To Improve Your Grade We Always Ready To Help You

  • 60,000+ Completed Assignments

  • 3000+ PhD Experts

  • 100+ Subjects

EECT056 Oil and Gas Management

Published : 20-Sep,2021  |  Views : 10

Question:

The asymmetric adjustment between wholesale and retail fuel prices in the United Kingdom has generated lingering concerns about the transparency of retail petroleum products prices. However, over the past few years, motorists in the United Kingdom have enjoyed a sustained period of falling pump prices (Energy Institute, 2016).
 
Critically analyse the factors driving the sustained low price of petroleum products over the past five years and based on your findings, evaluate the possible direction of the price of diesel and petrol products in the United Kingdom in the short-term future
 
1. 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
2. Critically analyse the influence of governmental action on the profitability of oil and gas retailing

Answer:

Introduction:

It can be said that the sector of gas and oil is considered as an important industry for the economic development of a particular country and generally it largely depends on the business of this sector. The main reason is that the oil and gas industry of a country is a large source of revenue and tax and the people as well as the government of that country can be highly benefitted from oil and gas industry of that country (Kelland 2014). There is not any exception of this fact particularly in the case of the sector of the United Kingdom’s gas and oil. It has been noted that the gas and oil sector of the U.K. is regarded as a large segment as more than 200 companies are operating in this particular industry. These companies are into various business operations of this industry like production, distribution, refining and marketing of the products.

Hence, it can be said that there are many dimensions of the sector of gas and oil of the country United Kingdom. Moreover, filling stations that sale fuel, are under the retail sector of the country. However, it has been seen in the recent years that there are some major factors that are affecting the business of oil and gases in United Kingdom. Apart from this, these factors have a negative effect on the retail sector and the economy of United Kingdom (Davies et al. 2014). Therefore, it can be said that the primary intension of this particular report is the analysis and the evaluation of several factors regarding the specified sector that is gas and oil of the U.K.

Factors Affecting the Oil and Gas Sector

As per the above discussion, it can be seen that there are certain key aspects that puts significant influence on the United Kingdom’s particular gas and oil retails sector. Some of those major reasons are discussed below:

Energy Demand and Supply: Since the last five years, it can be seen that there is an intense problem in the demand and supply of oil and gas products all over the worlds (McLaughlin et al. 2014). As per fueloilnews.co.uk (2017), in the recent five years, the total number of forecourts in United Kingdom has decreased by 6 per cent. However, the Petrol Retailer’s Association said that the structural issue in the demand and supply of oil and gas has been ignored. Hence, it can be said that apart from demand and supply, the structural issue in demand and supply also affects the United Kingdom’s gas and oil sector.

Environmental Pollution: It has been found that there is certain negative effect on the environment of United Kingdom due to the large gas and oil sector and thus it has become a major issue for the particular sector of the specified country. It has been seen that there are many oil pipes that are still spilling oil from them (Cotton, Rattle and Van Alstine 2014). On the other hand, due to the high profitability of this sector, the government of United Kingdom is safe and environmentally sound oil and gas exploration. The government has a strong and effective set of rules to prevent environmental pollution from gas and exploration. Thus, it is evident that due to high profitability, the government is allowing the business of this sector by creating effective rules and regulations (gov.uk 2017).  

Fluctuating Crude Prices: It has been seen since last five years that the price of crude oil is fluctuating in a high rate. The political instability of United Kingdom is affecting the price of crude oil of United Kingdom. For this instance, the recent ‘Brexit’ incident has had a significant negative effect on the United Kingdom’s gas and oil sector. It has been seen that price of Crude oil in the year 2009 fluctuated to 40 pounds per barrel in compared to the year 2008 that was 150 pounds per barrel (Arezki et al. 2014). The price of oil and gas fell sharply in a time span of autumn 2014 to spring 2015. At the end of 2015, the price again decreased. Hence, it can be said that along with unstable political situation, the high fluctuation of the gas and oil prices also affects the United Kingdom’s gas and oil sector.

