Monday, December 9, 2019
Full Case Study on Oil and Gas Retail Industry
Question: 1. Critically discuss the implications of recent trends and changes within the supply chain of the UK petroleum retail market. 2. Demonstrate the ability to analyse the factors Affecting the present size and structure of the current oil and gas retail sectors and impact of the rising price of oil 3. Evaluate the potential of technological change on energy retailing industry in the next decade. Answer: Introduction The production of oil and gas in United Kingdom influences the production of oil and gas in the European Union. The policies of European Union aim at securing and providing efficient energy to their citizens and to their business (Candelise et al. 2013). The increase in price in the oil and gas retail sector is a major concern for the European Union. The significant difference in the price of oil and gas between United States and European Union had triggered a political discussion. In 2014, United Kingdom had produced 1.42 millionbarrel of oil equivalent, which consists of 59% of oil. In 2013, United Kingdom produced about 1.508 million barrel of oil equivalent. Recent rise in price of oil and gas in United Kingdom had created a major concern for the country and European Union. Increase in competitors and introduction of various kinds of fuels had triggered a concern in the oil and gas business. The oil and gas sector provides job to many people across United Kingdom. Increase in price in oil and gas sector would reduce the profit margin of the country, which would affect the job employees. This could also bring back the recession in the country and it has become a concern for the country. The assignment aims at finding and analysing the factors that had influenced the oil price in the United Kingdom over the recent years. The effect of the change in technology in this energy retail sector in the next decades would also be analysed in the assignment. Thus, a critical discussion would be made on the current trend of the supply chain management of United States and the changes that take place in the recent years (Baumeister and Peersman 2013). Methodology This portion of the assignment gives a clear idea about the petroleum retail market in United Kingdom, its size, structure, its trend and the effect of technology in this retail market in the upcoming years. 1. The factors Affecting the present size and structure of the current oil and gas retail sectors and impact of the rising price of oil Various factors affect the present size and structure of the current oil and gas retail sectors. The main factors that affect the size of this retail market are the domestic refineries, import terminals, primary infrastructure of distribution of oil and energy, infrastructure to distribute the oil and energy in various regions and the infrastructure to distribute oil and energy in secondary regions, which includes tankers to distribute it (Chesnes 2015). The PFS retailers through whom the common people reach to the fuels and energies and the vehicle tanks that stores fuels after purchasing it from PFS also effects the size of the oil and gas retail market. The United Kingdom downstream oil sector companies consist more than 200 companies. These companies are involved in the refining, distributing and marketing of the oil and petroleum products. The market of oil and petroleum is split into two major sections (Davenport 2013). One is for the commercial purpose that includes power gene rators, agricultural uses, transportation, industrial purpose, independent fuel distributors and various Governmental sectors. The other one is for the retail market, which provides fuel from the filling stations. There was a huge decrease in the size of the oil and petroleum retail market. In the past 26 years, the number of filling stations had decreased from 19000 in 1990 to 8494 in 2015. The factors that effected this change in the market of United Kingdom mainly included the entry of various super market groups into the business of oil and petroleum (Hawken et al. 2013). Various out-of-town stores and filling stations have developed over the years. These new developments have captured 44% of the market of fuels in 2015, which was only 11% at the time of 1990. This huge increase in the market capture had led to decrease in size and structure of the current oil and gas industry. These new out-of-town stores and filling stations had made the fuel business a high volume and low margin business. They have also increased the competition among the retailers and supermarkets and have squeezed the margins of the business. The decrease in margin of profit in the oil and gas sector was the result of increase in price of oil and gas in United Kingdom. The introduction of new out of town stores and filling stations had also led to the increase in price of the fuels. The operators had also tried to plan and direct the rising price in oil and gas and the sharp competition the business. The rise in price of oil and gas had resulted in increase in fare of transportation, as there was an increase in the fuel cost of the transports. There was a downfall in the economic activity of United Kingdom (Fernie et al. 2015). The price of fuel also increased with time. Both these activities had resulted in checking the sale of oil and gas, which had further affected the margin of profit in the business. The impact of rising of oil price had reduced the sale of the oil and gas, which also affected the economy of the country. 2. The potential of technological change on energy retailing industry in the next decade Introduction of technology in every industry is a modern approach to the business. Advancement in technology helps to do the work easily and efficiently. Similarly, introduction of modern technology in oil and gas retail market had helped in productivity of oil and gas. In the context of next decade, the demand for oil and gas would increase more than todays world (Lappo et al. 2013). Constant increase in population would lead to the use of more of natural resources. In the next decade, the manufacturing of oil and gas will be on high demand. The national infrastructure requires upgraded technology and new infrastructure to meet these increased demands on oil and gas. Though there are new technologies being introduced as a substitute to the oil and gas, the uses of oil and gas cannot be completely replaced by different kinds of fuels. In the next decade, other challenges like cutting down the emission of greenhouse gases, competing with the other source of energy like battery driven vehicles and craze for renewable energy resources (Miklian and Andersen 2014). These source of energy are cheap and eco friendly. The consumer will prefer them to oil and gas. Introduction of new technologies on the energy retail sector would