UK Oil and Gas Industry

The oil and gas industry is significant in any economy as it is one of the most impactful expenses or income that would shape the nature of the economy. OPEC countries have around 81.5 percent of the crude oil in the world as per the numbers indicated by 2016. An organisation that operates in the petroleum industry can be divided in three sections, Upstream, Midstream and Downstream.  The following figure will explain the structure and its sub-parts.

Figure: Supply chain structure of Oil and Gas sector

The utility of oil and gas is attributed to a number of aspects like cooking, transportation, heating as well as electricity is also dependent on the oil and gas etc.  However, 84 percent of the oil and gas is channelized towards transportation fuel. OPEC plays an important role in controlling the world consumption of oil and gas (Griffin and Teece 2016). There are a number of products developed for various purposes like kerosene, petrol, LNG, LPG, Diesel, propane etc. oil companies can be divided in three segments National Oil Company, Individual Oil Company and Government sponsored enterprise (Kelland 2014). The national oil companies began with the incorporation of the OPEC. One of the most important elements that any organisation in the industry should ensure are up to the standards of the industry are the safety standards as the elements are flammable and can be hazardous. The supply process in the industry also has a negative impact on the environment and has been criticized by a number of environmentalists around the world. In the contemporary oil and gas industry the companies try to incorporate socio-environmental sustainability (Gao and You 2015).  

 This assignment is going to focus on one of the most popular products which are widely used all over the world for transportation, Petrol. This assignment will showcase the various stages of the oil and gas supply chain; compare Petrol with liquefied natural gas. It will also explain the market of your petrol, focusing on factors such as demand etc.

 The UK oil and gas industry is observed to have a significant impact on the society and the community of that region. The products of it, is observed to supply the energy to the power industry and is treated as the fuel for the transportation vehicles in order to transfer the goods. Apart from this, the industry has great significance as it is observed to create considerable number of employments in the region and the industry is able to produce notable contribution to the economy of the nation through the tax revenues. In addition to this, the industry provides significant improved technology and exports for the community and helps in the growth of the country.

History and Origin

The history of Britain’s oil and gas industry is significantly rich as it is more than 100 years old. The nation was observed to get the resources nationalized by the Petroleum Production Act of 1934 and along with that, the leaders of the country initiated a search process for the oil on the UK mainland. The speed of the search process was significantly triggered with the outbreak of the Second World War. Later in the year 1950, the nation was observed to experience a shift of focus to the southern England. This was the part of the nation where oil was discovered in the Triassic Sherwood Sands along with the development of the Wytch Farm Oilfield. The discovery of the Groningen gas field in the year 1959 in Netherlands was significantly influential in the linkup between the onshore and offshore oil in the North Sea (Yusuf et al. 2013).

As mentioned earlier, the industry is able to grow in a significant manner in the last 40 to 50 years where it was one sector which provided the maximum treasury along with the creation of innumerable skilled jobs. In addition this, the industry’s major contribution to the society is the making sure that UK get a secure future in terms of the supply of energy. The UK offshore oil and gas industry was observed to have a capital investment of 5.6 billion pound n the year 2017 and apart from that, the concerned industry was seen to invest an amount of 7 billion pound for operating the assets of it (GOV.UK. 2018). The concerned industry was seen to lower down the operating costs from 30 dollar/ boe of 2014 to 15 dollar/ boe of 2017 as an immediate effect of the lower oil prices (GOV.UK. 2018). The industry is observed to feed more than 75 percent of total primary energy of the nation. The industry is observed to have a significant rise in the production as it was observed to produce 1.73 million barrels of oil and gas in the year 2016 compared to the 1.42 million barrel of oil and gas. The industry is observed to create more than 300000 jobs and it is considered to be one true national asset as it is instrumental in producing 60 percent of the jobs of it from England (GOV.UK. 2018). The industry is observed to create various career opportunities design, drilling engineers, data managers, technicians, IT support, WHS service managers, project management and many more (Yusuf et al. 2014). Innovation has a major role in the structure of the industry as the industry observes a network of 36000 km of pipelines connecting 300 platforms with the shore. The formation of the oil and gas platforms are observed to be generally underwater. The presence of technology is evident in the operational efficiency, safety and reliability along with the recovery of the safe extension of the field life in the concerned industry (Lindøe, Baram and Renn 2013).

