UK Oil & Gas Industry: Changes and Impact

This report provides an overview of the UK Oil & Gas industry, focusing on the changes in the sector over the last ten years. It discusses the impact of factors such as crude oil prices, government actions, and the COVID-19 pandemic on the UK market. The report explores the average prices of crude oil, economic determinants that affect the industry, and government initiatives to improve the situation. It also analyzes the immediate and future effects of COVID-19 on crude oil prices.

UK Oil & Gas industry

ABSTRACT
This report is summarised about UK Oil & Gas industry and the changes in this sector
throughout the last ten years. In Oil & Gas Industry of UK shows that price of Crude Oil changes
over the last ten years which increase the overall price and that further impact on individual
pockets. There are several factors as well which affect the demand of Crude Oil and government
also take necessary actions which affect UK market through 2010 to 2020. In addition, COVID-
19 affects the current as well as future price of Crude Oil of UK market.

Abstract............................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
1. Average Crude Oil prices in the UK changed from the period of 2010 to 2020.....................1
2. Economic determinants of the changes in UK crude oil.........................................................3
3. Government action over the period from 2010- 2020 affected the UK market.......................7
4. Analyse the immediate and future effect of COVID 19 on the price of crude oil...................8
RECOMMENDATIONS.................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
UK’s oil and gas industry help the economy though generating revenue from its activities.
Ninety-eight per cent of supply comes from offshore areas and the Aberdeen services sector has
been a pioneer in improving offshore hydrocarbon extraction technologies (Aalsalem and et.al.,
2018). Historically, many gas originated from East Anglia from Morecambe Bay and the
Southern North Sea, but both regions are now diminishing. This report is based on the Crude oil
prices of UK which changed over the period of 2010 to 2020. It covers several topics such as
average prices throughout the period, determinates such as demand & supply which affect the
overall price from the period 2010 to 2020. In addition, there are several government actions
which taken by them to improve the situations and the impact of COVID 19 on crude oil prices
over the period from 2010 to 2020.
MAIN BODY
1. Average Crude Oil prices in the UK changed from the period of 2010 to 2020
In 2014, the UK's oil and gas industry generated 1.42 million BOE every day, 59 per cent
of which would be oil / liquids. In 2013, the United Kingdom imported 1,508 million barrels of
crude oil per day and 2,735 trillion cubic feet (tcf) of coal, and hydrocarbon importers have been
a net exporter throughout the 1980s and 1990s.
UK taxes from oil and gas comprise of offshore corporation tax (that also includes
corporate ring fencing tax and extra charge) and petroleum income tax. Such taxes extend to the
earnings of companies engaged in oil and gas production in the UK and on the Ukcs ("The North
Sea"). In our current estimate, it is expected that sales from UK oil and gas to generate £ 1.1
billion in 2019-20, which constitutes 0.13 per cent of all revenues.
UK oil and gas sales have a highly volatile monthly pattern during the year. Both the corp
tax 'ring-fence' and the additional charge are deductible in three instalments each year, in relation
to the begin and finish of the accounting period of each institutional investor (Al-Hemoud and
et.al., 2019). The PRT rate has already been fixed at zero, and no PRT instalments are made,
while decommissioning-related PRT repayments are still carried out over the year, decreasing
net receipts.
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Figure 1 Average Prices of Crude Oil, 2020.
This graph shows that 2010 to 2020 price of Brent crude oil. In May 2020, the forecast
British crude oil price for 2020 was USD 39.82 a barrel. Brent is the world's highest market
index for crude oils from the Atlantic basin (Adu, Zhang and Liu, 2019). Crude oil prices are
closely watched as they affect costs at all phases of the manufacturing cycle and therefore often
change the quality of consumer products. The UK's crude oil prices reached an average of US$
64.36 per barrel in 2019, down substantially from 2014 avg price of US$ 99 per barrel.
