Development in Oil and Gas Retail Industries - Essay Example

Development in Oil and Gas Retail Industries: EU Energy Strategy Development in Oil and Gas Retail Industries: EU Energy Strategy Executive Summary The reflective report critically analyzes the Europe energy strategy ‘European post-Crimea energy strategy’ to determine the impacts of new policies and technology on Oil and Gas Industry. The main objective of this report is to develop critical understanding about factors influence oil and gas retail and prices. It shall further investigate the potential technological change in the energy retail industry from the emerging policies. Introduction The rapid growth in the energy demand has significantly had become one the major challenge for the nations. European Union has been focused to anticipate the needs of the energy security and climate to meet the demands of Europe-wide energy systems. 53 percent of energy European Union consumes comes from its imports that have affected trade balance of because of high imports of fossil fuel (Daly, 2014). Therefore, the union look forwards for reduction in energy dependency in order to enhance energy security, reduce the import bills and affordable energy, to ensure consistency to meet climate and industrial objectives for 2050 (Schweitzer, 2014). The main objective of the European Union is to reduce the dependency of the energy, improve energy security and power system. Russia has been of the major supplier of energy to European Union over the past decades. One-third of the gas demands of European Union are being delivered by Russia. In the EU-Russian Summit heal on 2000; the energy was one of the prominent aspects that were chosen to be a potential lead for the integration of the bilateral relationship (Ehrlich, 2013). The economic and industrial coronation between different nations including European Union has significantly developed through these years. However, the thousands of Russian companies are developing and have created interdependency of energy supply for European Union. Case Overview Agreement on the global climate and energy targets has emerged to be one of the significant elements in globalization that has to be effectively addressed. Recently, at the European Summit that held on March 20th the government leader were suppose to agree with the climate and energy target of 2030 (Tindale, 2014). However, they discussed more about the energy dependency on Russia, Ukraine and Crimea. The Russian Annexation of Crimea has emerged to be one of the debatable issues in the current political meetings. It is because the high dependency of Europe on Russian Energy that has to be effectively addressed (Tindale, 2014). Russian is one on of the largest supplier of gas to European Union due to which it is dependent on Russia. In 2009, when Russia turned off the gas from Ukraine to European Union it affected the energy supply to European Union. Thus, the dilemmas of energy security have but on the issue on the agenda of European Union to reduce dependency (Tindale, 2014). To improve energy security, it is significant for European Union should develop alternative energy sources that may be costly, but shall promote energy security, foreign policies and climatic benefits in the long run. European post-Crimea energy strategy has been proposed focusing on the following: 1. Energy efficiently 2. Alternative sources of gas 3. Renewable energy 4. Coal and gas with carbon capture and storage 5. Nuclear power European Union shall introduce decision to incorporate renewable energies and improve its energy efficiency through developing infrastructure to import fossil fuels from other countries that Russia to increase its alternative energy sources. 1- Factors affecting size and structure of oil and gas retail sectors The increasing demand of energy has become one of the major challenges to energy security. The current summit demand about energy security proposed European Post Crimea energy to reduce energy dependency on the other countries, especially Russia (Schweitzer, 2014). The climatic and industrial agenda of 2030 is anticipated to change the outlook of Oil and Gas Retail Sectors. The dynamic global environment and technological development greatly influence the Oil and Gas Retail Industry. Number of factors affecting size and structure of Oil and Gas retail industry shall be critically analyzed to develop understanding about the complications of the global market (Tindale, 2014). 1.1 Demand and Supply The prices of the oil and gas industry are dependent on the demand and supply. If the demand of the oil and gas are in excess the supplies are stored, whereas when the consumption increases the supply of the oil and gas are still controlled. Mostly, the largest countries that have oil and gas resources are the largest entities that impact oil and gas supplies due to which the oil and gas retailers are dependent on the supply of these countries (Raiper, 2012). However, these countries often reduce the supply to increase the prices. Thus, the prices of gas and oil industry are dependent on supply of these countries (Albrecht, et al., 2014). The gas supply in European Union is greatly dependent on Russia. However, European Union’s reliance on energy is one of the major concerns due to which the supply of the Gas because in 2006 and 2009 Russia cut the gas from the pipelines of Ukraine that greatly affected the supply of gas in several European Countries. Russia has deliberately manipulated gas supply in order to get higher prices for the oil and gas, as much of the country’s industries rely on Russian Gas supply (Ehrlich, 2013). Therefore, these countries directly influence market price of oil