Introduction
Contemporary business, political and social environments have changed under the influence of globalization, consequent internationalization of business portfolios, size and scale of the activities and even the tremendously increased international mobility of individuals. It is difficult to argue that the future of the Oil and Gas industry have changed with the growing influence of OPEC, economic growth, observed in non-OECD countries and climate change policies and legislation around the globe (Martin, 1995). The access to the new fossil reserves and the changes in the distribution of these resources also have had a significant impact on the ways the future of refining industry is shaping today and will continue evolving in the medium and the long term future (Mitchel et al 2012).
The impact, which the above-outlined factor had on the development of the UK Oil and Gas retail industry is also significant and should be considered in view of the macro and micro factors, affecting the future of this sector in the country.
Discussion
Growing influence of OPEC, economic growth of non-OECD countries, the development of the Climate Change Policy, along with the new fossil fuels will inevitably have the strong effect on the future of the Oil and Gas Retail industry. While the above statement is true, it is possible to argue that over the past decade, the distribution of power among the OPEC countries and other states have changed. This change comes along with the decreasing reliability on the monopoly in the transport market, uncertainty with regards to the potential of the global oil reserves and the critical role of technology in the development of the refining industry in general. Moreover, the current trends and the development of the alternative substitutes to traditional oil, change the format of investment strategies and drive diversification among private-sector players as well as major oil producing countries. This means that it is possible to predict that the oil prices will not vary further in a way they were during the past decade. At the same time, there is no clear trend on the market, as the situation depends on the reaction of the private sector and the distribution of investment in the transport sector, non-conventional fuel and advanced technology for oil refining (Kaufmann et al, 2004). To be able to critically review the statement, it is important to focus on each of the elements in isolation.
Monopoly of Transport Market
One of the important developments, which changed the shape of many industries is the growing competition of alternative to oil solutions for the transportation. As such, automotive and transportation industry, in general, more and more replaces oil with more efficient vehicles and biofuels, outpacing oil as liquid fuel in the sector. This change is driven and motivated by both, the increase and instability of the oil prices over the past decades, as well as governmental policies, aimed at reduction of the carbon emissions and the overall transportation of the Climate Change Policy profile on the international scene (Kolk and Levy, 2001). One of the common trends in this area is the realization that current policy base with regards to the climate change will not render expected results. Companies in the sector, therefore anticipate further straightening of the legislation on carbon fuels and focus on alternative breakthrough innovation. That said, it is possible to argue that the effect of this trend will be seen in the short-term future, where developed countries will shift more to the use of alternative fuels. As the major refining companies will reduce or bring to zero the investment in the existing distribution networks and, potentially, lead to the closure of refineries and brand disappearance.
The UK Oil and Gas refining market will be affected accordingly, as the major companies in the sector will shift the innovation focus from the traditional fuel to alternative sectors, focusing their strategies on diversification of the channels and product portfolio and reducing dependency on the carbon fuel market.
OPEC Countries
Mitchel et al (2001) argue that the international Oil and Gas market will continue being influenced by economics. It is, however, already evident that the influence of OPEC countries is reducing. That said, the future demand and weakness of oil refining industry will be affected not only by the regulations, which are imposed by the OPEC countries but also by non-OPEC members, strengthening their non-traditional oil production. That said, the industry will experience growing competition not only in the quantity of investment in the retail industry but in the quality of such investments, which will be shared between the traditional fuel and new alternative substitutes. This competition from outside the traditional oil industry will place further pressure on the competitiveness of the sector in developed countries, such as the United Kingdom as the demand for oil is much more difficult to predict under these circumstances. Moreover, such development outlines the growing complexity of the investments in the sector, as the companies look in a shorter term to become more responsive to the changes and trends in the refining sector.
Uncertainty about the Reserves
The growing complexity of the sector is also a result of the uncertainty with regards to the new reserves and the timeline of their exploration. That said, the recent reserves in Kazakhstan and other countries, development and exploration of shale oil and other factors, have created expectations with regards to the expansion of the oil market and the opportunities for oil extraction at a lower cost in many parts of the world. The reality of this situation is controversial. One one side, the price should be low enough to increase the demand for this conventional and unconventional oil reserves, but, at the same time, high enough to make the business attractive to the major companies in the sector. Current market outlines significant variations in the prices and uncertainty with regards to the changes in governmental regulations in the sector. This reduces the investment and makes investors uncertain about the cost-competitiveness of the refining industry. Moreover, the power sector accounts for over 40% of the global gas production, while it heavily relies on the governmental regulations on coal and nuclear energy. Current market demonstrates the shift from the oil to gas business, which builds on the concerns with regards to the future of transportation and utility sector, relevant to the UK as well as other developed countries Giddens, 2009).
Technological Change
One of the major concerns for oil and gas refining industry is the optimization and effective exploration of oil reserves and refining practices. The reality shows that the major concern is not the finality of the resources, but the actual rate at which these resources are explored by the industry. The industry is characterized by the fast-paced evolution and development of technology, which enables faster exploration and refining of the oil and resources, increasing overall global production. Development of technology not only affects the exploration of oil and gas resources but also has a significant influence on the costs of oil refining, allowing shifting these operations outside of the oil producing countries and opening new opportunities for the companies in the sector to focus on more cost-efficient retail operations and the alternative fuel sources. In many countries, where the economy is strongly dependent on the oil export, the companies look for the opportunities to invest in innovation in technology for retail of unconventional oil due to the uncertainty with regards to the governmental decisions on exploration of resources of conventional oil and the attempt to diversify the economy The most recent events in the industry demonstrate this trend in Russia and other major oil and gas economies (Kaufmann et al, 2004).