Nevertheless, to bring the statistic for 2019 into perspective, it was a substantial
improvement from the 2001 rate of US dollars 24.45 per container. Brent Crude is considered a
premium light crude oil type, which serves as a worldwide market price for oil. Because of its
low sulphur capacity and low intensity it is called a sweet quality crude oil. This oil originally
comes in the North Sea and consists of a variety of various varieties of oil including Brent
Blended and Ekofisk crude (Barker and et.al., 2018). Throughout Northwest Europe such crude
oil is also refined. Another sweet light crude, also referred to as West Texas Intermediate (WTI)
including UK Brent is. WTI price of oil reached US$ 25.9 per gallon in 2001, rising to US$
93.25 per barrel in 2014, until falling to US$ 50.33 per barrel in 2019.
After 2012, price of Crude Oil decreases due to several market factors which affect the
prices throughout the time. In 2020, overall Crude oil prices are low because one of the major
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factor which the production as well as consumption such as COVID-19. This pandemic situation
affect the entire world and after the lockdown situation every sector if UK affected which
minimise the sales as well as production.
2. Economic determinants of the changes in UK crude oil
In the UK’s Oil and Gas industry, there are several determinants which affected due to
change in oil prices throughout the years. Some of the factors discussed below:
Demand and Supply: These terms are used to identify that market demand for particular
products & services and similarly the supplied quantity to fulfil that demand. In relation to
demand, price and quantity has negative relation where, when price increases then demand
automatically reduces and on the other side when price reduces then demand for the product and
services increases due to inverse relation (Cooper, Stamford and Azapagic, 2018). Similarity,
when price of crude oil increases in the UK, then demand reduces and when price decreases then
demand increases because more people can afford it and spend on travelling. In context of
supply, it is also one of the essential factors that when price increases then supply of goods &
services also increases and vice versa. It has positive relation and then they work accordingly
which affect the economy. When price of crude oil increases then supply in the UK also
increases and other side, when oil price decreases then supply also decline.
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Figure 2 Demand and Supply of Crude Oil, 2020.
In the above mentioned graph D denotes the demand, S is for supply, P denotes the price
of Crude oil and Q is the quantity which demanded and supplied by the manufacturers. When
price of UK’s crude oil increases from P1 to P2 then demanded quantity reduces from Q3 to Q2
and similarly when price reduces from P2 to P1 then quantity increases from Q2 to Q3 due to
negative or inverse relationship between price and demanded quantity. On the supply side, when
price increases then supplied quantity also increases from Q1 to Q2 and similarly it reduces as
well because of positive relation. Demand curve is in downwards sloping and supply curve is in
upward direction.
Population level: In relation to population growth and Crude oil prices, both has positive
relation because when population increases then demand of consumers also raise which leads to
the increase in prices (Gardas, Raut and Narkhede, 2019). Throughout the period of price
changes, it has been observed that when population decreases then oil price of UK also decreases
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and when population increases then oil price also increases because of high demand of
customers.
Interest rate: While opinions are conflicting, the fact would be that oil prices and
interest rates have a strong association between their actions but are not strictly correlated. In
reality, several variables influence both the trajectory of interest rates as well as the price of
crude oil in UK (Adham and et.al., 2018). These causes are often related, often they influence
one another and there is often no rhyme or explanation for what occurs. One of major principles
specifies that rising interest rates will increase prices for customers and production cost, which
will reduce the amount of time and effort people are spending. Less on road translates into less
competition for gasoline, which can lead to a decline in oil prices. They would call this an
inverse association, in this case. By that same idea, companies and customers are able to invest
and spend the money more easily when interest rates decline, which pushes demand for oil up.
The higher the use of crude, that has limitations set on production quantities by OPEC, the more
customers bid the market value.