help in speeding up the production of oil and gas. Using of high technology in the production would help in cutting down the work force of the industry. The technology would reduce the work pressure of the workers and they can manufacture more products with the help of technology. The high technological instruments are usually software coded. These softwares will make the work of the instruments easier. Introducing different types of software coded in an instrument would make it a multipurpose instrument (Ochieng et al. 2014). With the help of one instrument, various types of works can be done. The software coded instrument would help to produce more oil and gas and. These instruments can also reach to those places where it was not easy to access earlier. Thus, the new technology would help to produce more oil and gas and this would help to meet the increasing demands of oil and gas. Introduction of new technology would also help to reduce the competition and increase the profit margin in the next decade. Increasing technology would reduce the work force. The oil companies do not have to keep huge number of labours to transport oil and gas from one place to another. Softwares and technologies would help to transport oil and gas from one place to another without manual effort (Robins 2014). This would help to save the time of transporting oil and gas. Customers can easily access to the oil and gas and they can easily fulfil their demands of oil and gas. Technological development would lead to smart infrastructure and this would help to flourish the business in a efficient way. Thus, introduction of modern technology in the oil and gas sector would help to meet the primary energy needs in the next decade that would be increasing in the next decade. They would also help to increase the profit margin of the business and help in the transportation of fuels efficiently than before (Usman et al. 2015). 3. Critical discussion of the implications of recent trends and changes within the supply chain of the UK petroleum retail market Oil and gas retail sector have a great influence on the price of other commodities in the market. Increase in the oil and gas price would result in increase in the price of basic commodities in the market. This would result in inflation in the market and it would affect the economy of United Kingdom. United Kingdom had faced a recession in the recent years. The increase in price of the basic commodities may again lead United Kingdom to recession. United Kingdom draws out the natural resources mainly from the North Sea are. This area provides United Kingdom with 70% of their required natural resources. The natural resources from this area are of high quality and of low sulphur content. However, these natural resources are depleting at an alarming rate. Steps must be taken to preserve these natural resources so that the natural resources are available in the next decade (Solaymani et al. 2015). United Kingdom experienced a strong economic growth in the late 90s and early 00. However, the margins in the oil and gas retail industry continued to fall. Due to various environmental and energy policies, the rate of returns remained below the average of 8%. The recession in 2008 had increased the VAT on the oil and gas prices. It had also increased the volatile crude price and motor fuel taxation. The oil and gas industry supports more than 150000 workers of United Kingdom and this industry provides 85% of the primary energy resource to United Kingdom (Vogel 2014). The oil and gas sector o United Kingdom is considered a competitive market. The projected average net cash margins in long terms for the refineries at United Kingdom is about $ 2.6 per barrel. The turnaround cost and depreciation per barrel was around $0.86. This had resulted in a margin of $1.86 per barrel. The refineries whose margin level is such, is defined as the core refining capacity by PGI. This is the capacity required to maintain the global supply and demand balance (Solaymani et al. 2015). The oil and gas industries would require investing a sum of 1.5 to 2.3 billion in the next 20 years to keep a pace with this supply and demand balance. It is predicted that the capital expenditure and the operating cost would increase in United Kingdom and European Union in the upcoming years. By 2020, the sum of such legislative items would be around $ 2.5 per barrel out of which only $ 1.3 per barrel will be passed to the customers (Waters and Rinsler 2014). The expected expenditure during this period is estimated to be around 5.5 billion and this investment would not produce any effective return. From the time of 2013 to 2030, the oil and gas industry of United Kingdom would expect an return on investing about 4.1% (Wood and McCarthy 2014). If they apply a simple discount rate of 3.5%, then this ROACE would fall to 3.2% and if the industries of United Kingdom apply a discount rate of 10%, then the ROACE would fall to 2.2%. Such a low return rate in the near future would not fetch the adequate return to run the business. This would eventually hamper the flow of the business. The oil and gas refineries in United Kingdom would have to shut down their business voluntarily and this would affect the economy of United Kingdom in the near future. Moreover, closure of the oil and gas refineries in United Kingdom would result to expose United Kingdom to the market of international refined product and expose those products produced by United Kingdom that are already at high risk according to the standards of IEA methodology. Thus, the supply chain management of the United Kingdom in the oil and gas retail sector (Zhu et al. 2016). Conclusion The gas and oil retail market in United Kingdom is a huge business. This business was huge in size and had an enormous structure in the business field. The introduction of different kinds of energy resources such as eco friendly resources, renewable energy resources had led to the downfall of the oil and gas industry. Various out of town stores and filling stations had hampered the business of this oil and gas in United Kingdom. Introduction of new technologies and softwares would help in the production and manufacturing of oil and gas products in near future. This would help to gain the margin of profit in the business and would help in surviving the completion in the business world in near future. The supply and demand chain of oil and gas in United Kingdom would be balanced if there were new technologies introduced for operations. Thus, this sector needs urgent attention to compete in the near future. References Baumeister, C. and Peersman, G., 2013. The role of timeÃ varying price elasticities in accounting for volatility changes in the crude oil market.Journal of Applied Econometrics,28(7), pp.1087-1109. 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