Impact of Government Policies on Oil and Gas Retail Sector Development

This report provides an analysis of the oil and gas retail sector in the UK, exploring the factors that influence its size, structure, and development. It examines the impact of rising oil prices, government actions, including financial drivers like fuel duty and business rates, and environmental policies such as the introduction of E10 petrol and vapor recovery schemes. The report also considers consumer behavior, competition within the sector, and the influence of fuel suppliers. It concludes by highlighting the key regulatory policies that affect the profitability and sustainability of petrol filling stations (PFS) businesses, offering insights into the challenges and opportunities within the industry. The report draws on various sources, including consumer surveys, industry reports, and government publications, to provide a comprehensive overview of the UK oil and gas retail market.

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Development in Oil and Gas Retail Industries

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Contents
Introduction................................................................................................................................2
Factors affecting present size and structure of current oil and gas retail sectors.......................2
Impact of rising price of oil........................................................................................................3
Influence of government action.................................................................................................4
Fiscal drivers..........................................................................................................................4
Environmental and safety policy............................................................................................5
Other regulatory policies........................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8

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Introduction
The petroleum industry plays important role in economy of UK. The country has more than
200 companies in the petroleum industry that are into manufacturing, supply, refining and
marketing of products. The expansion in the aviation sector, growing number of diesel
vehicles and reduced use of oil for power generation has changed demand for oil products in
the last 10 to 15 years (Krishnan & McCalley, 2016). This report provides the size and
organization of oil and gas retail sectors and the influence of increasing price of oil. The
actions of government for the profitability of oil and gas retailing are also analysed.
Factors affecting present size and structure of current oil and gas retail sectors
The factors affecting retail sectors of UK are assembled under four main areas. The evidence
collected from consumers, suppliers, competitors and government affects oil and gas retail
sector.
Needs of consumers
A consumer considers price and convenience as important factors while selecting PFS.
Convenience means the adjoining location to customers. It is experienced that a few portion
of customers like to drive to acquire fuel at economy rate. The focus of clients moves towards
price with the availability of more PFS (Lale, Udo & Ana, 2014). A location is found crucial
when there is less choice of PFS throughout time of travelling. According to an investigation
conducted in UK in 2012, 1000 customers above the age of 16 years have more emphasis on
price then they had in the past years. A frequent query is also raised on the convenience of
filling fuel. The people agreed that they look out for the convenient and nearest site for
shopping than the shopping for less fuel prices was low in 2012. It reveals that the customers
mostly consider price of fuel and take initiative to look for cheap oils in the convenient
locations (Kaznacheev, Samoilova & Kjurchiski, 2016). The result varied when the survey
was done in Wales, East Angila and Britain. An investigation was conducted in Ireland by
Consumer Council and the outcome exposed that 82% of defendants changed driving attitude
due to increase in fuel price. They also agreed that they always search for the best fuel price.
The customers deliberate other privileges provided by the PFS. These privileges can be found
in the form of shopping, loyalty and car wash facility.
Bond with fuel suppliers

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The independent fuel suppliers and oil company supply divisions supply fuel to the PFS
retailers. The relationship with suppliers shows in terms of prices paid by the PFS dealers for
the petroleum merchandises. The price can be paid in the form of Platts Plus which means
global index of prices is published for petroleum products. It is mentioned in terms of US $.
The prices which are charged extra by sellers of fuel over the mentioned charges are known
as plus element.
Competition levels
The consumers hold the same brand loyalty and are more sensitive to prices. The competition
level is affected by the these considerations:
 The time and space required to reach at substitute PFS.
 The size and figure of PFS in the specific ecological area.
 The several companies which run the PFS in specific ecological part.
The reason behind increase in competitive prices is due to growth of hypermarket in the
oil and gas retail industries of UK. It has caused major competition among the owners of
PFS which are already operating hypermarkets (Mitchell & Mitchell, 2014). The owners
of PFS need to face hypermarket basis retail prices and it has led to gross margins to
reduce. The reduced gross margin is the percentage of the retail price over the twenty
years for the independent dealers (Perrons & Jensen, 2015).
Regulations and government policies
The business of PFS is influenced by regulations and guidelines of government which helps
in investment and communication needs. The drivers of government are classified into
economic drivers, safety standards, environmental policies and rules. The economic drivers
can be duties like fuel duty, business and corporation taxes which affects PFS business. The
business rates are analysed on five year base by Valuation Office Agency. The assessment is
done on the basis of performance of PFS by the VOA (Mellat Parast, Adams & Jones, 2011).
Impact of rising price of oil
The financial performance is reliant on the fuel prices. There is move in terms of trade by
moving income from the oil importing countries to the oil exporting countries. The rise in
prices of oil is also influenced by the rise in price of gas. The macroeconomic effect is

