Petrol Station Closures

Question
A Report-style coursework (Undergraduate Level 6)

Petrol station closures and cutbacks in storage capacity have made Britain more vulnerable to oil supply disruptions. Critically explain in detail the causes, consequences and demonstrate how the main business models in the UK Oil & Gas retail industry play a significant role in this phenomenon.

Note: Please see attached Deloitte Report to Department of Electricity and Climate Change, “Study of the UK petroleum retail market – A final for DECC, 14 December 2012″ to tackle this work. This should be referred to. However, more information should be sourced and referenced accordingly.

Learning outcomes to be examined in this assessment

1. Demonstrate the ability to analyse the factors affecting the present size and structure of the current oil and gas retail sectors and the impact of the rising price of oil.

2. Evaluate the potential of technological change on the energy retailing industry in the next decade.

Assessment criteria/ Explanatory comments on the assessment criteria /Maximum marks for each section

Knowledge and Research (content, relevance, and originality)

Clear demonstration of rigorous research from recognised authoritative sources. Audience focus. Meeting the deliverables. 35%

Writing and Presentation (format, references or bibliography, and style)

Rigorous use of the Harvard Methodology for citation and referencing; page numbering; correct display of direct quotations. 10 %

Argument and Analysis (critical analysis, evaluation, and application)

Constructive critical analysis, introduction, conclusion. Demonstration of a clear understanding of the issues. Use of academic models. Full articulation of ideas developed. Offering well-argued solutions and/or alternatives if and where appropriate. 55%

