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Challenges of the existing oil and gas retail sector

Evaluate the potential of technological change on the energy retailing industry in the next decade. Critically discuss the implications of recent trends and changes within the supply chain of the UK petroleum retail marke.

Europe and United states are interested to import the liquid fuels from the Middle East countries. It is essential for those countries which have high demand of liquid fuel. As stated by Mitchell et al. (2012), the demand for the liquid fuel is gradually increasing due to release of household cooking items and new launched vehicles. The Shell is the global group of producing petrochemical and energy. The organization has around 101,000 employees in more than 140 countries (Williams et al. 2012). It has been observed that Shell has the aim to fulfill the world's growing demand of energy in the economy. The Shell provides oil change service, convenience stores, gas and petrol in more than countries. It has been noticed that not only Shell but also British Petroleum has started the globalization process in their business. The BP has taken different strategies for developing their petroleum business such as liberalization, free trade, globalization of economic activities, connectivity, borderless globe and others. It has been observed that the British Petroleum has reserved more over 1202 million metric tons of crude oil and 1437 billion cubic meters of natural gas on 2010 (bbc.com  2016). As opined by Erickson and Winters (2012), the crude oil production is gradually increased by 0.55% (bbc.com 2016).

The oil and gas retail industry has gone through massive disruption due to the price hike of the petroleum. As per the general news report, it has been observed that Britain oil and gas organization has assumed that they have faced the biggest challenge in last 50 years (Liu et al. 2012). As argued by Albino et al. (2012), the challenges faced by the Britain oil industry is due to the low level of exploration. The UK’s oil and gas companies have said that they were drilled only 15 wells last year. The drilling system of wells is the healthy level of investment. The production companies have claimed that the exploration drilling was gradually down from 44 wells to 20 wells during six years.  As per Annual Activity Survey by Oil and Gas UK has found that the well drilling system has influenced the fuel production cost up to 15% on last year (bbc.com  2016). It has been noticed that the price of the oil barrel hasincreased by 27% and it reached £17 (Sun et al. 2012). The oil and gas retail organization has faced strong challenge due to the price hike of per barrel by £30 which is almost double of the last year’s barrel price.  The rising price was applied on the previous week in Centrica. The oil and gas retail organization has decided to make the future investment in Norway and North America (Liu et al. 2012).

Potential of technological change

The oil and gas retailers have claimed that the petrol and diesel price increased due to the production tax payments to the UK government. On another hand, the UK Treasury has expected that due to low production ratio the Tax collection will be decreased from £6.5 billion to £3 billion (Liu et al. 2012). It has been noticed that no investors are interested in investing in the oil and gas retail business. However, it has been found that the ratio of petrol price increment is slightly decreased from £14.4 billion to £13 billion and the organizations are interested in investing in the oil and gas retail segment (Pollitt 2012). According to Marchand (2012), the fuel production rise and new wells drilled are two main reasons for creating the price hike of fuel in the international market and considered as primary barriers for the oil and gas retail organization. 

It has been observed that the UK oil and gas producingorganization has decreased their production by 8% which is equal to the 1.43 million barrels of per day (Christopherson and Rightor 2012). The oil and gas retail organizations expect that the production of the refined petroleum and gas will improve due to new investment plan of 2 new organizations.

The environmental impact of the petroleum industry is always negative because petroleum iand its production is considered as toxic for the human life, environment and main reason for climate change. Petrol is closely linked with the virtually all aspects in the society such as transportation, heating of homes, many commercial and industrial activities. Crude oil is a mixture of different kind of organic compounds which are highly toxic. As argued by Ates and Durakbasa (2012), the toxicity of the crude oil may cause cancer. On another hand, the exhaust of the burned fuel generates the carbon monoxide, methanol. Christopherson and Rightor (2012) stated that the exhaust gas affected the human and animal lung and caused the heart problem. Nitrogen gas is generated by the high temperature of the combustion of the oil and may cause acid rain. The acid rain causes the dead tree, acidified the lakes with dead fish. The human burns large number of petroleum is used by the human for the different purpose and generates a large number of CO2 which heats up the atmosphere.

It has been noticed that the growing countries are depending on the renewable energies like solar energy, biofuel, ethanol fuel gradually becomes familiar. Many countries like Brazil and USA start producing ethanol fuel and make it mandatory for the country (Barth 2013). Therefore, the nonconventional energy is the main competitor of the petrol and gasoline. It has been noticed that the biofuel is comparative cheap and containing almost no environmental. Therefore, the most of the developing countries start to us the biofuel and the car industry also began to produce the biofuel cars (Del et al. 2012). The geopolitics of oil fundamentally changes due to the interregional oil trade division between eastern and western hemisphere. Therefore, the issue regarding the oil import from the Middle East countries is also a challenge for the oil and gas retailers of UK.

