Pipeline Oil Technology
Practice this advanced pricing case interview question in the Energy sector. Includes detailed problem prompt, clarifying questions, structured framework, and expert recommendation. Part of ProHub's 835+ consulting case library.
This case requires candidates to value a proprietary technology by quantifying tangible benefits (transportation cost savings and pipeline longevity improvements) against implementation costs, while comparing alternative investments to establish a defensible pricing floor and ceiling. The complexity lies in multi-year demand forecasting, proportional cost analysis, and negotiation positioning between the university's break-even point ($1,200M R&D recovery) and the buyer's alternative investment threshold ($7,000M pipeline expansion).
Clarifying Information
- What is the market? - Mexico.
- How big is the market? - 4,800 km of pipeline.
- Who are the competitors and market share? - National Oil Company (NOC) is the only player. However, the market is open for the last two years.
- Which are the potential buyers? - Primarily, NOC. However, the other two prospects are interested in entering the market.
- Does the University have a patent? How long does it last? - The University has already filed for a patent, which lasts for 20 years.
- What is NOC pipelines current capacity? - Full capacity. Surplus is transported by more expensive means such as rail car, barge and truck.
- How is the demand for crude oil? - NOC sells all the crude oil it buys. See Exhibit 2 for the next years’ forecast.
- Can NOC build more pipelines to substitute other means of transportation? - Yes, it is an alternative. However, there are costs involved. See “4. Given Data - Alternative: Expand Pipeline Network”
- How long does it take to implement this technology? - Minerva’s University estimates that the technology would be running in 100% of the pipelines in one year at $2,000 M installation cost.