Economic Uncertainty: The uncertainty in the economy is another aspect that affects the oil and gas sector of United Kingdom (Baker, Bloom and Davis 2016). There are some major arguments about this aspect as two major factors are working behind this uncertainty. They are the rise in domestic competition and the growing environmental concern of the consumers. Over the last five years, the oil and gas industry revenue has fall at an annual compound rate of 2.1 per cent. Thus, it can be said that economic uncertainty is a major factor that is affecting this industry (ibisworld.co.uk 2017).   

Increasing Global Competition: It has been seen that the oil and gas industry of United Kingdom is largely influenced by the global system of supply and demand. This aspect is increasing the level of global competition for the oil and gas industry of United Kingdom (Podobnik 2015). Hence, it can be said that along with various kinds of risk factors, the increase competition globally and domestically is affecting the United Kingdom’s gas and oil retail sector. For this purpose, it has been identified that the particular sector of the nation needs to critically analyze the competition risk factor and need to make strategies accordingly (ey.com 2017).

Legislative Burden: Some major rules and regulations of the government of United Kingdom that directly affect the business of oil and gas sector of the country. Some of these legislative rules and regulations are Directive of Industrial Emissions, Phase III of the Trading System of the EU Emissions, Directive of the Renewable Energy, the scheme of the Efficiency of the CRC Energy, Directive of the Energy Efficiency and many others. As per these rules and regulations, the various corporations of the United Kingdom related to gas and oil sector should be complied with many other norms. These rules and regulations works as burdens for the United Kingdom’s all corporations that are associated with the sector of gas and oil. It has been identified that these major factors affect the United Kingdom’s sector of gas and oil (Cotton 2016). However, there are positive effects of these legislative rules and regulations. The implementation of these rules and regulations has been successful for diminishing the downbeat influence on the biodiversity due to the sector of gas and oil. Hence, it can be said that it possesses both positives and negatives.

Impact of Rising of the Gas and Oil Prices 

It is a fact that the prices as well as the value of both the gas and of oil rises with the passage of time. This price rise has many impacts on the United Kingdom. Some of the impacts are discussed below:

  • One of the major impacts of the rise in price of the oil and gases is that the demand in this oil and gas segment has dropped. As a result, the income will be transferred from the oil consumers to oil producers. On the other hand, the portion of oil import has been increased (imf.org 2017). As per critical evaluation, this price rise has two implications, first, due to this price rise; the producers are becoming more beneficial. Second,  
  • Due to the rise in oil and gas sector, the service cost as well as the production costs of the products has decreased. More specifically, the cost of production has increased due to the comparative raise in the worth of inputs of energy inputs and also due to putting the profit margins under pressure (Chapman 2014). This situation is suitable for the producers as they can get higher price; but at the same time, the consumers have to give higher prices. Hence, there is both negatives and positives.
  • The price level and the inflation of United Kingdom have been affected by the rise in the price of the products as well as the services of the gas and oil sector. It has been found that with the increase in the level of price of the gas and oil products and services, the price of other communities has also been increased. This situation is the potential of economic inflation in the country (Griffin and Teece 2016). In order to control inflation, the government has to impose several regulations and policies that usually influence the operations of the businesses that are associated with the sector of gas and oil.  
  • The hike in the prices of gas and oil products and services as well as in the overall sector as a whole put effect on the United Kingdom’s other sectors, especially the financial sector as the specified sector suffers due to both indirect and direct influences. Moreover, it can be said that both the expected and the real changes in several financial activities, commercial earnings monetary policies, inflation and many others have negative effects on the valuation of equity and bond, exchanger rate of currency and many others (Moore et al.2014). It has been seen in the past that due to sudden rise in the oil and gas prices, the share market of United Kingdom was heavily affected. In addition, this price rise has an adverse effect on the disposal income of the consumers of United Kingdom.   