The oil and gas retail industry has faced a strong challenge due to different reason such as the production cost increment, bad impact on the environment and competition with the biofuel. Therefore, the oil and gas retail organization needs to take some initial steps to develop global oil and gas retail market.

Monopoly of the transport market:

It has been noticed that most of the environment conscious countries depend upon the biofuel. Moreover than 30% car industry already moves towards the biofuel (Forsyth 2014). The main advantage for the biofuel cars are their low carbon emission ratio. Apart from that the low price and easy availability in some countries make this biofuel as a popular replacement of petrol. Many cars have been banned due to the government legislation regarding the limitation of the carbon emission. On 2011 major importing countries have adopted the strong policies about the emission of carbon and efficiency of the vehicle (Bremmer 2014). It has been observed that the car industry has changed their strategy to survive in the competition market. They have started the production of the biofuel cars. The Brazil and USA have exported the more over billion of biofuel all over the world. Therefore, the automotive industry is an important lifeline for petroleum and gas retail industry. The automotive industry needs to use the catalyst converter in the exhaust system of the new cars. The supercharger is acted like a two different filtering system in the automobile exhaust system. The catalyst converter converts the toxic pollutant of the exhaust gas through the catalyst redox reaction such as oxidation or reduction. The catalyst converter converts the carbon mono-oxide in to carbon dioxide and maintains the carbon cycle. Therefore, the car industry and the fuel industry not face the challenge of environment protection act and gradually increase the demand of oil and gas.

Frontier acreage and access to reserves:

Frontier acreage challenge refers to the exploration and development of the new field in the different location. It has been observed that any popular places as cities are covered by at least 2 -3 oil and gas retailers (Barth 2013). Therefore, the existing companies have almost no scope to find out any comparatively low challenge business location. On another hand the reserve system of the oil; and gas retail organizations are limited. Therefore, the oil and gas retail organizations do get chances to store the oil and gas in a huge amount. Therefore the oil and gas companies need to develop the storage in multiple places to store oil and gas so that the demand and supply ratio will be maintained properly. The demand and supply ratio help the production industry to manage their production cost.

Rising emerging market demand:

As stated by Marchand (2012), moreover 51% oil and gas retail organization has claimed that they have earned the profit through the significant investment in the emerging market for China and other Asian countries. As argued by Sueyoshi and Wang (2014), in most cases the performance of the organizations in the emerging market depends upon the government pricing policy. Sometimes it has been observed that the foreign direct investment increase the bargaining power of the government.  Therefore the oil and gas organization need to be more conscious of the investment plan in the emerging market.

Modeling:

It has been observed that the oil and gas retail organizations use the modern technology such as production frontier analysis. This new technology helps the organization to understand the Malmquist index to identify the production change as well as the expected price of the new product. Malmquist Total Factor Productivity (MTFP) helps the organization to identify the technological change, efficiency change and scale change of the production (Forsyth 2014).

MTFPvrs = TCvrs.ECvrs.SCvrs.

TCvrs refers to a technical change under vrs, and the ECvrs express the efficiency change under vrs. SCvrs defines the scale change under vrs.  As opined by Christopherson and Rightor (2012), the technological change in the oil and gas retail sector is highly influenced by two different things such as innovation and learning by doing. On another hand, the oil and gas retail organizations use DEA for analyzing data and identify the best practice frontier (Marchand 2012). The DEA presents the nonparametric mathematical programming techniques which express the correct estimation of relative efficiency of the production unit.

Advance ICE:

The average fuel economies i.e.UK corporate are have remained almost same for last 10 years which is nearly 27.5 miles per gallon.  Therefore, it gradually increases this year due to the technological improvement of the vehicles. The experts are expected that the ratio will be nearly 35.5 miles per gallon and 54.5 miles on 2025 (Ates and Durakbasa 2012). It can be identified that on 2025 the technological improvement ration of UK remains below the European and Chinese standard. It has been observed that the customers are demanding more fuel efficient vehicle. Now the car manufacturers also installed the computer controlled and software controlled fuel monitoring system to make the car most economic vehicle (Liu et al. 2012). Some popular car manufacturer such as AUDI, BMW, Volvo, Tesla, Toyota, Volkswagen and Nissan also launched the electric car to compete with the Internal Combustion Engine (ICE) cars. Therefore, the competition among the technologies creates more attractive, high efficient and low cost alternatives for the customers. On another hand, the installation charge of the solar power charging unit also drops about £2.85 per watt on 2012 (Mekhilef et al. 2012.). Therefore the many people have started to use the solar energy converter unit for domestic use instead of the regular energy. Therefore the alternative components and resource are considered as a technological improvement and have a great impact on the fuel and gas retail business.

