Oil and Gas Industry Development Strategy

The provided content focuses on the oil and gas industry, covering various aspects such as entrepreneurial implications of local content policy, valuation of oil and gas companies, servitization in the sector, risk management, corporate governance, performance-based service strategies, and environmental regulation. The content also includes online articles discussing the future of the industry, top 10 risks, government sector strategy, and regulation and licensing of energy industries and infrastructure.

Oil and Gas Retailing in UK

The consumption of oil and gas is considered important for sustaining economic growth
in this globalised and industrialized world. This sector provides wide range of chemicals and
energy that are further vital for other industries, transport and households. The government also
earns substantial export revenue and tax that inturn supports economy. Through this sector, more
than 380,000 people get employment in UK (UK government Oil and Gas Sector strategy, 2012).
However, the recent global recessions has reduced the demand of oil causing the rise in its
prices. Furthermore, the environmental and the climatic changes have also constrained the
growth and profitability of various industry players including retailers. The central aim of this
report is to study the complex environmental factors that influence the oil and gas sector in UK
and how these factors can affect development in oil and gas retailing.
UK is the world’s largest producer of natural gas and petrol in European Union and as per
the report of BP Statistical Energy Survey, 2008; UK constitutes 0.29% of whole world’s oil
reserve which is more than any other member country of EU. Moreover, it is one of the largest
exporters of crude oil and main importers being US, Germany, Netherlands and France. In UK,
large oil producers include BP, Shell, Total and ChevronTexaco. Production from oil and gas
fields reached the peak in late 1990s, but gradually it declined over the past years (Oil and Gas in
United Kingdom- Overview, 2013). Petroleum has also been produced in UK for centuries. At
present, there are over 240 offshore fields for petroleum production. Large numbers of factors
are there that affect the current oil and gas industry environment and thus influence the
operations of retailers in the industry. Some of the significant factors comprises of Economy,
technology and politics. These factors are as discussed below:
Political factors: Oil and gas is the most required commodity worldwide and any fluctuation in
their prices greatly influences the economies of the nations. Volatility in the prices has not only
affected the common people, but many companies had also been droven away. For this reason,
prices are regularly monitored by various economists (Moffett and Inkpen, 2011). Political
factors refer to the degree to which government interferes in the economy and thus in overall
industrial sector. These factors include labor law, tax policy, trade restrictions, fiscal and
monetary policy, tariffs as well the environmental law. All these factors have a great impact on
various operation of the sector. Tax policies of the government have a huge impact on operations
of the retail organizations. Due to increase in taxes, they have reduced their investment on plants
and even encouraged the speculative activities by the retailer. Decisions made by the

governmental bodies also directly or indirectly affect the oil and gas industry operations. For
instance, the sector has major effect on climatic changes, due to which the UK government has
tightened the law on decommissioning. It has also formulated various policies and laws that
directed companies to produce energy for the economy while reducing the amount of emission
and utilizing new energy option. The government has also introduced carbon tax charges in order
to reduce the greenhouse gas emission generated by industry. Moreover, it has also levied several
taxes on energy which inturn compelled the industry to look at new renewable energy options
(Wils and Neilson, 2007). Apart from that, the government has adequate control over the oil
prices, at the time of global high prices, it lower the prices of oil inturn creating financial
problems for the fuel retailers that further lead to supply shortage. Presently, the oil companies
are reaping huge benefits in terms of rise in energy prices etc., but certain environmental laws
and policies have made difficult for them to sustain in long term. The production and exploration
segment of industry is continuously affected by the regulations governing the production of oil
and gas, royalties and taxation policies of government which inturn has increased their overall
cost of production further leading to increase in prices for ultimate consumers (Moffett and
Inkpen, 2011). Even the refining and retail segment is also subject to various laws which include
regulation on underground storage of oil or gas, cleaner gasoline, reducing refinery emissions
etc. Deregulation of certain restrictions as on one hand has enabled the business enterprises to
acquire or merge with other companies, but this has also obliged companies to review or
reconstruct their operations and establish cleaner fuels Apart from that, most of the oil reserves
are controlled by government owned enterprises in many nations. Thus, it can be said that oil and
gas industry is highly governed by the political bodies intervention (Vactor, 2010)..
Economical factor: Oil and gas sector both affect the nation’s economy as well as affect by the
economy greatly. It has a complex relationship with the nation’s economy. As on one hand
economic prosperity or growth lead to the increase in demand for oil and gas by both households
as well as the industrial consumers (The economic impacts of the oil and natural gas industry on
the US economy: Employment, Labor income and value added, 2009). These rises in demand
comes from the energy and dependent sectors such as commercial sector, agriculture,
transportation, residential and the industrial sector of the economy. The rise in demand may also
pose economic unrest. While on the other hand, economic downturn also greatly affects the
demand for such oil and gas commodities. The usage of oil and gas products is increasingly

