Introduction
The recent trends have had a major impact on the UK (United Kingdom) petroleum retail market. The trend impact has been on the number of petrol filling stations (PFS). The UK Petroleum Industry has undergone major changes since 1970. The changes impacted a decline of PFS with a closure of more than seventy-five percent of PFS and a further decline of twenty-nine percent in 2011 although there has been some reduction in the decline in last five years (Study of the UK Petroleum Retail Market., 2012). Independent dealers had a lot of pressure from the hypermarkets, and this has been a major contributor for a decline in PFS. Although in the last five years, the market trend for sales of non-fuel business models has presented growth opportunities for independent dealers having multiple PFS. The new business model driven by non-fuel sales has presented opportunities only for the larger player who can afford to have multiple PFS. One such independent dealer across the UK is Rontec (Hilyard, 2012). The fragmentation in the fuel supply chain over the last few decades has resulted in reduced capacity of the distribution systems for fuel tankers. The production of fuel in domestic markets has significantly grown as compared to the import of petroleum products. The excess of PFS to consumers has been reduced as a direct impact of PFS closures. The UK fuel market is also impacted by reduced consumers’ expenditures. It has been observed that consumers are less likely to fill their tanks to full capacity at a PFS, thereby reducing the churn time of fuel stock. The petroleum usage has grown to 70% in the transport industry with the largest share going to Road transport. The rest of the industries have fuel consumption in the remaining 30% of fuel sale (Study of the UK Petroleum Retail Market., 2012).
Figure 1: UK Demand for Petroleum Products - 1970-2011 (million tonnes) (Study of the UK Petroleum Retail Market., 2012)
1970-2015: Changes in UK Petrol Market
There has been a major shift across the UK in the demand of petroleum product with a clear shift from Gasoline towards Diesel products. The shift has been powered by the increased use of diesel engine vehicles and depicts a pattern of changes in demand across the UK. The period between 1970 and 2015 has seen a significant rise in the demand for diesel in the last one decade. Historically speaking from 1970 till 2002 petrol has been much in demand as compared to diesel, however, from 2003-04 onwards the demand for petrol started decreasing, and the demand for diesel started to increase. Since, 1970, till 2011 the demand for diesel has increased by four times (Study of the UK Petroleum Retail Market., 2012). Figure 1 shows a market trend analysis for the demand of diesel and petrol for the period of 1970-2011. Oil companies used to have a leading market share in fuel retailing, however, in the last one decade there has been a major change in the statistic with the introduction of hypermarkets. Currently, 14% of PFS are owned by hypermarkets, and they contribute to nearly 40% of total road fuel consumption, for Example, BP, which has been to date the largest retailers regarding fuel, volume sales have been surpassed by Tesco (Study of the UK Petroleum Retail Market., 2012). The market size of retail petrol and diesel products has been impacted significantly in the past three decades. The estimated retail size of petroleum products has decreased by 50% and replaced by Diesel products (Study of the UK Petroleum Retail Market., 2012).
Fuel Station Statistics
The number of fuel stations in the UK has observed a consistent decline since 1970 to 2012. The trend has been evident since the start of the century, but there has been a relative decline in the trend since the last five years. During the last decade which is from 2004 to 2012 the fuel station decline has been about 20%. The sharp decline in the number of fuel stations has also impacted the jobs for motor fillings. The PFS decline has been different across different regions of UK. The highest percentage of decline has been seen in the southeast England while northeast England and Northern Ireland and Wales has seen lowest numbers fuel station decline. Northwest England, Scotland and Southwest England had a moderate level of decline in some fuel stations. In the period of 2001 to 2011, the fuel station decline had reached to 29%. As of data available from 2011, the total number of fuel station across the whole of UK had been only approximately eight and a half thousand.
Hypermarkets
Hypermarkets have impacted largely on the closures of PFS that has been owned by independent dealers and companies. Hypermarkets are the newest players in the oil industry. Hypermarkets have been growing regarding ownership of PFS from 1980 onwards and in the period of 2004-2011, it surpassed ownerships of PFS over individual dealers and oil companies (Study of the UK Petroleum Retail Market., 2012).
New/Old Players in Filling Stations
Oil companies such as BP had been the major owners of filling stations under their brands. This trend has seen a major decline in the period of 2001 to 2011 where the fuel station ownership has been taken up largely by dealers and hypermarkets. Currently, there are three types of PFS (Petrol Filling Station) owners in the UK markets that are hypermarkets, companies, and dealers. Dealers are individuals or groups or a group of individuals that is not a part of any oil company or hypermarket. Dealers may choose to use the name of the oil company under which the PFS is operating, or it can have its branding. The largest majority of PFS are owned by dealers, followed by hypermarkets and companies. As noted earlier that PFS has seen a major decline in the last few decades, however, there has been a significant variation in the rate of decline (or growth) in the type of PFS owners. In the period ranging from 2004 to 2011, the percentage of ownership for companies has gone down by 28% and for dealers by 21% while for hypermarkets it has gone up by 15%. Though, the overall percentage of PFS ownership has gone down by nineteen percent.