Disposable income: If price of Crude Oil increases then consumption of household
automatically decreases because the salary of individual is fixed. On the other side, if oil prices
decline then consumption increases because of high efficiency (Jianu and Jianu, 2018). Higher
Crude Oil prices help to drive down living costs. Especially, when a household buys a car or uses
certain oil-reliant modes of transport. Certain goods will become cheaper to a smaller degree due
to reduced shipping costs. This decline throughout the cost of living is particularly significant if
actual wage growth is weak as seems to be the situation in recent times. Effectively, a decline in
oil prices is like a voluntary tax break. Theoretically, the decline in oil prices could result in
higher consumption on other products and services and contribute to real GDP.
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Figure 3 Oil prices, 2020.
Above statistical data shows that, price of oil is decreases which are beneficial for the
people and salaried people can save their money and further them can invest into other goods and
services. Consumers and businesses will usually welcome a decline in oil prices because of the
cheaper rates and costs. This fall is indeed attributable to expectations from the corona virus of a
big decline in transportation and global downturn. There is no hope however that the falling oil
prices would have some significant economic impact. Cheaper gas does not really make a
difference if citizens cut back on driving. When people have a decrease in wages when they're
out of employment, higher oil prices are just a tiny incentive.
Employment: The decline in price of Crude oil would have a positive effect on
employment that is related to higher rates of economic growth (Littlechild and Vaidya, 2019).
The enhanced creating energy and profitability by many UK firms benefiting from the decline in
the price of oil will boost demand for labour and capital, it will increase wages and investment
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returns. Across these industries, higher incomes draw more jobs into employment, and
unemployment decreases.
Increase of jobs of our three examples, according to the UK economy baseline.
Employment influences increase in 2016 and grow and grow as the economic benefits of low oil
prices flow. If the price of oil is permanently reduced, the economy will witness an increase in
employment to about 90,000 by 2020. The impacts on wages are lower if the decline in the oil
price is transitory: in scenarios 2 and 3, the overall number of workers will rise by about 37,000
and 3,000 by 2020, respectively.
3. Government action over the period from 2010- 2020 affected the UK market
The government is determined to take initiative to help cover the cost of having lived for
all throughout the UK and to ensuring the most vulnerable people in society receive the attention
they require (Lu and et.al., 2019). In the 2020 budget, government take necessary actions in
order to maintain balance in the UK’s economy. The govt is essential to minimizing the taxation
on its wages as people earn more. The Budget proposes a tax cut for 31 million ordinary workers
with a rise in the rates for employees and self-employed NICs, saving the average employee
around £104 and a median self-employed person approximately £ 78 in 2020-21. Taken in
combination with improvements to the NLW and the Personal Allowance, an individual working
full-time on the NLW anywhere in the UK would see a better salary of over £5,200 relative to
April 2010.
Corporation tax (CT) rate, since 2010 the govt has cut the title rate of CT from 28 percent
to 19 percent, offering the UK the lowest rate in the G20. To provide assistance for essential
public services whilst also retaining the UK's competitive rate of CT, the government will pass
laws to maintain the existing 19 percent rate in April 2020.
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In order to boost the demand of crude oil in the UK market, government need to increase
their spending where they are provide subsidies to the people so they can afford to consume oil.
Price of crude oil need to be low in order to maximise its demand, household income should be
high so they can increase their consumption, low interest rate etc.
Extra government expenditure or lower taxes will increase economic demand and lead to
increased productivity and real job opportunities (Mäkitie and et.al., 2019). Governments can
enact legislation that protects workers and the environment or regulates where corporations can
develop new establishments. The major types of tax are income tax collected off the salary of an
employee. This leads to less money being spent in the supermarkets. Added value added tax
(VAT) to the products and services. A growth in VAT is raising costs. Corporate tax is a tax on
corporate profits. A increase in this tax means businesses holding less of their earnings leading to
less spending from firms and the resulting employment cuts. National Insurance contributions
are fees charged both by the employers and employees. They pay for state pension and the
National Health Service. The increase in the tax raises the expenses of a business and can result
in inflation. Local government raises fees from companies and may use the legislation to obstruct
approval to plan new premises.