Demand from non-OECD Countries
A lot of attention has been given to the geopolitical changes in the development of the oil and gas industry. There is a common opinion that the oil security problem has shifted to Asia, as the regional and international oil, trade landscape has changed dramatically between the East and the West. One of the important arguments is the access demand from growing economies in non-OECD countries and the potential challenges for the Middle East countries to meet this growing demand. This situation affects the security of the oil supply and transforms the strategies of the companies in the oil and gas retail sector. Western countries are becoming increasingly concerned about the potential increase in prices, rather than the supply of oil and gas themselves, since the distribution to the Asian economies, such as China and India, who are not part of OECD will inevitably place pressure on oil retail industries. The UK and other developed countries are concerned with the lack of preparation of the political and physical measures to build on the emergency response in this changing industry landscape. While China and other non-OECD countries in Asia are looking at the ways to address the issue, it is evident that the industry will experience pressure before the actual security system is developed (Birol, 2014). Birol (2014) conducts the study on the oil and gas refining market and further highlights the challenges in the sector, related to the growing refining capacity in non-OECD countries and growing oil capacity, bypassing the refining system and placing pressure on the existing refiners, especially in Europe.
Key Changes to the UK Oil and Gas Retail Market
The outlook of the factors, affecting the global oil and gas retail market allows driving conclusions with regards to the changes in the UK Oil and Gas retail industry. There are several major trends, which can be highlighted at this stage. As the industry is divided into commercial and retail sectors, one or another factor have the stronger influence on private sector players. The crude oil does not have the practical use, but once refined, the country consumes the significant amount of oil in the gas, petroleum, feedstocks, and byproducts. UK refineries process are majorly concentrated in the North Sea, accounting for 70% of the total refining volume (UKPIA, 2015). The total demand for the transport fuel in commercial sector accounts for 46 million liters of petrol and over 74 million liters of diesel per day, outlining the significant size of the market (UKPIA, 2015). UKPIA statistics outlines a steady decline in return on investment in the industry, averaging at 7% over the past five years, the very low figure comparing to other industries in the countries. The reality shows that the general global trends in the industry also affect the UK oil and gas retail sector in may ways. First of all, the development of the non-OECD market and alternative fuels resulted in the reduction of refineries. Deloitte (2012) provides the figures, illustrating over 75% reduction in the total number of petroleum filling stations (PFS) in the country. While this pace of reduction reduced over the past years, the change is significant to the economy of the country. Secondly, the profile of the industry has changed as smaller independent PFS closed under the pressure of the external factors, while the hypermarket-owned PFS continue growing. This means that independent businesses in oil and gas retail sector experience pressure from hypermarkets as well as companies involved in alternative fuel retail. This means that non-fuel revenue becomes increasingly important in building on sustainability and viability of the businesses in the sector. One the larger scale, the industry
Conclusion
The reduction of the influence of OPEC countries, growing demand for oil in no-OECD countries under the lack of security in the industry, increasing concerns with regards to the Climate Change Policies and the market uncertainty with regards to the investments in traditional and non-conventional fuels outlines the future trends in the sector and possible implications for the organizations. The analysis of the situation demonstrates that major influence and impact should also be foreseen from the development of technology, which enables more cost-efficient operations and drives diversification of income in the sector. While the volatility of the market is strong and position of the public sector with regards to the legislation and policies is not clear, there is no defined trend in the sector and a lot depends on individual reactions of private sector players and the distribution of investment between the sectors.
Bibliography
Birol, F., 2014. World Energy Outlook. International Energy Outlook. Available at http://www.deltalinqs.nl/sites/www.deltalinqs.nl/files/documenten/iea_presentatie_world_energy_outlook_2013-2035.pdf [Accessed 20 July 2016]
Deloitte, 2012. Study of the UK Petroleum Retail Market. The Final Report for DECC. Deloitte [Online]. Available at: http://www.ukpia.com/docs/default-source/download/UK_Petroleum_Retail_Market_Study_Final_Report_v3_STC.pdf?sfvrsn=0 [Accessed 20 July 2016]
Giddens, A. 2009. The Politics of Climate Change. Public Policy Research.. 16(1), pp.64-67. Print.
Kaufmann, R.K., Dees, S., Karadeloglu, K., & Sanchez, M. 2004. Does OPEC Matter? An Economic Analysis of Oil Prices. The Energy Journal. 2(2004). Pp. 67-90. Print.
Keller, M. & Horn P., 2003. Strategic Management. 2nd Edition. Journal of Literature, 12(5), pp.66-89.
Kolk, A., & Levy D. 2001. Winds of Change: Corporate Strategy, Climate change, and Oil Multinationals. European Management Journal. 19(5), pp.501-509. Print.
Martin, T., 1995. Global Refining Industry. Oil and Gas Journal [Online]. 93(15). Available at http://www.ogj.com/articles/print/volume-93/issue-15/in-this-issue/refining/global-refining-industry-preparing-for-future.html [Accessed 20 July 2016]
Mitchel, J., Marcel V., & Mitchel B., 2012. What is Next for the Oil and Gas Industry? Chatham House. Royal Institute of International Affairs. Available at https://www.chathamhouse.org/sites/files/chathamhouse/public/Research/Energy,%20Environment%20and%20Development/1012pr_oilgas.pdf [Accessed 20 July 2016]
UKPIA, 2015. The UK downstream oil sector comprises over 200 companies involved in the refining, distribution, and marketing of petroleum products. UKPIA [Onlne]/Avaiable at http://www.ukpia.com/industry_information/refining-and-uk-refineries.aspx [Accessed 20 July 2016]