growing in every industry which means the fluctuation in their prices will have a great effect on
prices of goods and services of other industries that further lead to inflation (Oil and Gas-Top 10
risks, n.d). Economic forces include economic condition, growth, inflation rate, interest and
exchange rates etc. These factors tend to have major influence on business, its operations as well
as decisions. In context with oil and gas industry, for instance, interest rate may affect the
company’s cost of production which inturn influences the business growth and expansion.
Exchange rates also have great affect on exporting of goods by firm. Moreover, the prices of oil
and gas commodities are also influenced by demand and supply factor that affect the retail
business to a great extent. The retail sector of oil and gas industry is subject to various challenges
(Dey and et. al., 2007). Retailers face major problem because of the prices charged by producer
or the refineries and the transporter and when the consumer considered it as unfair. More often
allegations of “price gouging” are put on them when prices seems to be higher while when the
prices are lowered by them below the actual cost, then they are investigated for doing unfair
trade practices. Apart from these allegations, they are also charged for “collusion” and price
fixing when they set same prices as that of the other retailers. High prices for the fuel may cause
consumers to lower their consumption of fuel affecting the retail business greatly (Oil and Gas-
Top 10 risks, N.d). Thus, it can be said that rise or fall in prices of oil and gas affect the retailing
business extremely.
Technology: Technological changes have revolutionized the UK oil and gas industry greatly.
Various technological innovations have provided the significant growth to nation’s economy as
well as the economies of other countries. With the advancement, the nation has experienced the
increase in production of natural gas and the oil which has reduced the importing of these
commodities from other nations (Kassi and et. al., 2008). Upstream development of technology
has affected each and every component of the industry which includes oil and gas producers,
suppliers, service sector, oil and gas equipment manufacturer and the consumers also. In order to
survive and sustain in this highly dynamic environment, it has become essential for the retailers
of oil and gas products to keep pace with the technological changes. Thus, they are also adapting
themselves with the latest technological upgrades in order to cut their increasing cost on
investment and also to improve the service quality. They are implementing various applications
such as POS customization, laboratories for testing the product etc. for enhancing their
operations. In addition to this, retail enterprises are also equipping their premises with certain IT

devices which benefitted them to cut their unnecessary costs (Pongsiri, 2004). Many giant
companies are undertaking wet stock management technique that has great impact on
profitability and the brand image. As the retail business organizations depends on transactional
sales, it might lose their competitive position unless they capitalize their analytical abilities into
business operations (Varqa, S. and Gibbons-Wood, 2004). This will help in making the strategic
decisions for the corporation and will also aid in customer profiling and segmentation. The
technological advancement provided many advantages to the retail business houses in rendering
quality services to their customers. The fleet card is one of the techniques that is employed by
today’s organization to entice more and more customers. Fleet card help in enhancing the
efficiency in operations, control fuel and also manage record keeping. These upgradations will
help the companies to reduce the operational cost and improve performance. Attributing to this
fact, it can be rightly said that in order to survive in globalised and highly regulated business
environment, retailers of oil and gas are required to adapt themselves with the innovative
technologies and thus to ensure efficient operations (Arnott and Antill, 2000).
Regulation: Increased attention about the rise in oil and gas prices, balance of trade, energy
security combined with concern about reducing the green house effects, gas emissions have lead
to formulation of wide array of policies and regulations that supports energy efficient and biofuel
products in EU (Oil and Gas in United Kingdom- Overview, 2013). Oil and gas are associated
with several impacts on society as well as the environment. Due to the primary operation of the
industry i.e. exploration, mining and extraction which affects the environment to large extent and
moreover the consumption of the oil and gas commodities also pollute the atmosphere and create
various environmental problem. While the chemicals used in the operations of the oil and gas
extraction poses various problems (Kumar and Markeset, 2007). Thus, in order to address such
issue and to maintain the sustainability in the economy various regulations have been imposed so
as to control the operations of refineries and the oil & gas producers. These regulations not only
affected the activities of the upstream organizations but the retailers and marketers are also
subject to various rules and laws. There are various regulations which constitute both national
and international legislation (UK government Oil and Gas Sector strategy, 2012). The primary
legal instrument in context with oil and gas activities is IMO treaties. Oil and gas activities are
extractive which create a high degree of societal and environmental disturbance and thus
adversely affect the bio diversity and the socio-cultural communities. The problems through