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affected by the increased prices of oil. The advanced earnings from exports is causing rise in
real income to the oil exporting nations (Bildirici & Bakirtas, 2014). The increased oil prices
are causing negative impact on the importing countries of oil. More energy supplies are
needed to keep local economy running. The increased oil prices led to increase in production.
It has also caused to increase in product prices. Inflation has made the life of consumer’s life
tougher around the world (Hafezi, Akhavan & Pakseresht, 2017). The economies are affected
by flat wages and the augmented disbursement rate. The domestic indicators of UK have
revealed factory gate prices of UK. It has augmented to the maximum levels from November
2009 due to increase in prices of oil. Through this time the inflation rose from November to
January and VAT was at 17.5 % throughout February. The Bank of England forecasted that
pressure of inflation occurred more sharply. The Vat was reduced to 15 percentages by the
government to stimulate the growth of economy. The increase in prices of oil has increased
disruption and decreased export of oil by UK petroleum and gas retail sector (Castor, et. al.
2016). The increased price of petrol has caused shutdown of UK North Sea pipeline. It had
immediate effect on operators which relied on it’s capacity (Financial times, 2018). The
energy technology is disrupting petroleum retail sector. The companies are deciding to do
something drastic to the declining business (Offshore wind, 2018). The closing of petrol
stations and reduction in the storage capacity has made UK more susceptible to oil supply
disrupptions (The Telegraph, 2013).
Influence of government action
The policies and regulations of government have influence on PFS companies. These are key
drivers for the performance and investment needs. The drivers related to government have
been divided into following groups:
Financial drivers
The financial drivers are linked to tax which affects PFS companies like fuel duty, VAT,
business rates and corporation tax.
Business rates
The business rates are created on the basis of rateable values that are evaluated in five years
by VOA (Valuation Offices Agency). The valuation of VOA for PFS depends on the
transaction performance of PFS. In the separate shop the RV is created upon the size of
building. So, the PFS can acquire a lower business rate if it is operated as a shop only

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(Barata, et. al. 2014). The PRA successfully campaigned for reduction in RV between 10-
25% while some rural sites have seen no discounts. The rural sites still face a rates bill which
is equal to 10% of gross profit of rural PFS (Urciuoli, Mohanty, Hintsa & Gerine Boekesteijn,
2014).
Fuel duty and VAT
Fuel duty and value added tax together makes 60 percentage of ultimate selling price. Fuel
Duty was 57.95ppl in 2012 for petrol and diesel and VAT was being applied at 20%. The rise
in final prices has been the product price in the last five years. While between 1990 and 2000
the main cause of increase in petrol prices was fuel duty which increased from 19.49 ppl to
48.82 ppl in 2000. The influence of fuel duty and VAT differs on the owners of PFS. It is just
because of payment models which autonomous dealers and supermarkets are subjected to.
The supermarkets pay for the fuel minimum fifteen days after distribution. The supermarkets
collect fuel duty and VAT from the customers prior to making compensation to the fuel
suppliers. The autonomous sellers have to pay for fuel within the 3 days after delivery. There
is substantial requirement of working capital as the delivered fuel cannot be fully sold in
three days. The working capital has also improved as fuel duty. In 2000 a 38,000 litre tanker
used to cost below £25000 with fuel duty and VAT accounted for just £21,000. The same
volume cost to £50,000 in 2012 with £30,000 for taxes. The small independent dealers
manage stock levels to minimise average stock holding (Wälde, 2008).
Corporation tax
The rate of corporation tax has abridged from 28% to 23% from 2010 to 2013. The small PFS
businesses generates less than £300,000 revenue in a year are required to pay low and small
profits rate that is reduced from 21% to 20% in 2011 (San Ong, Teh, Ahmad & Muhamad,
2017).
Environmental and safety policy
The government has made various environmental and safety policy for the petroleum
products. Biofuels and introduction of E10 are two policies were raised in respect to PFS.
Biofuels
The government has introduced E10 petrol in a few European states. The E10 petrol
comprises 10% ethanol and 90% petrol which aim to grow segment of renewable sources in