Structure and Formation

There are three types of companies that operate in the industry as discussed above:

These are mostly state-owned organization that controls most of the supply and production of the products from the industry.  OPEC being the pioneer of this format of companies there are a number of other organizations as well. This sector is dominated by the Saudi Aramco, which produces 13% of world’s global consumption. In these companies that stakeholders have very less opinion as it is majorly owned by the government (Griffin and Teece 2016).  Other examples from around the world are: Petroliam Nasional Berhad (Petronas), Malaysia, Kuwait National Petroleum, Saudi Aramco, ADNOC etc.

These are the companies that are partly owned by the state and are partly by investors. Therefore there are conflicts of interest in such companies, as the government’s agenda will be different from the private profit making agenda of the company (Papavinasam 2013). Examples: Petroleo Brasileiro SA (Petrobras), and OMV Petro.

These are comparatively smaller organisation that the ones that are previously discussed. Some of these companies are independent producers and are not vertically integrated in the supply process like the other companies. Some of the examples in the international market are: BHP Billiton, British Gas.

There are companies in this segment that are only involved in the services as these organisations are smaller in size, there supply chain is different from the above two.  The private shareholders have the profitability objective in running the business (Papavinasam 2013).

The global supply chain of the oil and gas industry involves a number of steps, for example: domestic and international transportation, information and communication technology ordering and inventory visibility and control, materials handling and import/export facilitation. As explained above there are three stages in the process of supply chain, there are a number of companies that operate in these levels that are either a part of the entire system or is a part of the supply chain (Yusuf et al. 2014). Depending on the product the supply chain stages change. It is usually a complex process and there are a number of B2B and B2C organizations involved in making the products available for consumption.  One of the major issues as discussed above is the impact that the supply chain have on the environment. Contemporary leaders in the industry are focused on understanding their responsibility and devising plans and research towards mitigation of the environmental impact (Yusuf et al. 2014).

Types of companies in the industry

For liquefied natural gas, the hierarchy of the supply chain is fairly simple. Most of the work is in the upstream process. Then the LNG is transported in the market in the market it is re-gasified and then marketed for the consumers (Papavinasam 2013). Supply chain of petroleum starts with exploration, after that it comes production process, then it comes the process of refining and marketing. Upstream process is associated with acquisition of crude oil and in operations process; it is associated with exploration, forecasting and production. Logistics management is associated with delivering crude oil from remotely located oil wells to refineries.

Moreover, midstream operation is the link between upstream and downstream entities. Midstream operation is associated with resource transportation and shortage like gathering system and pipeline.  Midstream processes are markets, stores and transport commodities like natural gas and crude oil along with Sulphur. The midstream has the link between petroleum producing area and population centre where consumer are located (Menhat and Yusuf 2018).

Finally, downstream operation in oil and gas is included refineries and marketing. Downstream operation is related to the crude oil which is usable products like petroleum based products and fuel oils. In refineries, crude oil is manufactured into different consumable products and process is associated with production, forecasting and logistics management to delivering crude oil to derivatives to customers across the globe (Silverstre 2015). Marketing helps to move finished products from energy companies to end users.  

There are a number of products that are made from oil and gas and they are put to a number of use. Electricity power plants are also run with the help of oil and gas and thus the products of the industry have become the part of everyday life. Transportation and cooking are all based on the products of the industry, the product that has been chosen to discuss is Petrol or Gasoline. Petrol is one of the widely used oil and gas industry products which are used for transportation all around the world (Lin 2013). Petrol is a highly volatile hydrocarbon that is extracted from crude oil. This product is used to fuel internal combustion engines for most transport vehicles like cars, buses etc. When the petrol is further refined and process it can also be used as aircraft fuel (Lin 2013). Petrol and diesel are the two competing products in the industry in fueling the transportation. The rating of octane distinguishes the different varieties of Gasoline; typically the fuel that is used for transportation is of premium quality. 91 or 92 is the most commonly found petrol in most countries around the world.  Here is a marketing mix of Petrol or gasoline in order to understand the marketability of the product (Lin 2013).

