Hey,
This is not an easy market sizing, so you have to always consider the context: the interviewer is not looking for a precise answer (not even in terms of a ballpark number), but they want to see a consistent, MECE logic.
Two things to keep in mind before diving in (vs. a more standard market-sizing):
- Frame everything as "this is my thinking, let me know if this makes sense to you, I am not an Oil&Gas expert" -- especially since this is a technical, O&G-specific topic
- Before jumping into Price × Quantity, take a step back and propose your approaches first
Step 1: Proposed Approaches
I would manage this first step by setting the market context (30-40 seconds) to avoid costly misunderstandings.
"Sure! I am not an expert of the O&G sector, but I assume we are talking about Oil & Gas pipelines that bring these materials from Uzbekistan to its border, and that we are trying to size the market for the manufacturing of the pipeline itself -- not maintenance or anything else, but please redirect me if my assumptions are not aligned with yours"
I would take 1-2 minutes to think. Then, I'dquickly propose two approaches (max 1 min).
"I can think of two main approaches, I'll describe them in general terms to see if we are aligned.
The first is Bottom-up, starting from the number of sources / extraction locations, where:
- Price is the cost per km of pipeline
- Quantity is the annual kms of pipeline built: number of extraction sites × avg kms of pipeline per extraction site × replacement rate (e.g. every 20–25 years). Of course, this can be adjusted based on how many sites are active, expanding, sharing the same pipeline, etc.
The second is Top-down, where:
- Price is the same as above.
- Quantity could be derived as: (Total yearly volumes exported by Uzbekistan / Capacity per pipeline) × avg km per pipeline × replacement rate.
[Note for you: the parentheses give us the number of pipelines from a top-down perspective!]
I would go with bottom-up because it seems easier in terms of data requirements, but I would like to actually understand if we have data on extraction sites and avg kms of pipeline."
Many interviewers will stop you at this point and say something like "We have data on X, Y, Z". They have a solution already in their mind, and will redirect you to adapt your strategy to their logic. In a purely interviewee-led setting, with a very hands-off interviewer, you might not get a hint and have to proceed with your own proposal.
Step 2: Recommended Approach & Calculation
Either case (assuming Bottom-up works for the interviewer), I would then quickly get deeper and start discussing numbers.
"I'd go with Bottom-up since we have some estimates on the number of extraction sites. Let me start setting the P*Q equation.
- Price -- cost per km of pipeline.
[Note: most interviewers will give you a price at this point; if they don't, my intuition would be the one below- Steel quantity: I am thinking we might need around 1000 tons per km (roughly one ton per meter -- numbers are directional, not the point here)
- I will assume $2,000 per ton for raw material, getting me to $2M per km in raw material.
- We can estimate, for sake of time, an uplift that considers labor, installation, and engineering -- I think this is roughly 1x the raw material.
--> This way, total price gets to 1,000 tons/km * ($2,000/ton *2) = $4M/km]
- For Quantity, I can estimate around:
- 25 active extraction sites in Uzbekistan
- An avg km of pipeline per site of ~200 km, if this makes sense to you. This would give us a total network of ~5,000 km.
- Lastly, we apply a replacement rate of 1/20 years = 5%.
--> This way, Q gets to 250km (25 * 200km * 5%) of annual pipeline built. If the market is growing, we might revise this upwards
- Market size: 250 km/year × $4M = ~$1B/year."
Takeaways
- Focus on the process, not on the numbers -- nonetheless, always check that your result makes sense. Such a complex market could not have, say, a $1M size, that's smaller than a local supermarket!
- To reduce risk, propose two approaches
- Try to make this conversational, so you can get hints/tips from your interviewer. They'll help you much more in these cases vs. a standard "tell me how much money Netflix makes in a year"
Hope this helps!
PS: I'll be brutally honest: I have no "real-life" clue about the O&G market in Uzbekistan, so I built the answer above first and then messaged a friend (former consultant) who works for a global O&G leader.
He told me that their market sizing exercises work roughly like this, but the real complexity is the pipeline requirement/design, which determines factors such as (i) the avg km you need from your extraction site to the border, (ii) the existing pipeline infrastructure you can leverage -- you might just need to build a few kms to get to a shared pipeline.
I had briefly mentioned (ii), but I didn't fully integrate in the answer because it would over-complicate the structure. Does this matter? No!
