History of the UK Oil & Gas Industry
It was in the year 1975 that Hamilton Brothers, a small entrepreneurial entity of the United
States, which was working in the Argyle field, succeeded in bringing British oil ashore for the first time, and this was almost immediately followed by the BP excavation that resulted in huge quantities of oil being discovered in the Forties field.
Progress made by the industry since the 1970s
Oil discovery in the North, grew leaps and bounds as several other companies from other nations like the EU, United States and many other domestic UK firms leased out many sectors of the North Sea for excavating oil. Slightly around the late 1980s, there were more than one hundred installations in the North Sea region working to excavate oil. With the help of state-of-the-art technology that was clubbed with human effort as well as sacrifice, several million barrels of oil were produced on a day-to-day basis, by the various organizations that leased out the North Sea region. Ultimately, a kind of oil and gas goldmine was hit upon in this particular region.
While the nascent phase of the UK oil and gas industry was set in the political framework of a Labor government, a few members of which expected to gain the maximum control of the oil discovery region, wanted to obtain complete control, while the Thatcher government was managing the initial growth phase of the industry. By the early years of the1980s, the UK became a global net oil exporter, as well as also gas within a decade’s time.
Great Yarmouth and the Lowestoft province were the two important locations, precisely in terms of operations, for the southern part of the North Sea region where oil excavation continued, and in due course, Aberdeen, Europe has turned out into the capital of oil production. While Aberdeen is regarded as the oil capital, there are also other regions that are pivotal in leading the oil and gas industry of the UK towards success like for instance, Shetland and Orkney, among others.
During the early years of the 1990s, the North Sea region, like all other parts of the globe was susceptible to the instability of the global oil prices. Regardless of the production increasing by 2000 and 2001, the North Sea region is considered as one of the most developed and advanced province that experienced a rather sluggish waning.
Yet, the massive degree of technological advancement helped in significant volumes of oil and gas to be excavated for at least a minimum of five decades to come.
The UK Oil and Gas Supply Chain
As already mentioned above, the oil and gas industry of the UK had made a remarkable progress in the last five decade period, and eventually has also made a tremendous amount of contribution to the UK economy. Apparently, there is no other industrial sector like the oil and gas sector that has aided in the economic prosperity of the United Kingdom.
The government of UK is dedicated towards collaborating with the overall industry for creating the most conducive environment for maximizing both the opportunities as well as investments in a way the entire economy would benefit. By making optimal use of the might and extent of UK as a nation, the government is very much sure that the oil and gas sector would surely evolve and deliver unbelievable results. Essentially, the UK government is aiming at maximizing the economic recovery of the energy sector as a whole from the UK Continental Shelf (UKCS), while supporting an active supply chain that would result in high quality employment opportunities in United Kingdom.
The top-notch oil and gas sector of UK encompasses both production as well as a plethora of other pivotal support services, as the industry plays a significant role in the economic prosperity of the United Kingdom. The energy industry as a whole in the UK has a very strong supply chain that has a remarkable revenue growth starting from 2008 and has reached a whopping £27 billion by the year 2011.
The energy supply chain of the United Kingdom is well positioned across the value chain with 1,100 companies achieving combined revenues of £27 billion in 2011. The United Kingdom is considered as being the pioneer, particularly in subsea engineering as well also regarded as a center of excellence in managing energy projects, global leaders in aspects like “design engineering, asset and operational management, design and manufacturing of advanced equipment, etc..”
Various supply chain activities in the UK Oil retail (Refining, marketing & distribution)
Till the late 1980s, the downstream oil industry was largely comprised of several firms that were vertically integrated, and these firms used to handle the entire oil related business operations ranging from exploring crude, production and refining, and lastly marketing and distribution of the same.
At present, the United Kingdom is actually the 4th largest nation in terms of oil refining capacity within the Western European region and it offers a highly flexible and irrepressible infrastructure. There are 7 refineries that are part of this robust infrastructure along with widespread government pipelines spread across the whole region, which carry more than 30 million tons of fuel per annum. Further, there are approximately 50 distribution terminals and more than 8500 petrol filling stations (PFS) .
Despite having a highly robust infrastructure, the oil refining and marketing in the United Kingdom continues to be a high volume and low margin, capital intensive form of business that is gaining below average returns on the overall capital. Refineries in the UK function amidst two global markets dealing with liquid commodity markets, namely the crude oil and the refined petroleum products. As each of these product streams possess their own set of shortcomings in relation to the dynamics of prices formed in the global markets, the eventual pricing spread between the crude and petroleum product is considerably volatile in nature, which has also in due course translated in constantly low returns.
