Development In Oil And Gas Retail Industries

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ACCT90009SCM Online Practice Exam Suggested Solutions to Short Case Studies

Introduction

The future direction of oil and gas has set into a whole new course. To this date, the story remains the same as it was in the past which is more than 100 years from now The growth of supply production has been seen only in the western-driven market as well and competition remains among private organisations so that reserves can be accessible. After the commencement of 2005, it was observed that the level of oil prices went too high permanently (Benjamin,  2016). On the other hand, it has been observed that the remaining industries are also showing their interest in capturing the demands of the people for effective transport through the production of fuel-efficient engines, aircraft, ships, and vehicles. Some other industries are also relying on the supply of alternative fuels. In this report, the various factors associated with the oil and gas sector have been comprehensively discussed and critically analyzed that have an impact on the retailing business of oil and gas. A major section of the report also illustrates the impacts related to the rising price of oil and the evaluation of the technological transformation and its impact on the energy retailing industry (DeLeire, Eliason & Timmins, 2014). The purpose of this report is to identify the key points and objectives of DECC (Department of Energy and Climate Change) so that more reliable, satisfactory quality and secured energy supplies can be ensured for the fulfillment of future demands. DECC’s study is mainly based on the grassroots level where the petroleum retail market has been analyzed properly by considering the recent trends of the PFS otherwise known as Petrol Filling Stations (Belal, Cooper & Roberts, 2013).

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Factors that affect the existing size and structure of the oil and gas retail industry

The sharp decline in PFS quantity illustrates the problematic issue of being unable to fulfill the demands of fuels in the UK especially. However, a significant increase of 9% in petroleum product demand can be seen as the share of transport was 61% in the year 1998 which increased to 70% in the year 2011. The oil and gas retail market can be defined as the selling of petrol as well as diesel in the retail forecourts commonly known as the PFS. Some other fuels are also sold at some of the retail stations, like- LPG. There is the figure given below that graphically illustrates the complete retail sales volume in the case of PFS during the last fifteen years (Hawken, Lovins & Lovins, 2013). From the graphical presentation, it is quite certain that the overall volume had risen from approximately 28 million tonnes to that of 29.3 million in the year 2007. However, a small decline was seen going down to 27 million tonnes in 2011.

Several factors influence the current size as well as structure related to the present oil and gas industry (DeLeire, Eliason & Timmins, 2014). The major key drivers when it comes to market size and structure in this particular sector are- retail price and the total fuel volumes sold. However, fuel volumes are considered while thinking about specific factors, known as

Total number of vehicles

When the total number of vehicles increases substantially with a certain growth rate, it wouldn’t be wrong to state that a sharp reduction in the case of the number of households without any vehicle can be perceived at the same time. With this, the market size of the petroleum retail industry also increased to a greater extent. It is because the total number of houses with at least two or more than two increased from 25% in the mid-1990s to that of 33% in 2011.

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Fuel type

Fuel type also has a significant impact on market structure and market size. The market size of the oil and gas industry also depends on how many vehicles are linked with the fuel types- petrol or diesel. A case study can be taken into account here for better knowledge regarding this factor with an impact on the market size and structure of the oil and gas industry. According to the report of the Department for Transport Statistics for Great Britain, in 1997 around 11% of the licensed cars were diesel whereas the rest of the 89% of cars had petrol engines. But, in 2011 around 31% of registered vehicles were diesel and 69% had petrol engines (Isaksen, 2014). So, this market structure of the oil and gas industry happened because of the better standard of fuel economy gained from diesel engines less innovation, and lower mileage in the case of petrol engines. Along with this, the no-taxation policy against CO2 is also a factor that shapes this kind of market structure (Liu, Wang & Wang, 2013). It can be stated that this trend will continue in the future looking at the higher prices linked with fuels as well as no significant changes regarding the legislation.

Average annual mileage

It is also a factor that shapes the oil and gas industry by looking at how much a vehicle travels annually and it is considered the major determinant while measuring the retail fuel volumes that define the market size of the industry (Mitchell & Mitchell, 2014). As per the survey of the National Travel Survey, with the fact of a greater number of registered vehicles per year, the average annual mileage factor has also been decreasing continuously from 9,700 down to 8,430 during 1990-2010.

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Fuel Consumption

It has been observed that by showing concern towards the environmental impacts and CO2 emissions, many of the illustrious vehicle companies have started to improve the car fuel consumption factor with the development of new technologies. But, here another fact also waits with the reduction of CO2 and that is about the inclination of a major part of the population towards fuel-efficient vehicles that are smaller in size. So, here the higher fuel price drives this factor of fuel consumption to the surface (Liu, Wang & Wang, 2013).

Ownership

The market structure is also shaped by the three different owner types when it comes to PFS. Those owners mainly revolve around hypermarkets, companies, and dealers. So, the ownership factor has also a significant impact, especially on the market structure of the gas and oil industry.

