Demonstrate the ability to analyse the factors affecting the present size and structure of the current oil and gas retail sectors and the impact of the rising price of oil.
Petroleum industry plays a very important role in the proper functioning of the economy. The UK retail market of the petroleum industry has about more the 200 companies that are into production, distribution, refining and marketing of the products. The filling stations selling fuels are covered under the retail market aspect. A major shakeout has taken place in the retail sector in the past twenty-five years, and this has led to the reduction in the filling stations from 18000 to 8591 by the end of the year 2014. There is competitiveness among the retail firms who only concentrate on the large volumes in the sites having shops and modern facilities.
The factors that are seen to affect the UK’s retail industry are grouped under four crucial areas. The information is collected from the consumers, competitors, suppliers and government who affects the petrol filling business.
Needs of Consumers: Price and convenience are the two important factors that a consumer considers while choosing PFS. By convenience, we mean the nearest location to the consumers. It is seen that a few customers are willing to travel to get fuel at a cheaper rate. The situation of the customers will lead to the extent to which the factors can have an influence on them (Andrews and Gateley, 2015). With more PFS availability, the focus of the consumers is seen to move towards price. A location gets more crucial for the customers when there are lesser options of PFS during their time of driving. A market survey conducted in UK in 2012, where about 1000 consumers over the age of sixteen have more focus on the price now than they had in the previous year. A question was also asked on the conveniences of filling fuel. The percentages of people agreeing to the statement that they look out for the convenient location to shopping for fuel rather than shopping around for lesser priced fuels was low in 2012 (Van Vactor, 2010). This shows that the consumers mainly think about the price of the fuel, and they can take a step to search for cheaper oils in their nearest locations. The result when surveyed varied in Wales, East Anglia and Britain (Evans, 2007). A survey on the motorist in Ireland was conducted by the Consumer Council where the result showed that the 82 percentages respondents changed their driving behaviour due to the fuel price increase. They also said that they are always searching for the best price in fuel. The consumers also consider the other privileges that are offered by the PFS. These benefits are shopping, loyalty card offering and car wash facility.
Bond with the fuel suppliers: Fuel to the PFS retailers are supplied by the fuel suppliers who are independent and oil company supply divisions (Falola and Genova, 2005). The relation with the suppliers if fuel is important it shows what prices the PFS retailers pay for the petroleum products. The price is paid in terms of Platts Plus. This means a global yardstick of prices is published daily for the petroleum product that is quoted in the terms of the US dollars. The charges that are taken extra by the suppliers of fuel over the quoted price are described as the plus element.
• Competition Levels: The consumers are getting more sensitive to prices even though the customers hold d some brand loyalty. Price competition is generally affected by the following factors:
1. The time and distance that is needed to arrive at the alternative PFS.
2. The size and the number of the PFS in a particular geographical area.
3. The various companies that operate the PFS in a particular geographical area.
The reason for the increase in the competitive prices is due to the growth of the hypermarket in the petroleum retail market of UK. This has led to a fierce competition among the owners of PFS with the ones who are operating the hypermarkets. The PFS owners they need to face the hypermarkets basis retail prices (Giannakidis et al., n.d.). This has led to the gross margins to reduce. The gross margins have reduced, which is a percentage of the retail price over the fifteen years for the dealers who are independent.
Regulations and Government policies:
The business of the PFS is also affected by the government regulation and policies. It also helps in the investment and behavioural needs. The drivers related to the government can be classified into fiscal drivers, standards of safety and environmental policies and regulation. The fiscal drivers are the taxes like fuel duty, rates in business and corporation taxes that affects the business of PFS. The business rates are assessed on a five-year basis by the Valuation Office Agency. The assessment by the VOA is based on the performance of the PFS The final prices of retails accounts for 60 percentages of VAT and fuel duty.