Influence of Government

In United Kingdom, there are various kinds of rules and regulations of the government influences the oil and gas business of the country. The different kinds of drivers have been divided into various other segments like the fiscal drivers, environmental and safety drivers and other government regulatory policies. The names of the main fiscal drivers that affect the oil and gas industry of United Kingdom are VAT, Fuel Duty, business and corporate taxes and others (publications.parliament.uk 2017). The percentage of VAT charged on the oil and gas products is 20 per cent that is quite high and it increases the costs of the business. Fuel duty is 57.95ppl and this rate is applicable for both petrol and diesel. The current rate of corporate tax for the oil and gas products is 23 per cent. Apart from these laws, there are some environmental and safety policies of government of United Kingdom. As per these rules regulations, the corporations of the United Kingdom that are associated with the gas and oil sector need to employ their production operations that are environmental friendly. In addition, there are some other policies of the government of United Kingdom that the oil and gas companies needs to comply with. They are planning related policies, the policy of “Measuring Instruments Directive”, National Emergency Plan for Fuel and others.  At the time of complying with all the rules and regulations, the oil and gas companies of United Kingdom have to face many difficulties. The implementation of these various kinds of rules and regulations has been successful to bring stability in the oil and gas sector of the country. On the contrary, it can be said that the corporation of the United Kingdom that are associated with the gas and oil have to face some major difficulties by complying with all these rules and regulation.

Possible Future Direction of the Price of Oil and Gas Industry

As per the above discussion, it can be seen that there are some major factors that are affecting the United Kingdom’s sector of gas and oil. Furthermore, based on the above detailed study and analysis, it can be said that it is evident that the gas and oil products’ higher prices affect the economy of the country United Kingdom. In this situation, it can be said that the price of the products of gas and oil is going to decrease in the future, especially in the market of United Kingdom. The reason behind this is that the hike in the price of the gas and oil products leads to the declination in the demand of the particular products in the future; and as a result, the price is going to decrease. In addition, it has been detected that the United Kingdom’s particular sector of gas and oil is adopting certain new technologies in this business field with the passage of time. The adoption of new technologies will reduce the cost of production for the sector of gas and oil. With the decrease in cost of production, the piece of various oil and gas products will decrease (Sukcharoen et al. 2014).

Conclusion and Recommendations

The sector of gas and oil of the country United Kingdom is regarded as an important industry of the particular nation as this plays a vital role in the growth of the country’s economy. However, from the above analysis, it can be observed that there are some major issues that need that have a negative impact on the United Kingdom’s gas and oil sector. One of the major reasons is the mismatch between the supply and demand. In addition, the worldwide growing concern of environmental issues affecting the oil and gas business of the country. Another important aspect is the effect of high price of oil and gas products on the economy of United Kingdom. Apart from these two aspects, there are several laws and policies of the government regarding oil and gas. However, these rules and regulations have also established coordination and stability in the gas and oil retail sector of United Kingdom. These laws and policies are affecting the business operations of oil and gas industry. All these aspects are affecting the demand of oil and gas in United Kingdom. Based on the whole study, some recommendation are provided below:

  • It is recommended that the oil and gas companies of United Kingdom should adopt advance technology in order to lower the cost of production.
  • It is recommended that the oil and gas companies of United Kingdom needs to make effective strategies in order to encounter the negative effect of price rise.

References:

Arezki, R., Loungani, P., van der Ploeg, R. and Venables, A.J., 2014. Understanding international commodity price fluctuations.

Baker, S.R., Bloom, N. and Davis, S.J., 2016. Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), pp.1593-1636.

Baumeister, C. and Kilian, L., 2016. Forty years of oil price fluctuations: Why the price of oil may still surprise us. The Journal of Economic Perspectives, 30(1), pp.139-160.

Chapman, I., 2014. The end of Peak Oil? Why this topic is still relevant despite recent denials. Energy Policy, 64, pp.93-101.

Cotton, M., 2016. Fair fracking? Ethics and environmental justice in United Kingdom shale gas policy and planning. Local Environment, pp.1-18.