Answer

Petrol Station Closures
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Overview
Petroleum products play an important role in the economy of every nation. With the increased number of people every day in most developed nations the demand for petroleum products is going high. It is a common knowledge in economics that increasing demand that exceeds supply often results in shortages in the economy. Therefore, because of the increasing demand for goods and services without increase in supply of products, there is always a fear that at one time supply of products vital to the lives of most people will not be able to meet the overall demand. This was seen to be the case in Britain. Petroleum prices have remained fairly stable. However, the market has shifted from independent petrol stations to supermarket forecourts (Everett et al., 2012). Moreover, due to this change, there has not been noticed any influence on the motorists fuel preference. Furthermore, the change to supermarket forecourts was driven by the fact that these supermarkets were said to be giving motorists value for their money.
The Decrease in Stock Capacity
The number of cars in Britain has significantly increased. This and other factor has led to an increasing demand of petrol in the nation. Causing resulting in what can be termed as major stress on the petrol supply chains of that market. The situation has worsened over time by the increasing number of petrol stations being closed. The numbers are said to continue to rise.
The eventuality of this situation is that the supply will be much lower than the demand causing a major shortage of supply in the country. Before, motorists used to drive for almost five minutes to reach a petrol station. Currently, they need to drive for double that time, ten minutes, to reach a petrol station. The closure of this station will have a major effect on the supply of petrol that might cause a serious problem for the citizens of Britain.
In essence, the UK petroleum market has been faced with some major drawbacks. Moreover, as time goes, nothing of significance to the situation is being done to lessen the worries of the consumers. With petroleum running most cars in Britain, there will be a major problem if motorists do not get their normal supply of petrol (Birkini et al., 2012). This will cripple most activities and other vital travel arrangements that may see a business going down at a fast rate while jobs are being lost rapidly and cannot be replaced in due time. The closure of independent petrol station has had quite a negative effect that might hurt the economy of the country. However, the ministry of energy still insists that the UK has a supply of petroleum that will be able to satisfy the demand it currently faces.
Energy Security in the UK
Energy security in the UK is dependent on the storage capacity of petroleum that has since decreased in number (Dale et al., 2014). The increasing number of closed petrol stations has reduced the supply of petroleum in Britain. Furthermore, the availability of fuel is also reduced significantly. However, the capacity of storage remains a little bit higher than the availability. This is because most independent petrol filling stations found it expensive to fill their storage tanks completely. Therefore, they did not utilize their storage capacity to the optimum. Hence, the storage capacity remains high while the availability of fuel remains to lower that it. This goes a long way to indicate that the energy situation in Britain is not all that good.
The key changes that have affected the petroleum market in the UK include the closure of almost more that 75% of all the independent petrol filling stations(Fernandez & Palazuelos, 2014) . However, the overall closure of petrol stations seems to have decreased in the last five years. Another significant change in the market includes the increase in growth of hypermarket owned petrol stations. While the company-owned and dealer-owned independent petrol stations continue to close down. This change in the petroleum market in the UK has been attributed to the growing capacity of retail grocery businesses that open up supermarkets in local areas (Fernandez, & Palazuelos, 2014).
The difference between independent and supermarket forecourts is the fact that the latter has more volume and filling positions than the first. Therefore, the supermarkets are seen to give the consumers value for their money. On the other hand, it is expensive for independent petrol stations to increase the volume of their supply by filling the tanks. Therefore, the business goes down and eventually the petrol stations are closed down while the supermarkets continue to thrive (Hannon et al., 2013).
Petrol Filling Station Closure
Considering the fact that the hypermarket business model enables them to sell petrol at higher volumes makes an issue of price competition, because of the small supply capacity that is always carried out by dealer-owned and company-owned petrol station. A major price issue is caused. The competition of the prices becomes unsustainable for their smaller counterparts. Therefore, business becomes unbearable and the only option left for them is to close down business and look for greener pastures. One major factor that has changed the petroleum market is the non-fuel sales. Regarding the grocery retailing business, the Idea of having a convenience store or a grocery or a supermarket nearby a petrol station has become luring to consumers making it preferable that let alone independent petrol stations.
Research has shown that the effect of closure of petrol filling station has been major on the consumer side (Howes et al., 2013). This has affected a lot of variables that are measurable. For instance, the average time it would take a consumer to drive to the nearest petrol filling station has increased over time. This causes time to use that would have been covered by the fact that petrol filling stations were numerous in most areas. Another thing is once the consumer reaches the petrol stations. He or she may find that the number of cars or motor vehicles per effective filling station has increased over time. Regarding this, it is possible to measure the overall relative density of motor vehicle to petrol filling stations. This brings us to the conclusion that the average number of petrol filling station per 10-minute drive has reduced considerably, considering the fact that motorists were used to taking at least five minutes to arrive at the nearest petrol filling station. However, the situation as it stands now makes them take almost ten minutes to arrive at the nearest petrol station.
As illustrated in the paragraphs above, the decrease in the stock capacity of petroleum in the UK is decreasing with time. Furthermore, this leads to the decrease in the ability to hold surplus fuel in the nation. All these have a significant effect on the business models used by the independent petrol filling stations that are either company-owned or dealer-owned (Upton & Nuttall, 2014). Also, the closure of independent petrol filling stations has a negative effect on the storage capacity of petroleum in the UK. Moreover, the issue will continue to worsen unless something is done. On the other hand, considering that most petrol filling station never fully utilizes their fuel storage capacity. Due to the expensive nature of filling their fuel tanks completely, the average available fuel is lower than the overall storage capacity in the UK.
The major cause of the shortage and decreased supply and storage capacity of petroleum in the UK is the consumer behavior. Consumers have shifted to hypermarket-owned petrol filling stations that make it quite difficult for independent petrol filling stations to stay in business (Table, 2013). On the other hand, it is normal for there to be a shift in the market from time to time. What determine the effect of the shift is the countermeasures that most businesses decide to take to fight the shift or to adapt to the new market. Hence, the supply of petroleum will continue to be low in Britain as long as the independent filling stations find a business model that will shift consumer behavior to their fortunate side.
The impact caused by the shortage or the decreasing capacity of fuel storage in the UK varies from one region to another. Further closures of the petrol filling stations may affect the different areas and regions differently. This would create a varying difference in the average time a consumer uses to reach petrol, stations. Meaning, there is a significant decrease in some petrol stations per given reasonable driving time.
The closure of petrol stations according to research has majorly been caused by the increase in market preference of hypermarket-owned petrol filling stations (Thorn et al., 2013). This business model has been thriving for some time about the independent petrol station business model that has lost preference in the consumer’s eyes. The closure, therefore, will continue for some time unless a new business model is used by the independent petrol filling stations to overtake the supermarket forecourts that seem to be more preferred than the independent petrol filling stations.
Business Models
Business models that have been adopted by the independent petrol filling stations seem not to be doing any justice to the company-owned or dealer-owned petrol filling stations (Yusuf et al., 2013). The reason is that consumers nowadays are looking for more than just fuel when they stop at a filling station. That is why most supermarkets forecourts have more customers than independent filling stations. Some of the things that make a hypermarket-owned petrol filling station more lucrative than a stand-alone petrol filling station are the availability of convenience stores. Not only cause conveniences to stores, but also restaurants and a shop maybe. This would mean that the need to stop at petrol, the station may be driven by some other factors rather than fuel alone.
Therefore, more non-fuel sales may be made and make a relative connection between the consumer and the petrol filling station bringing in more customers. Therefore, the major issue seems to be the business models. The business model for the hypermarket-owned petrol filling stations makes them seem more appealing than their independent counterparts. This is due to the availability of convenience stores in the premises and the reduced density of motor vehicles per effective filling station due to the many filling stations that exist (Yusuf et al., 2013). Hence, it has quite convenient to consumers than the independent petrol filling stations.
In conclusion, petrol filling stations in the UK are a key component of the petroleum supply chain and distribution. In essence, the motorists depend on these petrol filling stations to satisfy their demand. Moreover, the consumers prefer petrol stations with convenience store than independent ones. Therefore, since the market shifted, business has been bad for independent petrol stations while it has been booming for hypermarket-owned petrol filling stations.
Considering that the number of independent petrol filling stations is higher and they are more distributed across the UK that their counterparts. Their closure would have a negative impact on the supply of petroleum in the UK. Therefore, the energy issue in the UK has been caused by business models and can be corrected using new models that will redefine the petroleum market. It is with the implementation of these new models that would help to resolve the issue of shortage supply of petroleum in the nation.