Petrol or gasoline is product of the crude oil which helps in the combustion of the internal engines of various machines. Apart from transportation the product is also used to run electricity generators and other heavy machines in the factories as well. The use of the product is now found in the everyday lives of the people who own a car or runs a manufacturing unit (Lin 2013).

The price of the product in the international market varies from one country to another depending on the availability of the product. If the government has to import the product then the price of Petrol or Gasoline is high. The government relations and strategies play an important role in the settling the price of petrol (Lin 2013). For example, the price of liter petrol in India is around 80 Rs; on the other hand the price of a liter of petrol in US is around USA is $ 0.85 which is of a lower value than that of what is available in India.

The product is not promoted by the companies as it is one of the essentials for transportation. There are hidden promotions in the form of sponsorships and public relations activities (Lin 2013).

The product is available in the gas stations which is a physical brick and motor store that has storage facilities of the fuel (Lin 2013). There gas stations are owned by the companies in the Industry that refine crude oil and ensure that it reaches out to the public (Lin 2013).

The demand of the product is high and as long as there will be transportation and mechanisms there will be a demand to fuel the combustion. However, as a non-renewable resource there are a number of research and development that has been going on to replace the fuel (Lin 2013). On the combustion of the fuel it gives out smoke which is harmful in large quantities inhalation (Kelland 2014). One of the most widely used substitute to power the transports and machines are the use of solar energy. It is a source of energy which is renewable and also does not involve a number of steps to get the job done. Popular transport manufacturing organizations are focusing on the development of solar powered cars and other vehicles to reduce the use of gasoline or petrol (Kelland 2014). The major difference in between LNG and Gasoline is the state of the product one is a gas and the latter is in the form of liquid because of this they have different usage. Natural gas is also “cleaner” than gasoline from a carbon emission perspective (Kelland 2014).

Conclusion 

Form the above discussion it can be concluded that the national oil companies are the most significant kind of organisation in the industry. LNG and Petrol are two of the products of the industry which has similar use of that of a combustible fuel. However, petrol is marketed to be one of the most widely used fuels for transportation. The demand for both the products is high in the households.

References

Gao, J. and You, F., 2015. Shale gas supply chain design and operations toward better economic and life cycle environmental performance: MINLP model and global optimization algorithm. ACS Sustainable Chemistry & Engineering, 3(7), pp.1282-1291.

GOV.UK. 2018. Oil and Gas Authority. [online] Available at: https://www.gov.uk/government/organisations/oil-and-gas-authority

Griffin, J.M. and Teece, D.J., 2016. OPEC behaviour and world oil prices. Routledge.

Kelland, M.A., 2014. Production chemicals for the oil and gas industry. CRC press.

Lin, Y., 2013. The gasoline industry: A review for marketing research. The Marketing Review, 13(1), pp.3-22.

Lindøe, P.H., Baram, M. and Renn, O. eds., 2013. Risk governance of offshore oil and gas operations. Cambridge University Press.

Menhat, M. and Yusuf, Y., 2018, April. Factors influencing the choice of performance measures for the oil and gas supply chain–exploratory study. In IOP Conference Series: Materials Science and Engineering, 342 (1), pp. 91-99.

Papavinasam, S., 2013. Corrosion control in the oil and gas industry. Elsevier.

Silvestre, B.S., 2015. Sustainable supply chain management in emerging economies: Environmental turbulence, institutional voids and sustainability trajectories. International Journal of Production Economics, 167, pp.156-169.

Yusuf, Y.Y., Gunasekaran, A., Musa, A., Dauda, M., El-Berishy, N.M. and Cang, S., 2014. A relational study of supply chain agility, competitiveness and business performance in the oil and gas industry. International Journal of Production Economics, 147, pp.531-543.

Yusuf, Y.Y., Gunasekaran, A., Musa, A., El-Berishy, N.M., Abubakar, T. and Ambursa, H.M., 2013. The UK oil and gas supply chains: An empirical analysis of adoption of sustainable measures and performance outcomes. International Journal of Production Economics, 146(2), pp.501-514.