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total energy expended in the transport sector. It has increased the segment of renewable
energy in the total energy expended. It is driven by renewable energy directives. E5 fuel is
referred to the maximum combination of ethanol with 5% petrol. The E10 fuel standard are in
the practice of launch in UK, pursuant to suppliers to determine whether to introduce E10 in
UK (San Ong, Teh, Ahmad & Muhamad, 2017). Along with the introduction various issues
have been raised by the market participants. The fuel pumps that supply E5 petrol will be
able to take E10 with no additional investment. There is only concern about the availability of
substitute grades of unleaded petrol at PFS.
There is found two grades of fuel such as unleaded and diesel in certain rural locations. The
rural locations can choose to stock up E10 fuel if they are unable to supply E5 petrol. The
motorists may not prefer filling up as they are not known to usage of E10. They can also
stock superior grade of unleaded. The respond of consumers to the introduction of E10 may
be assumed uncertain. E10 also tend to additional spending for the maintenance to ensure fuel
tanks and pumps remain to perform at the desired level. It can also cause to closure of small
PFS which are unable to introduce multiple grades of fuel (Krishnan & McCalley, 2016).
Petrol stage II vapour recovery
The vapour recovery schemes are needed at PFS to minimise emissions of VOCs. It is
required from packing to supply of petrol. It is controlled by petrol vapour recovery stage I
and stage II.
 The stage I directive targets at dropping VOC releases from loading of petrol pumps
and stations to loading and unloading at petrol pumps and stations.
 The stage II contracts with the VOC emissions from filling petrol in vehicles at PFS.
It has come into the light from 2012.
Other regulatory policies
There are various regulatory policies which affects the profitability of PFS businesses.
 Planning
The planning system of government has offered some protection to retailers. The consent
is granted for new development for only retail development only when the planners
consider need of more retail development. National Planning Policy Framework (NPPF)
has been published in 2012 to clarify the guidance and it includes impact and sequential

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test. The government has focused more on building new PFS as it could lead to three to
five autonomous traders in the local area.
 Measuring instruments directive (MID)
The MID has been added in UK law in 2006. It necessitates producers to verify designs of
courtyard tools under a set of European rules. The equipment which are sold after
October 2016 must have obtained MID certificate (Xie, Yue, Wang & Lai, 2010).
 National emergency plan for fuel
The government has settled this plan to deal treat supply disruptions in transporting fuels.
The measure under this plan includes limiting amount of fuel which can be purchased
per visit to PFS. It also includes Designated Filling Stations (DFS) for the privileged
customers. However there is less transparency that how DFS can be selected and what
kind of security arrangements are needed to support DFS.
Conclusion
In the above report, the UK petroleum retail sector has been discussed. The key drivers are
separated in four different groups, customers, dealers, rivalry and government strategies. All
these aspects affect petroleum retail sector contrarily. It is determined that the supermarkets
influence market negatively that’s why PFS formulate strategies to overcome competition.
The government has taken actions for the profitability of oil and gas retailing by
implementing policies and tax structure of country.

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