The government could plan to increase debt in a recession, and invest more on
infrastructure investments. The hope would be that this rise in government funding allows capital
to be pumped into the economy and helps generate jobs. A ripple effect may also occur, where
the original investment into the economy triggers a subsequent round of increased spending. An
increase in overall demand will benefit the company recover from recession.
4. Analyse the immediate and future effect of COVID 19 on the price of crude oil
Oil and Gas industry of UK, specifically crude oil is one of the linchpins of global
economy (Riddick and et.al., 2019). In December 2019, the introduction of the Corona virus in
China and the subsequent spread of the disease dramatically decreased crude oil production and
profit. On December 31, 2019 the settlement date of COVID-19 WTI oil future was priced at US
$61.06 and on March 23, 2020 the price fell to US $23.36. More than 61 % drop in WTI crude’s
price gives a message of market disparity. EIA predict crude oil prices for Brent and WTI to
average $ 43 / b and $ 28 / b by 2020. Regardless of the trade war among Saudi Arabia and
Russia beaten with Corona effect experts, their own predictions already have begun to be
checked. Top financial institutions Barclays, Morgan Stanley and Goldman Sach respectively
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updated the Brent crude outlook to $31 / b, $30 / b, and $20 / b. Barclays has readjusted the
premium for the WTI to $28 / b.
COVID-19 has also affected crude oil markets and trade. The combined impact of world-
war and COVID-19 enabled the oil price of Brent to hit 17 years low. A few analysts expect the
price of crude oil to sink below $10 / barrel. A sceptical analyst expects "poor crude price" 3,
meaning that suppliers must pay the buyer to remove the product from the well-head. Unless the
principle of "negative price is a global fact, importers like India and China may rebound faster
than the others from the COVID-19 effect. A few of the oil exporting countries, on the other
hand, will go insolvent sooner than later.
Although catastrophe has hit oil markets, they see a polar opposite response in the green
energy sector, with the US progressively dependent on renewable energy for energy, although
renewable energy shares in the UK and Europe are growing to 43 per cent across the world
(Sumbal and et.al., 2018). These activities have the great potential further to drive the impetus
for global economies to growing the use of renewable and dampen our reliance on fossil fuels. In
addition to clean energy businesses, big consuming nations like China and India do have the
ability to make a profit. Sustained risk and oil market uncertainty encourage importers to get
cheaper prices.
During this pandemic situation, prices of crude oil were negative because there is no
consumption of oil due to lockdown in the country as well as in entire world. Share price of oil &
gas industry also affected and the total return was negative 25% which means UK’s market face
huge loss which take time to recover. The unfortunate thing for several British investors who
would have a decent dollop of domestic assets in their portfolio management is that since
beginning of 2020 the UK has been one of the hit hardest by big global stock markets. From the
starting of 2020 year to end of March, the FTSE All-Share index, which is narrower than the
headline-grabbing FTSE 100, tallied up a total return after dividend payments of minus 25.1 per
cent.
RECOMMENDATIONS
In order to balance the UK’s crude oil prices, it has been suggested that government should
increase their spending or make sure that oil prices reduces because it helps in increasing
demand (Whitton and Rifkin, 2018). According to the current situation of COVID-19, entire
world face the worst situation and most of the sector face huge loss due to no production or
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lockdown situation. Government should cut tax rates, provide subsidies and other healthcare and
basic need to support their citizen to established themselves again or focus on development.
CONCLUSION
From the above discussion it has been observed that oil and gas industry of UK get the huge
decline due to COVID-19 and lockdown situation. Average price of crude oil decreases in
comparison to previous year. From last ten years, there is huge fluctuation seen in the UK’s
economy. In addition, there are several determinates which affect the price of crude oil such as
demand & supply, population, disposable income, employment etc. In order to improve this
situation, government should take necessary actions in terms of modifying their spending and tax
rates. Along with it, COVID-19 affect the entire UK market and it affect the future growth as
well. Government should take some strategic actions to maintain economic situation of the
country or try to make things on platform as it before the lockdown situation.