Changes in Storage Capacity
A decline in PFS numbers has impacted the storage capacity of fuel stations as well. The decline in PFS has impacted on the strategies that PFS owners apply for their onsite fuel stations. There has been a significant decline in the storage capacity of fuel stations. The Hypermarket and individual dealers tend to have low storage capacity in their fuel stations. The strategy is to frequently refuel the stations rather than keep a large stock of fuel to meet the consumer demands. The storage capacity reduction means that there would be a higher load on the supply-chain network with frequent restocking of fuel stations. In most cases the low storage capacity also implies that the fuel stations are not fully utilized. In a study, some independent dealers have revealed that they stock up only quarter or half of their storage capacities. The actual storage capacities of fuel stations must be determined based on the fuel sales in the location of that PFS (Brown, Lopes, and Matos, 2008).
Transportation Technology
The enhancements in transportation technology of aviation, rail, and marine had impacted the overall fuel demand and also in the advancements of technology for alternative fuels, especially in aviation. Fuel required for aviation turbine is kerosene product while that required by jet engines is a high-quality petroleum product. Research for alternatives for kerosene fuel is ongoing in the aviation and aircraft industry. There has a significant investment in aircraft engine and fuel systems and its storage and handling capacities. IATA (International Air Transport Association) has highlighted the contribution of new technologies to improve fuel efficiency and reduce emissions by 2020. The UK rail network has been electrified only about 40%. The rest of the rail network which is a substantial part of the UK relies on diesel power. The current consumption of diesel and gas oil in the rail sector is approximately half million tons per annum. Although the government plans to electrify further the rail network it is unlikely that the change would have a large level impact on the fuel consumption by this mode of transport. With regards to the technical developments, there had been advancements in the quality of diesel that powers the trains. There has also been researching on biofuel for powering diesel engines in both rail and road transport. Though, the possibility of biofuel overtaking the current form of fuel is very less. The third major consumer of fuel is the marine industry which is one of the largest forms of transportation and freight. The kind of fuel required for marine is of bunker type which is a heavy fuel derived from refineries. The demand for bunker fuel has been approximately two million tons in 2009 and is expected to touch 60 million tons by 2020 which is a huge potential market for the UK fuel industry.
Factor Impacting the UK Petroleum Industries
The turmoil in financial markets, volatility in the oil markets and a mix of international conditions, and greenhouse gas emissions had an impact on the UK’s oil and gas industry (Collantes, Holdren, Lee, and Frosch, 2007). The production in the UK domestic sector has been on a decline. Most of the fuel requirements of the UK are fulfilled by oil import and access to the North Sea oil. The UK oil industry is much dependent on future investments and its refineries to meet the changing demands of the fuel industry. It is also important to improve the refineries and be able to process a wider range of crude oil like jet fuel, from the Middle East and the diesel fuel from Russia. The high price of imported finished fuel products impacts UK’s economy and trade balance (Meek, Roberts, and Gray, 1995). It is likely that a range of alternative fuels would hit the market and impact the current fuel products. Although, forecast indicate that the oil demand will continue to grow. Over the last fifteen years, there have been significant investments by oil companies to reduce the environmental impact by refineries (Boyle, 1999). The total investment in the last decade has reached 5 billion pounds. The UK refineries in their current forms are not able to meet the demands of the local and global markets thereby increasing the imports of fuel products mainly from the Middle East. It is observed by UK government that there won’t be a change in the current demand for petroleum products, but there would be a change in the balance of demand for individual products like diesel, petroleum and jet fuel (Watson, and Vandervell, 2008).
Technological Impact on Energy Retail Industry
Globally the demand for oil and energy growth is expected to remain strong till 2035. Although the forecast for the UK is not as high as for other countries but still there is an expectation of a surge in demand in the UK market (Van, 2010). The carbon emissions, environmental concerns and enhanced capabilities of engines have impacted technological breakthroughs, researchers, and investments into the retail energy industry. To stabilise environmental condition especially Carbon Dioxide emissions, a decline of 15% in the primary demand for oil and energy is expected in the UK (Levy and Kolk, 2002). Technological advancements like biofuels, hybrid vehicles, and electric vehicles have impacted the retail energy industry of the UK (Hammond, Kallu, and McManus, 2008). There is an expectation of a reduction in oil consumption in the road transport which currently contributes to a major share of UK oil consumption (Worrall, 2011).
Summary and Conclusion
UK Oil retail industry has undergone certain challenging times from the period of 1970 to 2004 where the retail industry saw a sharp decline in the number of fuel stations across the UK. From 2004 onwards to 2015 there has been some level of stabilization in the decline of fuel stations and comparatively a less decline in the fuel stations. The global factors, technological advancements and newer players in the Oil industry have all contributed to the current state of UK Oil industry and the Petroleum retail market. The demand in the transport sector is expected to go down with biofuel and electric vehicles hitting the market. Demand from marine and aircraft industry is expected to go up. However, for UK market to reap benefits, it is important for investments into the refinery industry to improve the efficiency of fuel and reduce the import of Oil from Russia and the Middle East.
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