The global economic performance is significantly dependent on the prices of fuel. There is a shift in the terms of trade, and also there is a transfer of income from the oil importing country to the oil exporting country (Aderoju, 2015). Oil prices increase in also affected by the increase in the prices of gas. The macroeconomic influence is affected with the rise in the prices of oil. Due to higher earnings from exports the oil exporting nations are facing a rise in the real income (Powering the UK The role of the power and gas sector in the wider economy, 2015). There is a negative impact on the importing countries of oil with the oil price increase. To keep their local economy running, they need more energy supplies. The increased oil prices have led to the increase in the production. This also caused the product prices to increase (PwC, 2015). Inflation happens to make the consumers life tougher around the world. The emerging economies are affected severely due to flat wages and the accelerated rate of spending. The national statistics of UK has shown the factory gate prices of UK increased to the highest levels during November 2009 due high oil prices. During this year, inflation rose for the month of November to January and value added tax was at 17.5 percentages during the month of February (Haerens, 2010) . The Bank of England predicted that pressures of inflation would occur more promptly. To stimulate the growth of the economy, the government reduced the value added taxes by 15 percentages. The rise in oil prices led to decrease in the exports of oil by the UK retail petroleum sector. The first quarter of 2010 saw an increase in the prices of oil from 80 dollars to 90 dollars. The major recessions in the countries like United States, United Kingdom and Europe is mainly due to the rises in the crude oil prices (Maugeri, 2006).
The oil industry’s future depends on the perpetual technological improvement. The international oil industries are also not in a position to accept the new technology. The 3D seismic mapping was used by the Exxon Company in the year 1967 for the exploration process. This was extremely dependent on the power of computing and cost reduction outside the industry. The seismic surveys were seen as a common practice in the United States and the Gulf of Mexico (McCage, 2007). There was a dramatic improvement in the productivity due to horizontal drilling. This drilling process was only due to the controllable steering from the surface and technology in evaluating the characteristic of a reservoir during the time of drilling. This technology can be beneficial for increasing the production of petroleum fuel.
The technology of fracturing has also played a remarkable effect. This can be a potential technology in the future. The fracturing technology has a long history. It was experimented first by Amoco on reservoir basis. The Barnett shale with the help of the government support initiated the fracturing via horizontal wells. The slow adoption of technology may also result due to risk aversion on applying it to large projects (Nakaya, 2006) . The other factors that lead to slow penetration of technology were depletion of fields, economics and management practices of reservoirs. Before the application of any technology, a proper research and development are required. The small companies are seen to have a more aggressive approach. This was clear with the Mitchell Energy role in the development of hydro racking in shale gas. The government of the country should support development and research on the exploration of oil and gas of United Kingdom.
As new exploration remains unsuccessful with the diffusion of new technology the budget for research has also lessened (Oilandgasinnovation.com, 2015). The immediate effect of this was the increase in the oil prices. The leading oil companies established their centres of research linked to their core business in an area with technical specialities (OFFSHORE OIL & GAS SECTOR STRATEGY, 2015). In case of venture investment, a fraction of it is devoted to energy technology and among this hydro carbon related technology accounts for a small portion. Some money is also spent on the minerals and mining industry for supporting it. The mineral company that comes in mind is the Simbol Materials that produces lithium.
The petroleum retailers can install the Smart Pos systems developed by petro soft that was designed to make the process of transaction more efficient. The features include electronic journal, drawers for cash with a drawl; the data can be accessed and processed online in the system. There is also demo for the first time users of the system.
The qwickserve software by Petro soft is an innovative hardware technology used in the food services industry. These systems are also used in the UK’s retail petroleum industry’s food division. This helps in accuracy and a worthwhile experience for the retailers and the customers. The features that the software holds are self-services ordering, management of menu and recipe, customization of a menu, reporting, etc. The benefits the retailer is going to have after the installation is customer empowerment, increased up selling opportunities, expanding promotional opportunities, reduces errors due to entry of data, data entry time is reduced, improved menu pricing accuracy and helps increase in inventory.
The C- store office feature of Petro soft will help in the management of inventory of the multi-store and single retail operators.
