Instructions
CourseworkAssignmentBrief
| ModuleTitle: | DevelopmentinOil&Gas RetailIndustries | |
| Programme | BSc(Honours) | |
| Level: | Level6 | |
| Format: | AssignmentTask2:Report | |
| Presentation: | Yes | |
| Anyspecial
requirements: |
Allwork shouldbesubmittedon theStudentPortalalongwithan
acceptableTurnitin Report |
|
| WordLimit: | Task2:2,000words(with10%plusorminusleeway) | |
| Deadlinedatefor submission: |
CourseworkDeadline:Wednesday,5December2014 |
|
| Learningoutcomesto
beexaminedin this assessment |
1. Demonstratetheabilitytoanalysethefactorsaffectingthe
presentsizeandstructureof thecurrentoilandgasretail sectorsandtheimpactof therisingpriceof oil.
2. Evaluatethepotentialoftechnologicalchangeon theenergy retailingindustryinthenextdecade. |
|
| Percentageofmarks
awardedformodule: |
Thepresentationisworth20%of thetotalmarksforthemodule.
Thereflectivereportisworth30%ofthetotalmarksforthemodule. |
|
| Assessmentcriteria | Explanatorycommentsonthe
assessmentcriteria |
Maximummarksfor
eachsection |
| Knowledgeand
Research(content, relevance,and originality) |
Cleardemonstrationofrigorousresearch
from recognisedauthoritativesources. Audiencefocus.Meetingthedeliverables. |
35% |
| Writingand
Presentation(format, referencesor bibliography,and |
Rigoroususeof theHarvardMethodologyfor
citationandreferencing;pagenumbering; correctdisplayof directquotations. |
10% |
Page1of4
| style) | ||
| Argumentand
Analysis(critical analysis,evaluation, andapplication) |
Constructivecriticalanalysis,introduction,
conclusion.Demonstrationof aclear understandingof the issues.Useof academicmodels.Fullarticulationof ideas developed.Offeringwell-arguedsolutions and/oralternativesifandwhereappropriate. |
55% |
AssignmentTask 2: CourseworkAssignment
PetrolstationclosuresandcutbacksinstoragecapacityhavemadeBritainmorevulnerabletooil supplydisruptions.Criticallyexplainindetailthecauses,consequencesanddemonstratehowthe mainbusinessmodelsintheUKOil& Gasretailindustryplayasignificantrole inthisphenomenon.
Totalmarksforassignment:100
Page2of4
MarkingCriteriaforAssessmentatLevel6(Bachelors DegreewithHonours)
| Marks | 0-25(Fail) | 26-39(Fail) | 40-49(3rd) | 50-59(2.2) | 60-69(2.1) | 70-85(1st) | 86-100(1st) |
| Assessment categories | |||||||
|
Knowledge& Understanding ofSubject |
Major gapsin knowledge and understanding of material atthis level.Substantial inaccuracies. | Gapsin knowledge, with onlysuperficial understanding. Some significant inaccuracies. | Thresholdlevel.
Understanding of keyaspectsoffield of study; coherent knowledge, atleast in part informed by currentresearchin the subject discipline. |
Systematic understanding of field(s)of study,as indicated by relevantQAA subjectbenchmark statementsforthe
degree programme. |
Good understanding ofthefield(s)of study;coherent knowledge, in line with subject
benchmark,atleastin partinformed by currentresearchin the subjectdiscipline. |
Excellent knowledge andunderstandingof the mainconcepts and keytheories/ conceptsofthe discipline(s).Clear awarenessofthe limitationsofthe knowledge base. | Highlydetailed knowledge and understanding ofthe maintheories/concepts ofthe discipline(s), and an awarenessofthe ambiguitiesand limitationsof knowledge. |
|
Cognitive/ Intellectual Skills
(e.g.analysis and synthesis; logicand argument; analytical reflection; organisation and communication of ideasand evidence) |
Unsubstantiated
generalizations, madewithoutuse of anycredible evidence.Lackof logic,leadingto unsupportable/ missing conclusions. Lackofany attemptto analyse, synthesise or evaluate.Poor communication of ideas. |
Some evidenceof
analytical intellectual skills, butforthe most part descriptive. Ideas/findings sometimesillogical and contradictory. Generalized statementsmade with scant evidence. Conclusionslack relevance. |
Thresholdlevel.