operations of extraction, refining and ultimate consumption arises in form global warming, air
and water pollution, acid rain etc. which further affect the living beings. Because of these
destructions, several regulations have been imposed on oil and gas operations which obliged
companies to operate in accordance with practices and methods that support fair oil field
practices and reasonable precautions (Longwell, 2002). This regulatory framework has greatly
affected the profitability of the oil and gas retailers. Consolidation has also to great extent
redefined the oil and gas industry which has enabled the companies to save costs, enhance
competitive position, increase shareholder value and access to the latest technology. These
activities further created the more integrated and aggressive market players. These leading
players in turn dominate the retail segment of the industry and thus have great influence on oil
and gas retailing in UK (Providing regulation and licensing of energy industries and
infrastructure, 2012).
Societal factors: Oil and Gas industry is both positively and negatively affected by the social and
cultural impact. The changing lifestyle of the people, innovation in the technology has increased
the demand for oil and gas. Therefore the social factors are required to be considered at every
stage of company’s life cycle in terms of expansion in new market, development of new
operation, decommissioning etc. Societal forces include demographics, socio-economic, social
infrastructure, cultural aspects, career attitudes etc. Changes in these factors influence the
demand for oil and gas products and also on company’s operations (Gao, 2000). For instance, the
improvement in standard of living of people have made them travel on their own vehicle, this in
turn increased the demand for petrol, diesel and gas. On contrary, the increasing awareness of
consumers towards the environment has also affected the demand for such products. For
example, today’s generation people prefer more eco-friendly products which have further
deceased the demand for oil (Wright, 2006) This awareness has also led to the invention of
various solar products which again has declined the oil and gas consumption by households.
Creation of the “Green Culture” in the nation has made people to use solar and hydro energies
rather than oil or gas. Fluctuation in their prices has reinforced special concern of government,
oil producers and even the consumers. Increase on their prices create a huge economical unrest
and also give rise to inflationary pressures (Ajayji and et.al., 2011). This in turn compels
households to reduce their consumption which then affect the business of retailers of oil and gas
products.

Oil and gas are the essential source of energy for every economy on which
various technological and economical development depends. Almost all industries require the
fuel or energy for carrying out their operations and even the household depends on these
products for their daily activities. Oil and gas are generally utilized in transportation, power
generation as well as space heating etc. In sum, it can be concluded that being the highly
regulated as well as competitive industry, the business enterprises are required to consider all the
macro environmental factors before making any strategic decisions such as expansion in new
market, introducing new activity etc (Vactor, 2010). As discussed above, it is clear that all the
factors such as technological, political, and social greatly affect the growth and development of
oil and gas companies and also the retailers. Apart from that the increase concern of modern
generations and also the government towards the environment has influenced the demand for oil
and gas severely which in turn requires the retail organizations to adapt their business with
changing conditions. These factors when addressed effectively may assists in strengthening
investment, global expansion, and adoption of the new technologies, sound infrastructure in
distribution and the marketing for the retail companies. It is important for them to abide with all
the rules, laws and regulations imposed by the government and thus operate in ethical and legal
manner (Longwell, 2002) and also to work with regard to consumers as well as other
stakeholders.

