Introduction
The oil and gas industry has been in the business since the early times. It cannot be denied that the world has been dependent on oil historically, presently, and even more in the future. As the digital technology has been fast paced, more machines and equipment would need the gas and oil as blood for their functionality and efficiency.
Oil and gas are sources of energy that are sourced out naturally from the Earth. They are even considered as inexhaustible resources since they don’t run out. These under the earth sourced out energy fuels create a complex chain of value that ends up in the global market. They are processed into myriads of products that include gasoline, petrol, lubricants, butane, and many more. Other high technological companies even derive synthetic oils and lubricants that supposedly perform superior efficiency over other mineral based products.
Products of oil and gas can be sold in retail stores that bring to their consumers the needed energy source for their various machineries faster and easier. As retailers of gas and oil industry, there are many factors that can affect the market, challenges and limitations that needed to be overcome, management approaches to make business rolling and future apprehended situations and strategic solutions for them. Indeed, the market for oil and gas is truly tough. However, the need for these resources is increasing and will even continue to rise as the world is inclined to a higher technological standard of living.
Oil and Gas Supply and Demand
It is a clear fact that the world can use all kinds of energy sources such as natural gas, nuclear energy, coal, renewable energy, wind, sun, hydroelectric power, and the biofuels from plants and animal fossils. There are some countries that resort to these energy sources while mostly, almost all countries are still dependent in the oil and gas that are drilled from the Earth’s surfaces.
Holdith and Chianelli (2008) stated in their paper that the world’s energy demand will increase to around 50-60% in the year 2030. This is due to the increase in the world’s population as well as the increase in the standard of living of the many developing countries. Further, it is stated that the conventional oil and natural gas reserves that is approximately around 44% is found in the Middle East. Although these gas resources are vast, still they are yet to be discovered and explored.
According to Aliyeva (2012), oil price is greatly affected by the flow of over all supply and demand of oil and gas in the world. There are four distinguished factors that could somehow contribute to the development of crude oil prices:
- Increasing and fast growing demand that is due to the high global economic growth
- Shortages of supply or its anticipated decline
- Coordinated and organized actions in the crude oil producers
- Speculations or the total behavior of the global financial market
These determinants can complement each other in driving the price of oil and gas in the global market. However, the supply and demand dictates the value of these natural commodities. There are many factors that can affect the supply and demand of oil and gas in the global market.
One of the most prevalent causes of decline of some oil and gas supply is the concern over the environment (Holdith and Chianelli 2008). As such, the human health protection and environment safety remains to be the top priority in most of the countries imposed to the companies. These must be maintained in the entire business activity from the exploration, pipeline, production, refinery and even in the retail marketing. Also, refineries are imposed with stricter fuel standards that can be considered as environment friendly (Bigliani 2013).
As per Lynden Energy Corp (2010), this “Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in the association with oil and gas operations.” Compliance of these environmental demands is highly imposed and can require high expenditures to the companies especially when fines and breaches are strictly implemented.
Other factors to the rise and fall of the supply and demand of oil and gas can be contributed by the following (Breitenfellner, et al 20009):
- The fundamental shortage conditions of crude oil in major sources added with industry speculations can further the price increase pressure.
- Major turn around of the oil prices in history due to alarming rise in inflation rates followed by dramatic economic recession. The global financial crises throughout economic history have always been related with oil price changes.
- Rapid and growing demand or oil and gas especially in the developing countries with emerging economies, most notably China, has been considered as determinant in the demand pull in the industry.
- Geopolitical tensions such as wars, revolutions and political conflicts especially in countries that are the major sources for oil and gas can cause supply shocks further adding to the volatility of the prices of the oil and gas.
- Growth of market participants and expanded investors contribute to the price surge and downfall of oil price. Further market speculations add to the erratic change in oil prices.
There are many factors that can be contributors to the erratic changes in the supply and demand equilibrium of the oil and gas in the global industry. As the market increases and the technology is advancing, more and more factors add up to these changes. Holditch and Chianellli (2008) further added that technology breakthroughs in energy sources such as in nuclear power, solar energy, and biofuels can alter the demand for oil and gas.
Currently, the major sources of energy still come from the hydrocarbon fuels- oil and gas. The supply is vast and more supplies are yet to be explored. Demands continue to grow especially in developing countries. Technological advancement is needed for exploration of new sources as well as refining crude oil into being environment friendly products.
Challenges in the Business
There are many risks that are linked in retailing oil and gas. These risks serve as challenges especially to retailers that are far from the major sources of the crude oil. However, as the market is increasing, business can still run and be profitable.
Oil and gas market is highly volatile. The price as well as supply and demand is very volatile that heightens the operational risks for retailers. Hall (2012) cited a list of risk factors experienced by some US companies in the industry:
- Oil and Gas price Volatility
- Legislative and regulatory compliances increase costs
- The need for expand reserves and finding replacement reserves
- Operational Hazards
- Natural Calamities and bad weather conditions
- Inaccuracy of estimate and sources reserves
- Indebtness
- Health Safety and Environmental restrictions
- Economic Global issues and concerns
- General and Global Industry Competition
Shimkus(2011) further added some of the risks such as: increased operating costs; impact of climate change; legislations for greenhouse gases; rigs, equipment and personnel shortages; failure to properly execute corporate strategies; credit or financial risks of customers, partners, vendors and suppliers; oil demand decrease; ability to attract or retain key personnel, reliance and dependency on third party transportation and processing facilities; inadequate and unavailable insurance coverage.