Evidence ofsome logical, analytical thinking andsome attemptsto synthesise,albeit with some weaknesses. Some evidenceto supportfindings/ views, butevidence not consistently interpreted. Somerelevant conclusions |
Evidence ofsome
logical, analytical thinking and synthesis.Can analyse newand/or abstractdata and situationswithout guidance. An emerging awarenessof differentstances andabilitytouse evidenceto support the argument. Valid conclusions |
Sound,logical, analyticalthinking;
synthesisand evaluation.Abilityto devise and sustain persuasive arguments,andto reviewthereliability, validity&significance of evidence.Abilityto communicateideas and evidence accuratelyand convincingly. Sound,convincing conclusions. |
Thoroughlylogical
work, supported by judiciouslyselected and evaluated evidence.Highquality analysis,developed independentlyor through effective collaboration.. Abilityto investigate contradictory informationand identifyreasonsfor contradictions. Strong conclusions. |
Exceptionalwork;
judiciouslyselected and evaluated evidence.Veryhigh qualityanalysis, developed independentlyor through effective collaboration. Abilityto investigate contradictory informationandidentify reasonsfor contradictions. Highlypersuasive conclusions. |
|
Useof Research- informed Literature (including referencing, appropriate academic conventionsand academic honesty) |
Little evidence of
reading. Viewsand findings unsupportedand non-authoritative. Academic conventions largelyignored. |
Evidence oflittle
readingand/orof reliance on inappropriate sources, and/or indiscriminateuse of sources. Academic conventionsused inconsistently. |
Thresholdlevel.
Referencestoa range ofrelevant sources.Some omissionsand minorerrors. Academic conventions evidentand largely consistent,with minorlapses. |
Knowledge,
analysisand evaluationofa range ofresearch- informed literature, including sources retrieved,analysed independently. Academicskills consistently applied. |
Knowledge,analysis and evaluation ofa
range ofresearch- informed literature, including sources retrieved,analysed independentlywith accuracyand assurance. Good academicskills, consistentlyapplied. |
Excellent knowledge ofresearchinformed
literature embedded inthework. Consistent analysis and evaluation of sources.High-level academicskills consistentlyapplied. |
Outstanding knowledge ofresearch-informed
literature embeddedin thework.Consistent analysisand evaluation of sources.High-level academicskills consistentlyand professionallyapplied. |
Page3of4
| LEVEL6 cont…
GraduateSkills forLifeand Employment
(e.g. research- related skills; written, graphical and oral communication skills; groupworking; problem-solving; practical and professional skills) |
Little orno
evidence ofthe required skillsin anyofthe graduate skills identifiedinthe programme specification at thislevel. |
Limited evidence of
the graduateskills identifiedinthe programme specification. Significant weaknesses evident,which suggestthatthe candidate hasnot gainedthe skills necessaryfor graduate-level employment. |
Researchskills:
Can competently undertake reasonably straightforward researchtaskswith minimumguidance, butwith minor weaknesses. Cancommunicate inarange of formats,including orally,ata standard appropriatefor graduate-level employment, and with limited weaknesses. Can generallywork effectivelywithin ateam,negotiating ina professional manner and managing conflict. Islargelyconfident and effective in identifying and definingcomplex problemsand applying knowledge and methodsto theirsolution. Abletorecognise own strengths andweaknesses inrelationto graduate employment,with minorareasof weakness. |
Researchskills:
Can competently undertake reasonably straightforward researchtaskswith minimumguidance Cancommunicate effectivelyina range offormats, including orally,at a standard appropriatefor graduate-level employment, and with limited weaknesses. Can consistently work effectively withinateam, negotiatingina professional manner and managing conflict. Isconfidentand flexible in identifying and definingcomplex problemsand applying knowledge and methodsto theirsolution. Abletoevaluate own strengths andweaknesses inrelationto graduate employment. |
Researchskills:
Can successfully completearange of research-liketasks, including evaluation, withverylimited external guidance. Cancommunicate well, confidentlyand consistentlyina range offormats, including orally,ata standard appropriate for graduate-level employment. Can consistently workverywell withinateam, leading&negotiating ina professional manner and managing conflict. Isconfidentand flexible inidentifying anddefiningarange of complex problemsand applying knowledge and methodstotheir solution. Abletotakeinitiative inevaluatingown strengthsand weaknessesin relationto graduate- level professional and practical skills, and actautonomouslyto develop newareasof skillsasnecessary. |
