrum of petroleum activities, including upstream
oil and gas exploration and production, downstream oil refining, petroleum
products marketing, trading, gas processing and liquefaction, gas pipeline
network operation, marketing of liquefied natural gas, petrochemical
manufacturing and marketing, transportation, automotive engineering, ship
materials and industrial investment. Petronas provides the main source of
government income, with 45% of the government budget dependent on the state oil
company dividends and the government actual balance has 5% deficit of Gross
Domestic Product (GDP) in 2011. Malaysia National Petroleum Corporation built
the Petronas Twin Towers as its headquarter which was officially opened in
August 31, 1998 – Malaysia’s 42th National Day (Petronas, 2013).
Microeconomics
is considered to one of the primary of economic topics. It discusses about how
the main consumers, individuals, corporations and industry use the limited
resources to satisfy the unlimited needs and wants. Therefore, we must
understand about microeconomics to use resources efficiently. In conjunction,
there are some relevant concepts which are demand and supply, short and long
run production, elasticity, determinants, market structure and government
intervention. Let’s talk about demand of supply within Petronas. Demand and
supply is an important factor to determine price in a market. So, demand and
supply can be regarded as the backbone of an economy in market. The law of
demand means in ceteris paribus, when the price of goods is increase, customers
will less the quantity demanded of those goods; if the price decrease,
customers will higher the quantity demanded. On the basis of Petronas, it seen
as an necessary goods. But, people will only consume when car is out of oil.
People also will not buy more petrol just because Petronas is cheap as there
have no sense if they are not going to use it. Besides, petrol price of
Petronas is controlled by government in Malaysia, so the price will not be
affected randomly by the quantity demanded in short run. Although that,
Petronas is not the only one petroleum company in Malaysia, therefore, demand
of Petronas will be affected by its competitor which people prefer to. They are
Essos, Shell, Caltex, etc. In addition to this, population, expectations of the
future and the price of complementary goods will also affect the demand of
Petronas (Monalisa, 2013).
Expectations
about the oil price fluctuation in future, it will affect the demand of
Petronas seriously. For example, Prime Minister Datuk Seri Najib Razak announced
that RON 95 petrol will increase RM0.20 to RM2.10 per litre and diesel will
rise to RM2.00 in September 04, 2013 (Zurairi AR, 2013). After the news, most
of the people swarm into Petronas to “enjoy” the last cheap petrol in the
previous of that night.
So, the demand of Petronas increases rapidly in that
night. According to complementary goods, petrol is the complementary goods to
vehicle. When the price of vehicle decrease, people will higher the quantity
demanded of vehicle. In this case, demand of Petronas will going up with the
price drop of transportation. For example, Perodua will launch promotion to
decrease the price of its car during every June of the year (Perodua, 2013).
As
a result, consumers are able and willing to buy vehicle under Perodua. When the
quantity of vehicle is increase, the demand of Petronas will also be rose
automatically.
Why
when the prices of Petronas went up, demand of Petronas still remain unchanged
below a fixed level? It is because petrol is necessary goods and there are not
so many good substitutes for petrol that will make consumers to buy. This issue
is closely related to a microeconomics concept – elasticity. Elasticity is the
measure of sensitivity of variable between price and quantity demanded. For
price elasticity of demand, Petronas just like daily life essentials for consumers,
even if government increase the price, they will still consume a lot of petrol
on schedule. Thus, Petronas is relatively inelastic. As the price of the
Petronas gasoline increase, the quantity demanded for it will not decrease very
much.
Although it is so, there have also some factors that determine the
elasticity of demand. They are nature of goods, availability of substitutes,
alternative use, possibility of postponing consumption, proportion of income
spent, price-level, force of habit, durability of commodities and time period
(Monalisa, 2013). Among the factors of time period, it will affect the price
elasticity of demand of Petronas. For example, after rising of petrol price,
the immediate effect on demand was small because people still need petrol for
their cars in short period. In the long period, people will plan and find
another way to reduce the consumption of goods. An example would be, people
will change their car into more fuel-efficient car or heating systems that used
in gas heater. As a result, the price elasticity of demand within Petronas will
become relatively elastic in the long run.
On
the other hand, price elasticity of supply of petrol is relatively inelastic.
Gasoline is different with another goods, this is similar with the land supply.
In the short run, the change of the petrol price effect on supply was small
because quantity supplied of petrol is difficult to improve.
Petronas,
adapts an oligopoly market structure. In oligopoly market, there only have the
small number of manufacturers and they are monopolized by few manufacturers.
Therefore, every policy of each vendor will affect the profits of other
manufacturers. As a result, all of the vendors will be contained with each
other, which is the most significant feature of oligopolistic market. The reason
of mutual restraint, when vendors are making their own strategic decision, they
have to anticipate the possible reactions of other manufacturers. For instance,
Malaysia’s petroleum market is mainly monopolized by two petroleum companies –
Petronas and Shell. Furthermore, they are producing goods with homogeneous
product. Therefore, profit of Petronas not only decided by its price setting
and sales, but it also will affected by strategy of Shell. When Petronas is
considering have a markdown to increase sales, they also need to consider
whether Shell will follow them to decrease the price of petrol. If not,
Petronas just only can grasp the increasing of sales. Otherwise, Petronas not
only fail in cutting price to increase sales, they also will suffer losses in
competition. And the three main characteristics of oligopoly are small number
of large firms, identical or differentiate products and barriers to entry
(AmosWeb Encyclonomic, 2013).
In
Malaysia, government set price ceiling within some goods, such as gasoline,
diesel fuel, eggs, etc. Price ceiling is regulated by government to restrict
the market in a certain limit because government think that the equilibrium
price in market it too high. For this reason, government controls the highest
price to protect the welfare of consumers. For example, government limited the
price of diesel and this caused severe shortage of diesel fuel in that time. As
a result, users of diesel petrol were seriously affected. At last, shortage is
likely to cause people consuming in black market. In fact, the black market
price is higher than the normal market price because sellers will add the costs
to avoid the law. In addition to this, there also have another four types of
government intervention, such as taxes, subsidies, tariffs and wages (Lorenzo
von Matterhorn, 2013).
In
conclusion, economics discuss how individual and firms interact with each other
to satisfy their needs and wants in real world. But beyond that, economics
actually applies to our daily life to allow us to make every decision which is
beneficial. Economics also act a key role in giving us a new perspective to
facing all the challenging problems. Hence, Petronas will continue to use and
develop new technologies to maximize opportunities strengthen its capabilities
to become a leading global exploration and production player.
(1474 words)
Reference
list:
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[Accessed 23 October 2013].
CNN Money (2013) Fortune
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Lorenzo von Matterhorn (2013) Types
of Government Intervention. Available
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[Accessed 23 October 2013].
Monalisa (2013) 6
Important Factors That Determines Changes In Demand. Available from: http://www.preservearticles.com/201105287208/factors-that-determines-changes-in-demand.html
[Accessed 23 October 2013].
Monalisa (2013) 9
factors that determines the elasticity of demand. Available from: http://www.preservearticles.com/201105307213/9-factors-that-determines-the-elasticity-of-demand.html
[Accessed 23 October 2013].
Petronas (2013) Corporate
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[Accessed 23 October 2013].
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[Accessed 23 October 2013].
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