The market is now under pressure as the non-conventional gas demand is increasing. Geography also matters. The axis for trade in the oil industry is centralized in the major sources, which is the Middle East. Exporters especially from the developing countries such as Asia and China have to be supported in their market’s growing needs. The trends in the market as well as the dynamics of competition are also matters to be considered as major challenges for retailers. There is also a balance that needed to be maintained between the state or government and the private sectors or retailers. Most paradigms in the global oil and gas industry, the government is almost always involved in the business. In fact, in developed countries, transport oil consumptions are heavily taxed, while in developing countries, some are monopolized in terms of prices (Mitchell, et al 2012).
Another challenge in the industry especially in the transport and vehicle industry is the replacement of more efficient vehicles using biofuels and other liquid fuels to replace the conventional use of oil. This is also due to the government imposed policies to limit carbon emissions in the environment (Mitchell, et al. 2012). However, this has been abated by major oil companies by making their refinery technology boosted to be abreast with the carbon emissions. Researches are on going for use and deep exploration in the use of methane hydrates. The successful use of this research which depends upon the government and the investments from industries is another optimistic outlook in the oil and gas expansion (Rath 2008).
Strategic Approach Frameworks and Risk Management
Oil and gas industry is a risky one due to its global volatility. There are various factors that determine the national and global economic conditions. Risk management is a vital part in the daily activities in the oil and gas industry.
In the oil and gas industry, it is important to manage capital projects especially those dedicated to environmental compliance. Companies must make strategic decisions in implementing projects in which to develop first to make sure that the company is performing at its best. In order to produce cost effective and efficient hydrocarbons, companies can adopt “digital oilfield” or the so called “integrated operations”. This can further enhance reservoir recoverability as well as optimize the production. There is also a need to reduce risks in economy, environment, and safety. Companies must focus of assessing the major keys that are asset-related and greatly improve decision making from the enterprise, field, refineries, and retailers (Bigliani 2013). In addition, it is best to have consultation with a safety enegineering expert for the operations. This can improve the decision making and cost efficiency in the long run. There must be integration of a strong process safety engineering in the operations and the overall operational decision making (Leveson 2011).
Kaushal et. Al. (2011) promotes wisdom that states “integrated is best”. The following questions can be posed to executives planning for further expansion in the companies:
- What is the best value chain participation model for your business?
- What modus operandi for IOC-NOC ventures will create the most value?
- How can you achieve a better risk-reward balance?
- With which energy sources should your business engage?
Players in the oil and gas industry must take a look their existing business models and
view at the perspective of the future that holds with it. Change is not bad especially when the future is at stake. Industry leaders must be ready to take bold steps to adapt fast in the business as well as compete with whatever models they apply in the business.
The planning, selection and implementation of strategy are critical factors for companies in oil and gas retail industry since they are confronting with volatile market and every increasing and growing competition from national companies as well as new business participants. Successful companies must constantly review, evaluate and do benchmarks of their prevailing strategies with a view of optimizing their performance from short to long term horizons (Energy Institute 2012).
The Future of Oil and Gas Industry
The global energy demand is anticipated to grow more in the coming years as stated by the IEA’s World Energy Outlook (Bigliani 2013). The response of the industry to the many changes and challenges experiences would always impact the global economy as well as the environment.
As stated by Mitchell et al (2012), the future of the industry cannot be easily predicted. The economic difficulties will still persist. Some of the key findings that may happen in the future of oil and gas industry include:
- There is no longer monopoly of the use of oil in the transport market.
- The global economy may still be dominated by the international oil market but the role of OPEC will change. This is due to the competition outside the oil industry which can threaten the demand for oil.
- Gas supply is vast but the sources need more expansion. As the market increases, there is a need for gaining new sources of these oils.
- Technological collaboration is needed to upstream the reserves growth.
- Financing the future investments need to match the opportunities with sources of funds. As such, oil exploration depends upon investments. They are also greatly affected by the behavior of the market. Investments must continue to grow to keep pace with the increasing demand.
Conclusion:
The world needs oil and gas. In the future, the world will still need more gas and oil.
Projects are becoming larger and more risks are embedded with them. There is a need for well-functioning partnerships for risk management and fund access for the future of the industry. As the business of oil and gas is relying on volatile foundation, a fast paced and able strategy must be on-hand to readily abate the challenges and risks. Risk management that would look upon the factors that affect the supply and demand of the oil and gas must be confronted. Environment compliance, which is a major limitation in the industry nowadays must be handled and complied with at the right costs.
Since the oil industry can no longer rely in the monopoly in the vehicle and transport
industry, expansions are necessary to cope with the market and provide for those clients still in need of the oil and gas especially in the industries. As energy demand is sure to increase in the future, the business is bound to be upstream. Investments for expanding productions must be in place. Volume growth is a challenge that needs to be supplied by the retailers. Integration of safety measures with strategic movements and financial investments can be done to compete with the ever increasing market of the oil and gas worldwide.
The oil and gas industry is a special industry. It flows with current global market trends
which offer new opportunities every now and then. Anyone who choses to venture in the industry need to have clear thinking about the business and know what to do in the changing future.
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Works Cited
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