Researchskills:
Canverysuccessfully completearangeof research-liketasks, including evaluation, witha significant degree ofautonomy. Cancommunicate professionallyand confidentlyinarange offormats, atahigh standard appropriate for graduate-level employment. Canwork professionally withinateam, showingleadership skillsasappropriate, managing conflictand meeting obligations. Isprofessionaland flexible in autonomously identifying and definingarangeof complexproblems andapplying knowledge and methodstotheir solution. Ableto showinsight andautonomyin evaluatingown strengthsand weaknessesand developing professional and practical skillsneeded for graduate-level employment. |
Researchskills:
Exceptionally successfulinawide range ofresearch-like tasks,including evaluation,witha high degree ofautonomy Cancommunicate with anexceptionally high level of professionalism,ina range offormats, including orally, appropriatefor graduate-level employment. Canwork exceptionallywell andprofessionally withinateam, showingleadership skillsasappropriate, managing conflict,and meeting all obligations. Isexceptionally professional and flexible in autonomously definingandsolving arangeof complex problemsandapplying knowledge and methodstotheir solution. Outstanding abilityto evaluateown strengthsand weaknesses,showing outstanding attributes for graduate-level employment. |
| Marksfor Level6 | 0-25(Fail) | 26-39(Fail) | 40-49(3rd) | 50-59(2.2) | 60-69(2.1) | 70-85(1st) | 86-100(1st) |
Coursework Paper
British Petroleum Retail Markets
Over the years, British petroleum industry has received a major reduction in the number of Petrol Filling Stations (PFS). The country enjoyed a large number of PFS of estimated 40,000 in 1960 but has currently reduced to less than 8,700 as of 2011, which is about 75% of the total PFS. The remaining PFS also have reduced their storage capacity; this can be due to the high prices of fuel towards the consumers who have in turned increased their usage efficiency. The country has also seen hypermarkets owning most of the PFS as compared to individual retailers and oil companies (Deloitte, 2012, p.4). This paper aims to explore the causes and consequences resulting from closures and reduced storage capacity by PFS. It will also explain how the business models in the country have contributed to the current situation.
PFS number decline
PFS number has reduced from about 40,000 in late to less than 8,700 in 2011, a decline of about 75%. According to Deloitte (2012, p. 8), this decline has raised concerns over the future of supply and the resilience of the petroleum industry. This decline has mostly affected rural distributors who used to have low storage capacity and low sales, therefore, becoming unprofitable and unsustainable for a longer period.
Retail fuel prices increase
There has been a high increase in the retail prices of both petrol and diesel within a short period. The prices are approximated to be as twice higher as compared to the early 1990s. The price of crude oil, duties and taxes have been seen at the major contributors to the high petroleum prices as well as other costs of refining and storage, expenses to do with transportation and distribution. The high prices have turned off most consumers, they rarely utilize their vehicle tank capacity or have abandoned using their vehicles and shifted to public transport. Most PFS have therefore lost their customers and made losses; this has made business unsustainable for a long term leading to the closure of most PFS.
Changes in ownership and increased competition
Hypermarkets have penetrated into the fuel retailing business. They have given great pressure to the privately owned PFS and those owned by oil companies in the country. British Petroleum (2010) argues that although hypermarkets only own about 14 percent of the total PFS, they supply almost 40 percent of the fuel consumption. Most consumers have also shown great preference on hypermarket PFS as compared to privately owned PFS, and Oil Company owned PFS. Hypermarkets also use price factor as a competition strategy offering price discounts to their customers. This fact has forced other PFS out of the markets; oil companies have opted to concentrate on the production process for oil and gas.
