Fuel consumption is rising rapidly in East Europe

Estimated Network Infrastructure by Population, Cars, and Land Area, 1997 [26,122 bytes] Oil Majors Presence in Central Eastern Europe, 1997 [17,245 bytes] MarketLine International Inc., a division of New York-based global market research firm DataMonitor, reports that at least 15 major international oil companies are looking to expand their retail products markets in Eastern European countries.

May 25, 1998

4 min read

MarketLine International Inc., a division of New York-based global market research firm DataMonitor, reports that at least 15 major international oil companies are looking to expand their retail products markets in Eastern European countries.

Although Exxon Corp. last opened its first western-style service station in Budapest 8 years ago, Shell has focused on developing markets in Poland. Currently, Shell has 339 sites in the region, giving it the largest service station network in Poland, MarketLine analysts say.

Eastern European consumers can be cheered by interest in their region. Fuel prices, which have been at historical highs there, are expected to fall significantly as competition among retailers takes hold, says MarketLine.

Major oil companies looking to expand their market share in Eastern Europe are Neste Oy, British Petroleum plc/Mobil Corp., Conoco Inc., AgipPetro* SpA, Statoil, Aral AG, OMV AG, and Royal Dutch/Shell.

Focus countries

Andrew Evans, a MarketLine energy analyst, points out that the Baltic states of Latvia, Lithuania, and Estonia will experience increased fuel consumption as Statoil and Neste retail outlets come on stream. He warns that opportunities in Bulgaria, where economic problems are creating an uncertain investment climate, and in Romania, which has not lived up to its potential as the second largest market in terms of population, may remain undeveloped for some time.

"The service station market in Central and Eastern Europe is unquestionably in a very dynamic phase," he said. "It is a region of extremes, from the relatively developed market in Poland, with its network of 5,978 stations, to the undeveloped market of Bulgaria, which is still heavily dominated by the local giant Petrol.

"The coming years should see further investment and development in countries such as Romania, Bulgaria, and Croatia, while the developed markets in the Baltic region, the Czech Republic, and Hungary will experience an intense battle for market leadership."

Evans said Poland, with nearly 39 million people, has the highest fuel consumption. He believes that, with strong gross domestic product growth predicted to 2000, the only difficulty for competitors is that there is a large number of service stations in the country.

"With so many retail service outlets, the market is bound to become extremely competitive as the various players struggle to increase market share."

Competition

So far, MarketLine analysts pointed out, Shell has been one of the most successful of the companies to enter the market, with 339 stations in operation in the region at the end of 1997. OMV, the oil major with the second largest regional network, also has performed well, however, with the number of sites growing at an average 22%/year since 1992.

BP, which currently operates less than 100 sites in the region, is planning to invest there, with £600 million in outlays planned this year and next. These new entrants tend to have significantly higher sales per site than the majority of the region's national companies, both due to the location of their sites and the power of their brand names, the analysts report.

Evans said the region's market appears very lucrative, thanks to growth fueled by growing consumption of gasoline and non-fuel items. He points out, however, that this has not been the case for all companies.

"An increasingly competitive market, with many new entrants, has inevitably resulted in some casualties, the first of which has been the domestic operators. The operators under greatest threat are the independents, or 'white pumpers,'" he said.

Environmental issues and legislation to enforce environmentally friendly operations are also taking their toll on "family-run stations that do not have the capital to adapt," he added.

A case in point is the Czech Republic, where the Environmental Law of Air Protection Act, which goes into effect in January 1999, will close 100-150 mostly independent service stations.

Although fuel prices have been rising in Eastern Europe, according to MarketLine, competition will in the long term result in companies lowering fuel prices, as has happened in the European Union (EU). Companies will begin making a higher percentage of revenue from non-fuel offerings.

From 80% to 97.5% of major domestic operators' revenues currently come from fuel offerings. Competition could well lower this figure considerably, as has already happened in the EU, with car washes and convenience stores beginning to make up an increasingly important share of revenue.