and gas. 1.2 Restrictive Legislation Oil and Gas resources are controlled by the state or government companies, due to which international politics manipulates, are functioning of oil and gas companies. The global market plays a major role to politicized functioning of oil and gas companies through implementing policies and taxes on the rich countries that affect the price of oil and gas. (Albrecht, et al., 2014) Russia currently restricts the supply to Ukraine that is the gateway for gas supply to European Union. It leads Bulgaria to run out of gas supply that affected industrial plants of the country, as well as Slovakia that declared itself in the state of emergency (Daly, 2014). The current emergency measures that have been implied by the European Union can be identified as one of the restrictive measures of European Union to reduce the reliability of gas and oil on Russia and improves it energy security. For example, Slovakia is now imposing reverse flow pumps to ensure the normal distribution of gas all over the country but it shall still continue to import gas from Russia. 1.3 Political Unrest One of the major factors that influence the oil and gas retail industry is political relation between countries. If the oil rich countries face political situation is at sake of unrest or war, it affects the prices of the oil and gas. In a similar manner, the war that recently broke in Ukraine greatly influences the gas supply in European Union. Furthermore, the Russian government and European Union have been in controversial political debates due to which the supplier market has been bidding up for the price of gas and oil. Russia is aware that gas supply in European countries relies on Russia. Thus, it makes advantage over it and threats to cut the supply to Ukraine, despite the fact that the production level of gas and oil are sufficient. Due to political unrest between the countries it is suggested that Europe should look in to find alternatives to trade fossil or to exploit more of its energy resources (Albrecht, et al., 2014). However, it remains a controversial issue for the government of UK and Poland to make use of shale gas to overcome the energy gap. In addition, it is suggested that the shale gas production shall put higher risks to environment and health problems. 1.4 Speculative Buying When the cost for the oil and gas are based in speculators buy and selling it is essential that the future contracts shall be made diversified. In other words, the buying country should not just focus on having one supplier at a time; it shall look forward to more contracts and investors in the oil and gas industry that can allow the buyers to eliminate the negative tensions prevailing in the countries (Albrecht et al., 2014). In a similar fashion, the European post Crimea suggests that the speculative buying should be done that can reduce energy pressure that is created by Russian annexation policies (Anon., 2014). To reduce the energy pressure, European Union aims to meet the gas demands through importing fossil fuel and natural gas from other countries. It can reduce tensions regarding energy security prevailing in European Union. Hence, European Union focuses to diversify energy dependency on the different energy resources. To increase its energy output European Union aims make efficient use of its nuclear energy that can allow the European countries to reduce the dependency, however it requires a huge cost and risk that need to be dealt in order to phase out from the operations(Schweitzer, 2014). 2- Impacts of Potential of Technological Change Potential development and advancement in Technologies can allow European Union to overcome the energy dilemma and reduce dependency on Russia. The European post-Crimea energy strategies aim to make use of alternative resources, improve efficiency of existing energy plants, renewable energy, coal and gas carbon capture and storage and nuclear energy. The European countries are focuses to update present technologies to meet the agendas of coal, and gas and nuclear energy companies overcome the lobbying to keep away Europe from its energy efficient (Engery Department, 2010). There European Union firstly focuses to pursue nuclear power to a greater expand or the replace the fossil fuels with the substitute fossil resource, such as, wastages, solar, etc. It can allow the Oil and Gas industry in European to overcome the violation of the price destabilization and environmental concerns. However, the expansion of the nuclear energy incurs higher amount of costs that may increase the costs of the energy for a period but it shall bring sustainability in the long run. The substitute fossil fuels (carbon and nuclear) the energy strategy proposes can be harmful to the environment and violate climatic and industrial objectives of 2030(Ehrlich, 2013). The European government should invest in energy and modern high tech energy plants to improve the performance of existing energy plants. It can make the government independent by reducing the reliance on Russian gas supply. It is predicted if the European Union incorporated high-tech plants for energy production plants it can increase current potential and increase energy production. In addition, it shall increase energy efficiency and increase renewable energy can reduce the gas usage in Europe. The combination of energy efficient energy plants and renewable energy resources can be an effective source to overcome the gap supply gap and provide an efficient supply of gas in the entire region of Europe (Anon., 2014). It is suggested that the European Union shall be more focused on the renewable energy resources that are one of the rapid and fastest growing power