Rising Oil Price Effects

According to Linsey Congdon, the economic strength and the price of oil are very strongly linked with each other. It can be better understood by analyzing a case study of the financial crisis. In such kind of predicament, a steep declining nature of oil prices can be seen while the international demand goes down sharply. But, with the rising nature of oil price even harsh situation can be observed that affects the national economy in many different ways. In this scenario, the only beneficiary parties are the oil-producing nations as they can benefit from higher prices of oil (Mitchell, Marcel & Mitchell, 2012). On the other hand, oil-consuming countries are negatively affected by the rising price of oil. With the rising cost of oil, the charges of the transport system get higher and then disrupted. However, the main problematic issue occurs in the case of the production industry, manufacturing industry, etc. as the distribution and delivery process will cost more than usual. When the oil price rises, it has been seen that fossil fuel prices also rise at the same time. With this, the cost of extracting natural gases rises, because oil is necessary in case of drilling as well as fracking (transportation of water for which oil is needed) (Retzer, Hill & Pratt., 2013). Due to the over-supply nature of natural gases, it has been perceived that the sales price of oil is less than that of the production cost for the short term. The economic discomfort level increases whenever the oil price increases and it is because, in simple words, salaries never rise with the increasing price of goods as well as services. Here, the solution is based on a concept of long-term instances of cut-back in the case of discretionary spending. Oil demand is inelastic when it comes to short-term effects, but when it comes to long-term effects, the rising price of oil sometimes encourages people to go for diversified consumptions by depending on different energy sources.

A greater level of increase in oil prices also contributes towards a higher level of inflation. The reason behind this scenario is the resultant force of rising oil prices towards transport costs (Perrons & Jensen,  2015). This condition leads to higher prices linked with different products and services. Cost-push inflation is seen very often in such cases which is very much different from the kind of inflation due to greater aggregate demand or else excessive growth. The impact of this situation also presents a significant dilemma that the policymakers have to bear. Greater interest rates have to be implemented to maintain inflation not more than that of the target.

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Oil technological changes in the energy retailing industry in the future

Many of the companies have been trying to develop unconventional resources of energy so that the increasing demands of the population across the globe can be fulfilled. For this, technological advancements play a very vital role when it comes to the technical category of reservoir engineering, drilling, well simulation, formation evaluation as well and completion techniques. In the future, advanced technologies will be there to extract more and more gas as well as oil out of the reservoirs so that reduction of costs in case of finding out or producing those will be possible (Sueyoshi & Wang, 2014). HPHT (High-temperature pressure) equipment with ultramodern technology and cutting-edge electronic materials will help the industry in the case of drilling deeper wells. With this approach, in the next decade advanced level of arctic technology will be developed and it will increase the supply of gas and oil.

With technological progress, the oil and gas industry will no longer have to depend on the monopoly market of transportation. The top companies of the industries have to think about developing and expanding the no-growth markets by establishing new refineries as well as distribution networks and it will be possible only by top quality developed technologies. More investment in technological aspects to commercialize the industry by innovation in the sectors of unconventional gas, unconventional oil, reservoir evaluation, etc. will be seen with the SAGD technological innovation known as Steam-assisted gravity drainage, geophysical as well as petrophysical technologies, locating productive sands along with shells to delineate sweet spots, etc (Ogunlowo, Bristow & Sohail, 2015).

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Conclusion

The report mainly reflects the impact of various factors related to the oil and gas industry and their effects on the market size as well as the market structure of this global industry. There are also severe impacts of rising oil prices especially on the economic system of a country which has been described quite comprehensively. The technological aspects that can flourish the oil and gas industry in the future also cover a major segment of this report. By promoting smart grid-related developments, the energy demands can be fulfilled by numerous governments (Perrons & Jensen,  2015). Recently, the government of the Netherlands sanctioned EUR 22.5 million to start the trial projects so that the network infrastructure for the smart grids will come to full function in the future. Many individuals think that retail fuel prices get higher quite rapidly next to a sharp increase in the case of oil prices, however, while declining nature of oil prices causes a slow fall in fuel prices. Sometimes, business profitability gets adversely affected by rising oil prices. In such cases, the companies want their workers to be laid off till the supply and demand graph comes to balance. It has been illustrated by many researchers that over the last two years, the price of oil has sharply increased. The present market condition of the oil and gas industry only reflects the interplaying nature between them which is about production, consumption, and stocks. The governments of many developed and developing nations have become concerned about the imminent situation in which they have to provide scope so that all the available energy options can be utilized by the end of 2050 (Sueyoshi & Wang, 2014). CSS technological development is a demonstration project under sea and the European nations have been funding it. This is a major example of a technological advancement step for the future development of the overall oil and gas industry.

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Reference

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Benjamin, C.T., 2016. Defining a Fashion Industry Value Stream in a Small Island Developing State. International Journal of Supply Chain Management,5(1), pp.68-74.

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Isaksen, A., 2014. Industrial development in thin regions: trapped in path extension? Journal of Economic Geography, p.lbu026.

Liu, Y., Wang, S. and Wang, L., 2013. Development of rapid determination of 18 phthalate esters in edible vegetable oils by gas chromatography-tandem mass spectrometry. Journal of Agricultural and Food Chemistry, 61(6), pp.1160-1164.

Mitchell, J.V. and Mitchell, B., 2014. Structural crisis in the oil and gas industry. Energy Policy64, pp.36-42.

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

Ogunlowo, O.O., Bristow, A.L. and Sohail, M., 2015. Developing compressed natural gas as an automotive fuel in Nigeria: Lessons from international markets. Energy policy76, pp.7-17.

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Perrons, R.K. and Hems, A., 2013. Cloud computing in the upstream oil & gas industry: A proposed way forward. Energy Policy56, pp.732-737.

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