REFERENCES
Books and Journals
Ajayi, C. and et.al., 2011. Entrepreneurial implications of Nigeria's oil industry local content
policy: Perceptions from the Niger Delta region. Journal of Enterprising
Communities: People and Places in the Global Economy. 5(3). pp.223 - 241
Arnott, N. and Antill, N., 2000. Valuing Oil and Gas Companies: A Guide to the Assessment
Aand Evaluation of Assets, Performance and Prospects. 2nd ed. Woodhead
Publishing.
Bandinelli, R., and Gamberi, V., 2012. Servitization in oil and gas sector: outcomes of a case
study research. Journal of Manufacturing Technology Management. 23(1). pp.87 -
102
Dey, P.K. and et.al., 2007. Risk management in oil and gas construction projects in Vietnam.
International Journal of Energy Sector Management. 1(2). pp.175 – 194
Heinrich, A., 2005. Why corporate governance in the Russian oil and gas industry is improving.
Corporate Governance. 5(4). pp.3 – 9
Kässi, T. and et.al., 2008. Views on the international market for energy biomass in 2020: results
from a scenario study. International Journal of Energy Sector Management. 2(4).
pp.547
Kumar, R., and Markeset, T., 2007. Development of performance-based service strategies for the
oil and gas industry: a case study. Journal of Business & Industrial Marketing. 22(4).
pp.272 - 280
Moffett, M.H. and Inkpen, A.C., 2011. Global Oil and Gas Industry. PennWell Books
Pongsiri, N., 2004. Partnerships in oil and gas production-sharing contracts. International
Journal of Public Sector Management. 17(5). pp.431 – 442
Vactor, S.V., 2010. Introduction to the Global Oil and Gas Business. PennWell Books.
Varqa, S. and Gibbons-Wood, D., 2004. Importance of exploration and appraisal drilling to
employment in the oil and gas industry in United Kingdom continental shelf. Journal
of International Trade Law and Policy. 3(2). pp.3 – 19
Wils, J. and Neilson, E.C., 2007. The Technical and Legal Guide to the UK Oil and Gas
Industry. Aberlour Press, Limited.
Wright, P., 2006. Gas Prices in the United Kingdom: Markets and Insecurity of Supply. Oxford
University Press.
Online articles

Oil and Gas in United Kingdom- Overview. 2013. [Online]. Available through: <
http://www.mbendi.com/indy/oilg/eu/uk/p0005.htm>. [Accessed on 10th April 2013].
Longwell, H.J., The future of Oil and Gas industry: Past approaches, New Challenges. 2002.
[pdf]. Available through: <
http://www.worldenergysource.com/articles/pdf/longwell_WE_v5n3.pdf>. [Accessed
on 10th April 2013].
Oil and Gas-Top 10 risks. N.d. [Online]. Available through: <
http://www.ey.com/GL/en/Industries/Oil---Gas/Turn-risk-and-opportunities-into-
results--oil-and-gas---The-top-10-risks>. [Accessed on 10th April 2013].
UK government Oil and Gas Sector strategy. 2012. [pdf]. Available through: <
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/
37002/12-1365-government-oil-and-gas-sector-strategy-call-for-industrys-
views.pdf>. [Accessed on 10th April 2013].
Providing regulation and licensing of energy industries and infrastructure. 2012. [Online].
Available through: < https://www.gov.uk/government/policies/providing-regulation-
and-licensing-of-energy-industries-and-infrastructure/supporting-pages/
environmental-regulation-of-offshore-oil-gas-and-carbon-dioxide-storage-activities>.
[Accessed on 10th April 2013].
Gao, Z., Environmental Regulation of the Oil and Gas Industries. 2000. [Online]. Available
through: <http://www.dundee.ac.uk/cepmlp/journal/html/vol2/vol2-11.html>.
[Accessed on 10th April 2013].
The economic impacts of the oil and natural gas industry on the US economy: Employment,
Labor income and value added. 2009. [pdf]. Available through:
<
http://www.api.org/newsroom/upload/industry_economic_contributions_report.pdf>.
[Accessed on 10th April 2013].