Bibliography
Birkini, M., Boden, P., & Williams, J. (2012). 16 Spatial Decision Support Systems for Petrol Forecourts. Planning Support Systems in Practice, 291.

Dale, C., Osegowitsch, T., & Collinson, S. (2014). Disintegration and De-Internationalization: Changing Vertical and International Scope and the Case of the Oil and Gas Industry. Orchestration of the Global Network Organization (Advances in International Management, Volume 27) Emerald Group Publishing Limited, 27, 487-516.

Everett, R., Boyle, G., Peake, S., & Ramage, J. (2012). Energy systems and sustainability: power for a sustainable future. Oxford Univerity Press.

Fernandez, R., & Palazuelos, E. (2014). A political economy approach to the European Union gas model: Continuities and changes. JCMS: Journal of Common Market Studies, 52(3), 495-511.

Hannon, M. J., Foxon, T. J., & Gale, W. F. (2013). The co-evolutionary relationship between Energy Service Companies and the UK energy system: Implications for a low-carbon transition. Energy Policy, 61, 1031-1045.

Howes, R., Skea, J., & Whelan, B. (2013). Clean and competitive: motivating environmental performance in industry. Routledge.

Upton, E., & Nuttall, W. J. (2014). Fuel Panics: Insights From Spatial Agent-Based Simulation. Intelligent Transportation Systems, IEEE Transactions on, 15(4), 1499-1509.

Table, F. (2013). Europe’s refiners face further closures as demand falls and competition grows. Oil and Energy Trends.

Thorn, R., Johansen, G. A., & Hjertaker, B. T. (2013). Three-phase flow measurement in the petroleum industry. Measurement Science and Technology, 24(1), 012003.

Yusuf, Y. Y., Gunasekaran, A., Musa, A., El-Berishy, N. M., Abubakar, T., & 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), 501-514.

Describe the research process undertaken during the completion of this reflective

log – Marks: 40