Conclusion:

In this report the actual issues of the oil and gas retail organizations has been discussed. The oil and gas retail organizations have faced main challenge due to price hike of the production plant. The production plants also claimed that they already invested huge amount of money for drilling wells. It has been noticed that the no new well has been drilled during 2011 to 2013. Therefore, the production organization initially drilled several wells to supply the crude oil to the refinery. Apart from this, the demand for the petrol and gasoline is reduced due to the ethanol fuel. Therefore, the fuel and gas retailers need to take the help of different technological change such as reduce the pollution level of the fuel through the refinery, influenced the car manufacturer to install the catalyst charge in the exhaust system of the cars. Installation of the Malmquist index in their key business location and to influence the car manufacturer to implement the advance ICE technology in the cars are another two efficient process for development of oil and gas retail business.   

Reference list:

Albino, V., Dangelico, R.M. and Pontrandolfo, P., 2012. Do inter-organizational collaborations enhance a firm's environmental performance? A study of the largest US companies. Journal of Cleaner Production, 37, pp.304-315.

Ates, S.A. and Durakbasa, N.M., 2012. Evaluation of corporate energy management practices of energy intensive industries in Turkey. Energy,45(1), pp.81-91.

Barth, J.M., 2013. The economic impact of shale gas development on state and local economies: Benefits, costs, and uncertainties. NEW SOLUTIONS: A Journal of Environmental and Occupational Health Policy, 23(1), pp.85-101.

bbc.com  (2016). British Gas to raise prices by 9.2% - BBC News. [online] Available at: https://www.bbc.com/news/business-24562930 [Accessed 28 Mar. 2016].

Bremmer, I., 2014. The new rules of globalization. harvard Business review, 92(1), pp.103-107.

Christopherson, S. and Rightor, N., 2012. How shale gas extraction affects drilling localities: Lessons for regional and city policy makers.Journal of Town and City Management, 2(4), pp.350-368.

del Granado, F.J.A., Coady, D. and Gillingham, R., 2012. The unequal benefits of fuel subsidies: A review of evidence for developing countries.World Development, 40(11), pp.2234-2248.

Erickson, B. and Winters, P., 2012. Perspective on opportunities in industrial biotechnology in renewable chemicals. Biotechnology journal,7(2), pp.176-185.

Forsyth, T., 2014. International investment and climate change: energy technologies for developing countries. Routledge.

Liu, Z., Geng, Y., Lindner, S., Zhao, H., Fujita, T. and Guan, D., 2012. Embodied energy use in China's industrial sectors. Energy Policy, 49, pp.751-758.

Marchand, J., 2012. Local labor market impacts of energy boom-bust-boom in Western Canada. Journal of Urban Economics, 71(1), pp.165-174.

Mekhilef, S., Safari, A., Mustaffa, W.E.S., Saidur, R., Omar, R. and Younis, M.A.A., 2012. Solar energy in Malaysia: current state and prospects. Renewable and Sustainable Energy Reviews, 16(1), pp.386-396.

Mitchell, J., Marcel, V. and Mitchell, B., 2012. What next for the oil and gas industry?. Chatham House.

Pollitt, M.G., 2012. The role of policy in energy transitions: Lessons from the energy liberalisation era. Energy Policy, 50, pp.128-137.

Sueyoshi, T. and Wang, D., 2014. Sustainability development for supply chain management in US petroleum industry by DEA environmental assessment. Energy Economics, 46, pp.360-374.

Sun, H., Yang, Y., Li, H., Zhang, J. and Sun, N., 2012. Development of multiresidue analysis for twenty phthalate esters in edible vegetable oils by microwave-assisted extraction–gel permeation chromatography–solid phase extraction–gas chromatography–tandem mass spectrometry.Journal of agricultural and food chemistry, 60(22), pp.5532-5539.

Williams, J.H., DeBenedictis, A., Ghanadan, R., Mahone, A., Moore, J., Morrow, W.R., Price, S. and Torn, M.S., 2012. The technology path to deep greenhouse gas emissions cuts by 2050: the pivotal role of electricity. science, 335(6064), pp.53-59.

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