The future proofing f the oil industry:
Preparation is to be made by the industry to face the critical and uncertainties of the industry. More the 66 percentages of the company are seen to benefit from the oil field pilots that are digital, the improved performance and cost reduced the benefit. The security of people, the physical data is already seen to realise. Effective leadership, a good culture of business and adopting the right technologies such as cloud and wireless is required to future proof the digital oilfield technologies. The risks can be mitigated with management of the complex big data (Oil and Gas UK -the voice of the offshore industry, 2015). The functions in the oilfield are seen to achieve rapid advancement through the digital technologies. The work forces are better connected with the wireless systems. More than 75 percentages of the company are using this technology (study-of-the-uk-petroleum-retail-market, 2015). The workers working isolated areas are given mobile devices that have location-enabled features. There is a clear case of adoption of digital technology in the oil fields in the remote of places. The organization that has adopted technological changes has experienced reduction in costs, better management process and smoother flow of information. There may arise a further investment of 360 million dollar in technologies related to the oil fields in the coming years. This is indicated by the projections in the industry.
The UK’s oil retail industry is seen booming in recent times. Due to the uncertainties in the global prices of oil, the oil industry will have some effect. If the industries adopt technology, the exploration of oil and gas becomes more convenient and comfortable. The factors that are affecting the structure of the industry must be analyzed in detail. As the needs of the consumers affect the sale of fuel so their decisions are to be taken into consideration by the retailers. Government policies and the tax structure of the country can also have a significant effect on the exploration oil.
Aderoju, A. (2015). TECHNOLOGICAL ADVANCEMENT IN THE OIL AND GAS INDUSTRY: A CONSIDERATION OF THE NODAL SEISMIC SYSTEM. Hamburg: Anchor Academic Publishing.
Andrews, M. and Gateley, J. (2015). Savills UK | Oil and Gas. [online] Savills.co.uk. Available at: https://www.savills.co.uk/sectors/energy/oil-and-gas.aspx [Accessed 12 Aug. 2015].
Evans, R. (2007). Fueling our future. Cambridge: Cambridge University Press.
Falola, T. and Genova, A. (2005). The politics of the global oil industry. Westport, Conn.: Praeger.
Giannakidis, G., Labriet, M., OÌ GallachoÌir, B. and Tosato, G. (n.d.). Informing energy and climate policies using energy systems models.
Haerens, M. (2010). Oil. Farmington Hills, Mich.: Greenhaven Press/Gale, Cengage Learning.
Maugeri, L. (2006). The age of oil. Westport, Conn.: Praeger Publishers.
McCage, C. (2007). Oil. Detroit, MI: Greenhaven Press.
Nakaya, A. (2006). Oil. Detroit .: Greenhaven Press.
OFFSHORE OIL & GAS SECTOR STRATEGY. (2015). 1st ed. [ebook] Available at: https://www.hse.gov.uk/offshore/offshore-oil-and-gas.pdf [Accessed 12 Aug. 2015].
Oil and Gas UK -the voice of the offshore industry. (2015). 1st ed. [ebook] Available at: https://www.oilandgasuk.co.uk/cmsfiles/modules/publications/pdfs/EC030.pdf [Accessed 12 Aug. 2015].
Oilandgasinnovation.com, (2015). Oil And Gas Innovation Center » Oil & Gas Innovation Center. [online] Available at: https://oilandgasinnovation.com/home/ [Accessed 12 Aug. 2015].
Powering the UK The role of the power and gas sector in the wider economy. (2015). 1st ed. [ebook] Available at: https://www.ey.com/Publication/vwLUAssets/Powering_the_UK/$FILE/Powering_the_UK.pdf [Accessed 12 Aug. 2015].
PwC, (2015). Gateway to growth: innovation in the oil and gas industry. [online] Available at: https://www.pwc.com/gx/en/oil-gas-energy/publications/gateway-to-growth-innovation-in-the-oil-and-gas-industry.jhtml [Accessed 12 Aug. 2015].
study-of-the-uk-petroleum-retail-market. (2015). 1st ed. [ebook] Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/69760/7322-study-of-the-uk-petroleum-retail-market.pdf [Accessed 12 Aug. 2015].
Van Vactor, S. (2010). Introduction to the global oil & gas business. Tulsa, Okla.: PennWell Corp.
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