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REFERENCES
Books & Journals
Aalsalem, M. Y. and et.al., 2018. Wireless Sensor Networks in oil and gas industry: Recent
advances, taxonomy, requirements, and open challenges. Journal of Network and
Computer Applications, 113, pp.87-97.
Adham, S. and et.al., 2018. Membrane applications and opportunities for water management in
the oil & gas industry. Desalination, 440, pp.2-17.
Adu, E., Zhang, Y. and Liu, D., 2019. Current situation of carbon dioxide capture, storage, and
enhanced oil recovery in the oil and gas industry. The Canadian Journal of Chemical
Engineering, 97(5), pp.1048-1076.
Al-Hemoud, A. and et.al., 2019. Economic impact and risk assessment of sand and dust storms
(SDS) on the oil and gas industry in Kuwait. Sustainability, 11(1), p.200.
Barker, R. and et.al., 2018. A review of iron carbonate (FeCO3) formation in the oil and gas
industry. Corrosion Science, 142, pp.312-341.
Cooper, J., Stamford, L. and Azapagic, A., 2018. Economic viability of UK shale gas and
potential impacts on the energy market up to 2030. Applied Energy, 215, pp.577-590.
Cooper, S. J. and Hammond, G. P., 2018. ‘Decarbonising’UK industry: towards a cleaner
economy. Proceedings of the Institution of Civil Engineers–Energy, 171(4), pp.147-157.
Gardas, B. B., Raut, R. D. and Narkhede, B., 2019. Determinants of sustainable supply chain
management: A case study from the oil and gas supply chain. Sustainable Production and
Consumption, 17, pp.241-253.
Jianu, I. and Jianu, I., 2018. The share price and investment: Current footprints for future oil and
gas industry performance. Energies, 11(2), p.448.
Littlechild, S. and Vaidya, K., 2019. Energy Strategies for the UK. Routledge.
Lu, H. and et.al., 2019. Oil and Gas 4.0 era: A systematic review and outlook. Computers in
Industry, 111, pp.68-90.
Lu, H. and et.al., 2019. Blockchain technology in the oil and gas industry: A review of
applications, opportunities, challenges, and risks. Ieee Access, 7, pp.41426-41444.
Mäkitie, T. and et.al., 2019. The green flings: Norwegian oil and gas industry’s engagement in
offshore wind power. Energy Policy, 127, pp.269-279.
Rentizelas, A. and et.al., 2020. Social sustainability in the oil and gas industry: institutional
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Richardson, N., 2018, June. Delivering Sustainable Value from Exploration on the UK
Continental Shelf. In 80th EAGE Conference and Exhibition 2018 (Vol. 2018, No. 1, pp.
1-5). European Association of Geoscientists & Engineers.
Riddick, S. N. and et.al., 2019. Methane emissions from oil and gas platforms in the North
Sea. Atmospheric Chemistry and Physics, 19(15), pp.9787-9796.
Rouse, S. and et.al., 2018. Commercial fisheries interactions with oil and gas pipelines in the
North Sea: considerations for decommissioning. ICES Journal of Marine Science, 75(1),
pp.279-286.
Sumbal, M. S. and et.al., 2018. Critical areas of knowledge loss when employees leave in the oil
and gas industry. Journal of Knowledge Management.
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Vasilev, D. and et.al., 2019. Analysis of the data used at oppugnancy of crimes in the oil and gas
industry. In Big Data-driven World: Legislation Issues and Control Technologies (pp.
249-258). Springer, Cham.
Witt, K., Whitton, J. and Rifkin, W., 2018. Is the gas industry a good neighbour? A comparison
of UK and Australia experiences in terms of procedural fairness and distributive
justice. The Extractive Industries and Society, 5(4), pp.547-556.
Online
Average Prices of Crude Oil, 2020. [Online]. Available Through:
< https://www.statista.com/statistics/262860/uk-brent-crude-oil-price-changes-since-
1976/>
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