sources. According to the 2030 climatic and industrial objective and analysis of European Commission it has been observed that the renewable targets of 2030 can cut down the energy imports to more than half by the 2050, as a renewable energy can allow government to be self-dependent on its production (Tindale, 2014). It shall also reduce the dependency of gas as substitute energy resources will be available. However, the renewable energy plants have significantly contributed towards energy production. Considering, last year wind energy production in Spain that has been fifth leading source of energy supply in the region. In addition, Germany has now adopted means to product wastage energy and half of Germany is dependent on renewable energy. In a similar way, about 80 percent of the energy demands of the region were gained from the wind energy. Renewable energies can be one of the effective strategies to improve energy security of European Union. However, the geopolitical and climatic situation restrains some of the renewable energy plants (Raiper, 2012). Most of the countries in Europe are land lock due to which the wind supply in the region is greatly affected so it is necessary that the government should look for other renewable energy resources in the region. The development of energy technologies and renewable energy resources can ensure energy efficiency in European Union and make significant saving. It is because the high priced fossil fuel imports shall be cut down. The report of International Energy Agency (IEA) highlights that the adopting of high tech technology can increase efficiency of energy and save the energy sources. In 2010 global market has saved $300 billion due to energy efficiency (Anon., 2014). The saving from the energy sector can create potential new employment opportunities of the energy industry the product and services. The investment of 1 percent of the global GDP can lead to creating more than 12 million jobs in the oil and gas industry. However, the European energy companies are required to change existing energy system to meet the targets of 2030. But it is important that the major oil and gas companies such as Alstom, ERG, Enercon, and RES, etc. are required to change their existing system. In addition, these companies should focus on environmental sustainability. However, much of these companies have backed off to include in the strong 2030 policies, framework and targets. It is one of the major reasons that about eight of the power grid operation have backed to meet the ambitions of 2030 renewable energy targets. Hence, the existing energy companies are backing off to facilitate the evolution of renewable energies (Anon., 2014). Therefore, the European Government should make an investment for renewable energy projects that can provide support to the existing companies. The major challenge that can be faced by the implementation of 2030 renewable energy targets is that it shall increase the costs of the energy for a sufficient period that shall greatly influence profitability of the current leading oil and gas retail companies. Conclusion The implementation of European Post-Crimea energy strategies can be identified as one of the effective way to reduce reliance of energy on Russia. However, its implementation has environmental and industrial concerns that should be addressed. It has greatly influenced the existing companies in the oil and gas industry, as the demands for renewable energy are costly, due to which the existing oil and gas companies are required incorporate high technologies and system in their operations. It shall increase the prices of energy in European Countries but shall bring sustainability and enhance energy security (Anon., 2014). The sanctions from European Union can cut off the imports of fossil fuel from Russian countries that mean that the supply of the gas shall be substituted by the other energy resources, such as LNG, coal, etc. It means that the oil and gas resources shall have other substitutes to meet the energy demands. Thus, a great decline in the gas and oil prices can be observed because of decreasing demand in the global market. On the contrary, the implementation of high-tech systems can improve oil and gas production and make it efficient. List of References Albrecht, U., Altman, M., Zerhusen, J. & Raskha, T., 2014. The Impact of the Oil Prices on EU energy Prices, London: European Parliament. Anon., 2014. Alternative Energy And Big Oil: Poor Returns Versus `Lies. [Online] Available at: http://www.forbes.com/sites/lorensteffy/2013/06/28/alternative-energy-and-big-oil-poor-returns-versus-lies/ Daly, J., 2014. How Will Russia’s Annexation of Crimea Affect Energy Markets?. [Online] Available at: http://oilprice.com/Geopolitics/International/How-Will-Russias-Annexation-of-Crimea-Affect-Energy-Markets.html Ehrlich, R., 2013. Renewable Energy: A First Course. London: CRC Press. Engery Department, 2010. Annual Energy Outlook 2010: With Projections to 2035. London: Government Printing office. MacLeay, I., 2010. Digest of United Kingdom energy statistics 2010. New York: The Stationery Office. Raiper, R., 2012. Power Plays: Energy Options in the Age of Peak Oil. London: Apress. Schmalensee, R., Padilla, J. & Moselle, B., 2011. Harnessing Renewable Energy in Electric Power Systems: "Theory, Practice, Policy". London: Taylor & Francis. Schweitzer, D., 2014. Oil Companies and Sustainability: More than Just an Image?. [Online] Available at: http://deepblue.lib.umich.edu/bitstream/handle/2027.42/77607/dschwei.pdf Tindale, S., 2014. How to reduce dependence on Russian gas. [Online] Available at: http://www.cer.org.uk/insights/how-reduce-dependence-russian-gas Read More