Fragmentation of Supply Chains
Oil companies have fragmented their fuel supply chain over the last few years with the aim of increasing efficiency. They have rationalized their storage terminals and decided to do away with transportation costs by outsourcing distribution services to other transport companies. They have also exited from operating PFS in the country and concentrated on production and refining. Deloitte (2012, p. 21) explains that this exit has reduced the number of PFS within the country.
Higher Volumes Sites Increase
As highlighted earlier, hypermarkets have increased entry into the fuel industry and are taking over a huge number of consumers. Therefore, they have to maintain high volumes all year round as compared to individual and company dealers. Hypermarkets maintain these high volumes mainly through frequent refueling of their storage capacities and installed larger storage. This has phased out the need for backup PFS in case the hypermarkets run out of stock (Rotemberg & Woodford, 1996, p. 547).
Decreasing Production and increasing Importation of Petroleum products
The United Kingdom used to be a net exporter of crude oil, exporting more than 40 million tonnes in the late 1990s. However, oil production declined with UK averagely becoming an importer by the year 2005 (Gribben, 2013). Some oil companies who used to refine and sell from the domestic production have therefore exited from the business. Importers prefer hypermarkets as their market because of their large demand, individual PFS dealers being left out and hence forcing their closure.
Reduced PFS storage capacity
The huge closure of PFS has caused a dramatic storage capacity decrease from about 15% to 20% as indicated by the British Petroleum (2010), and this may continue as more small PFS with low storage capacity are being closed. The reduction has reduced about two days of capacity cover, meaning that the available supply can only cover for about six days, assuming is that PFS utilize their full storage capacity. This is not the case; most of the PFS owners do not use their full storage capacity. They have taken into consideration the storage costs as well as working capital and have reduced their stock levels; their fuel is also subject to frequent depletion before refilling (Deloitte, 2012, p. 5). Therefore, these issues points out that the cover cannot even reach the estimated six days.
With the high number of PFS closing and only a few entering the industry, there may be a bigger challenge in ensuring an increasing storage capacity. Industry participants argue that to upgrade capacity requires high costs that cannot be met by private PFS owners. Therefore, it implies that meeting the required capacity cover would prove to be a headache in the coming days.
Consequences
The fragmentation of activities within the supply chain by oil companies has greatly reduced costs related to transport and distribution of fuel; it has also increased efficiency within the petroleum industry. This has resulted in favorable prices to the final consumer with regards to the current economic problems. However, the move has resulted in the closure of many PFS owned by these oil companies reducing the level of storage capacity, resulting in compromise to the overall resilience of the petroleum industry (Gribben, 2013). The effort towards outsourcing transport and distribution function within the petroleum industry has also caused major discrepancies, and the recent labour disputes are examples of misunderstandings within the system.
Entry of hypermarkets into the petroleum industry has disadvantaged most privately owned PSF leading to their closure; oil companies have also closed their PSF, meaning that few PSF owned by hypermarkets (about 14% of the total PSF) control the fuel market. The prices of petroleum products have therefore increased due to the hypermarkets’ monopoly. There have been recent complaints on how large hypermarkets are forcing out individual PSF owners, but little has taken place as the forces in the market favors the hypermarkets, they just offer a little discount on prices, and small dealers will be out. This greatly affects the future security of supply and adequacy of petroleum products
The closure of many PFS has also posed a great challenge to vehicle owners as access to PFS reduced. There are few filling stations, meaning that motorists have to drive an increased distance to reach the next filling station. A driver goes for about ten minutes from previous five minutes to reach the nearest petrol pump; this may even be higher if they find their nearest filling station out of fuel and have to travel further to the next station. Drivers argue that in the year 2009, they could easily fill up their cars when it was convenient and not cheap. Currently, they have to struggle for the best bargains due to the high prices (Gribben, 2013). They are calling on the UK government to work on hypermarkets forcing out independent retailers and pushing prices high.