The primary driver for higher prices of PFS in the UK and even in the global markets has been the greater price of crude oil and the eventual influences of the same on the price of refined products like petrol, diesel as well as jet fuel. A blend of robust supply infrastructure, open markets as well as strong and healthy competition in the UK has helped in the pre-tax prices of petrol and diesel being the lowest in the EU region during the course of the last decade and more.
Key Changes that occurred in the industry
The retail market of oil and gas had experienced a wide range of important changes during the course of its evolution during the last forty to fifty years. A few notable changes are as follows:
The number of petrol filling stations (PFS) dropped to less than 9, 000 in the year 201, from a gigantic 37, 500 during the 70s. This translates to the closure of more than 70% of the PFS. Between the decade long period of 2001 and 2011, the decline of PFS were from 12, 258 to 8, 677 and this denotes a 29% slump.
The PFS’ that were closed down constituted independent PFS that were owned by both dealers as well as the companies. Yet, the growth of hypermarket- PFS was undeterred and this continued growth was in alignment with the massive development of hypermarkets in the grocery retail that swept the UK.
The pressure of business models that the independent dealers faced continued and this incessant pressure was a result of the competition created by hypermarket PFS and also by the company owned PFS.
The supply side, on the other hand, had been experiencing a considerable degree of rationalization in terms of the distribution terminals as well as the secondary network of distribution that encompassed road tankers. This was a result of the increased level of outsourcing that many leading oil companies are adopting, with respect to the road distribution networks. This has resulted in increased cost-saving and efficiency within the industry, along with the closure of PFS, eventually causing reduced spare capacity.
Domestic and global growth of the UK oil and gas supply chain
The UKCS activity is closely linked to developing and deploying the UK supply chain. UKCS has witnessed record levels of investment, along with considerable degree of growth in the offshore renewable sector of the industry. The UK supply chain was at GBP27 billion in the year 2011, as denoted earlier, with a strong potential to grow in a significant manner in the years to come. This calls for Her Majesty’s government’s attention on this particular aspect towards boosting the economy of the United Kingdom. The current Department of Energy & Climate Change (DECC) initiatives could be developed further and organizations awarding contracts in the UKCS provides a much better understanding of the oil and gas supply chain within the United Kingdom.
Developing the UKCS along with also working toward the development of the oil and gas supply chain must be given equal priority and all activities in relation to these need to go in tandem. The decisions are supposedly to be made on a competitive basis and there is an imminent need for private-public partnership within the industry, in order to ensure a robust supply chain is created in the UK oil and gas industry.
Current Challenges of the industry
The challenges that the industry, specifically the North Sea region, has also been developing in due course (Khan, 2013). During the course of the last decade and half, oil companies globally have made tremendous amounts of investments for bringing down the environmental impact that the refineries and their oil produce have on the environment. During the last decade and a half, roughly about GBP 5 billion is known to have been invested in the UK’s oil refining and marketing industry, of which, a few important achievements are as follows:
The elimination of lead and decrease of Sulphur and various other aromatic compounds from the fuels used by vehicles on road.
Decreased emissions because of the distribution of petrol as well as decreased emanations of Sulphur-dioxide and nitrous oxides from the oil and petroleum refineries.
Enhanced energy efficiency resulting out of a blend of various actions, encompassing the construction of “refinery combined heat and power (CHP).”
Despite there being significant of investments that have been made into the retail oil market of the United Kingdom during the last decade or so, yet, there is a need for more investments to be made into the market in order to sustain the existing supply security that the UK refineries currently offer. This investment will further be fostered through clarity and confidence in the permanency of the energy and environment policies that are adopted by the UK government.
Conclusion
There have been several threats to the UK’s oil supply chain spread across a wide spectrum ranging from falling production, declining success rates of exploration and drilling, higher cost of money, aged workforce, and lack of sufficient skills in the youngsters to enter the industry. The challenges look pretty daunting, while also being equally intimidating in nature. If these twin suggestions are considered and implemented in an appropriate manner within the industry, there is a possibility of a very strong positive development that might happen on the output of the industry itself, while also impacting the GDP of the nation, taxes, and employment. Oil and natural gas is a key industry in the UK industrial structure and calls for careful attention towards its development.
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