Cotton, M., Rattle, I. and Van Alstine, J., 2014. Shale gas policy in the United Kingdom: An argumentative discourse analysis. Energy Policy, 73, pp.427-438.

Davies, R.J., Almond, S., Ward, R.S., Jackson, R.B., Adams, C., Worrall, F., Herringshaw, L.G., Gluyas, J.G. and Whitehead, M.A., 2014. Oil and gas wells and their integrity: Implications for shale and unconventional resource exploitation. Marine and Petroleum Geology, 56, pp.239-254.

Ey.com. (2017). Oil & Gas. [online] Available at: http://www.ey.com/uk/en/industries/oil---gas [Accessed 1 Mar. 2017].

Fueloilnews.co.uk. (2017). Road fuels retail market dominated by supermarkets | Fuel Oil News. [online] Available at: http://fueloilnews.co.uk/2013/01/serious-structural-issues-in-the-retail-road-fuels-market/ [Accessed 1 Mar. 2017].

gov.uk. (2017). Developing Onshore Shale Gas and Oil – Facts about ‘Fracking’. [online] Availableat:https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/265972/Developing_Onshore_Shale_Gas_and_Oil__Facts_about_Fracking_131213.pdf [Accessed 1 Mar. 2017].

Griffin, J.M. and Teece, D.J., 2016. OPEC behaviour and world oil prices. Routledge.

Ibisworld.co.uk. (2017). Petrol Stations in the UK Market Research | IBISWorld. [online] Available at: https://www.ibisworld.co.uk/market-research/petrol-stations.html [Accessed 1 Mar. 2017].

Imf.org. (2017). The Impact of Higher Oil Prices on the Economy, A Paper by the IMF Research Department. [online] Available at: http://www.imf.org/external/pubs/ft/oil/2000/ [Accessed 28 Feb. 2017].

Kelland, M.A., 2014. Production chemicals for the oil and gas industry. CRC press.

McLaughlin, E., Hanley, N., Greasley, D., Kunnas, J., Oxley, L. and Warde, P., 2014. Historical wealth accounts for Britain: progress and puzzles in measuring the sustainability of economic growth. Oxford Review of Economic Policy, 30(1), pp.44-69.

Mitchell, J.V. and Mitchell, B., 2014. Structural crisis in the oil and gas industry. Energy Policy, 64, pp.36-42.

Moore, C.W., Zielinska, B., Petron, G. and Jackson, R.B., 2014. Air impacts of increased natural gas acquisition, processing, and use: a critical review. Environmental science & technology, 48(15), pp.8349-8359.

Podobnik, B., 2015. Global energy inequalities: Exploring the long-term implications. journal of world-systems research, 8(2), pp.252-274.

Sukcharoen, K., Zohrabyan, T., Leatham, D. and Wu, X., 2014. Interdependence of oil prices and stock market indices: A copula approach. Energy Economics, 44, pp.331-339.

UK oil refining (2017). UK oil refining. [online] Available at: https://www.publications.parliament.uk/pa/cm201314/cmselect/cmenergy/340/340.pdf [Accessed 28 Feb. 2017].

Place Your Order

GET HELP FROM OUR EXPERTS
- +

*Prices may vary as per change in requirements

Estimated Price* $ 8.2 $ 10.3

20% OFF

Why Student Prefer Us ?

Top quality papers

We do not compromise when it comes to maintaining high quality that our customers expect from us. Our quality assurance team keeps an eye on this matter.

100% affordable

We are the only company in UK which offers qualitative and custom assignment writing services at low prices. Our charges will not burn your pocket.

Timely delivery

We never delay to deliver the assignments. We are very particular about this. We assure that you will receive your paper on the promised date.

Round the clock support

We assure 24/7 live support. Our customer care executives remain always online. You can call us anytime. We will resolve your issues as early as possible.

Privacy guaranteed

We assure 100% confidentiality of all your personal details. We will not share your information. You can visit our privacy policy page for more details.

Upload your Assignment and improve Your Grade

Order Now