PFS commonly do non-fuel sales with kiosks within the PFS. They used to offer large varieties of car related consumables, food, drinks and tobacco products. Due to the closure of most PFS, retailers shifted to promoting the non-fuel sales. Some have been increased to about 60m2 just offering basic foods like milk, bread and other drinks. Existing PFS have also upgraded their non-fuel sales, and it is evident that they bring in higher profit margins as compared to fuel sales.
Business Models
Hypermarkets
Entry of hypermarkets into the industry brought in many changes into the fuel supply chain. They are known to stock high volumes to meet the high demand by their customers. They operate PFS under their brand and give discounts on fuel prices; they have forced other type of PFS out of the industry as they cannot compete at the same margin. They currently control about 14% of the total PFS but rule the largest portion of the market. According to Rotemberg and Woodford (1996, p. 549), the hypermarkets are the major cause of high prices due to their monopoly and unfair competition. They are sparsely distributed, and because other PFS that could have served travelers in between hypermarkets have been forced out, drivers have to go long distances to refill their tanks. This phenomenon has brought a huge inconvenience to the consumers relying on few PFS.
Oil Companies
Oil companies used to control most of the PFS, under their brands spread over the country, refined and sell their petroleum products through their PFS. The reduction in the country’s oil deposit led to the closure of most oil companies. Those who remained reduced their refinery capacity and closed down most of their PFS. This move led to the domination of hypermarkets that is the beginning of all the fuel problems. They also tried to reduce their operation costs by outsourcing transport services but lead to even more troubles like labour disputes. These oil companies are still in the process of shutting down, and the UK Petroleum Industry Association is giving out a warning of a serious risk in the energy supply and resilience if a further closure occurs.
Independent Dealers
These are individually owned PFS, who stock low volumes of petroleum products. These models are on the verge of being phased out with increasing competition from hypermarkets and oil companies. Most of the PFS have closed fuel sales and now run non-fuel sales, which have shown to bring higher returns to them as compared to the competitive petroleum sales (Rotemberg & Woodford, 1996, p. 558). The remaining PFS owned by individuals are mostly found in the rural areas and attract local customers but have high challenges from hypermarkets giving price discounts.
Summary
Hypermarkets have dominated the petroleum industry in Britain and with their large capital base, they have managed to lure more customers as well as favor supplies of the petroleum products. Oil companies and individual dealers have no merge in competing with hypermarkets; they are therefore forced to quit the industry and opt for other ventures. Oil companies are developing ways to reduce costs to remain in the market. They have the capability to compete with hypermarkets as they own refineries around the country instead of exiting the industry and letting hypermarkets monopolize (Deloitte, 2012, p. 63). Individual dealers are vulnerable to the competition. They have given up struggling to remain in the market with a majority closing and the few remaining are struggling to survive.
The closure of PFS has been disadvantageous in different ways, prices of petroleum products have skyrocketed, drivers have to go longer distances to refill their tanks, and the future availability of petroleum products is in doubt. There is a need for major reforms to ensure future security with regards to supply and resilience in the oil industry; facility upgrade should be undertaken by all owners of PFS to ensure they can stock higher volumes. Governments should also support refineries and PFS on the verge closure to ensure their survival and stable supply and resilience of petroleum products.
Bibliography
British Petroleum, 2010. Statistical Review of World Energy, London. pp. 05-23
Deloitte, 2012. Study of the UK petroleum Retail market, a final report for DECC. Department of Energy & Climate Change. [Online] Available at:<https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/69760/7322.html> [Accessed 22 November 2015]
Gribben, R, 2013. UK more vulnerable from disruption to oil supplies, The Telegraph, [Online] Available at:< http://www.telegraph.co.uk/finance/newsbysector/energy/9921074.html> [Accessed 22 November 2015]
Rotemberg, J. J., & Woodford, M., 1996. Imperfect competition and the effects of energy price increases on economic activity (No. w5634). National Bureau of Economic Research.
