Aims & Objectives
• Analyse the economic profitability of petrol filling stations, PFS in UK
• Highlight the contamination and environmental harm of PFS
Petrol filling stations no longer profitable, leading to exodus of closures by independent retailers and supermajors such as BP and shell.
Hypermarkets such as Tescos and Sainsburys subsidies their oil prices in order to lure more foot fall onto their retail shops where they then make a profit. A portable petrol filling station would be cheaper and will have less overhead costs. Moreover, it would also solve the economical and environmental problems as in most cases drivers wouldn’t have to travel further to source fuel for the car which in turn would help the environment as less c02 would be emit as well as saving the driver money by not using up his fuel.
The transformation of the cars to electricity powered is changing the retail industry as electric car charging ports are available within a shopping centre/car park whereas for fossil based engines they still have to travel towards a petrol filling station in order to fill up.
Inelastic demand for petrol filling station
How the environmental harm; highlighting how houses within 100 metres of the PFS are effected by the leakage of unburnt hydrocarbons and how benzene causes cancer.
Japanese programme ‘top runner programme’ looks to promote energy efficiency. This has been hugely successfully as energy demand in japan went down by 12% this in turn leads to Increase in energy security as due to technological advancements in cars and appliances less imports were required to meet the demands. UK needs to do the same pfs need to do the same and modernise petrol filling station.
The more you travel the more fuel used more CO2 emission and thus more imports required.
Innovation required in the downstream sector of oil and gas
We’ve found a clear correlation between innovation and success in growing revenues across industries. In Breakthrough innovation and growth, we report that over the past three years, the most innovative 20% in our study grew at a rate 16% higher than the least innovative. And in the space of only five years, the top innovators forecast that their rate of growth will further increase to almost double the global average, and over three times higher than the least innovative. (PwC)
due to the low turn over of profit from petrol filling station sites; independent petrol filling stations are strolling to maintain site standards such as cleanliness and customer service. Whilst other sectors have embraced technology petrol filling stations have not moved forward and adapted to new technology.
Petrol Filling Stations
Developed nations are moving towards electric vehicles. In the near future, the demand for fossils fuels is estimated to decline to high levels since green power will take into place. The drivers would require to charge a battery which is portable. The charged battery can last for the whole day .The shift to this trend would be appreciated greatly due to the aftermath of climatic changes. According to the WHO, the highest contributor to the global warming is the carbon dioxide released by auto mobiles (Sharif and Lwee 2017). An estimate of 90000 tons of carbon dioxide are released in the air every year. This figures have compelled various nations to decide on the best way to combat the problem of climatic change. In connection to this, the distance travelled to fuel the vehicles is another point of consideration. Location of petrol stations in the UK are not easily accessible and therefore drivers are forced to incur cost whilst at the same time releasing more pollution into the air.
The fuelling stations in the United Kingdom have undergone a lot of changes for the past years. In 1970s, the market had a total of 37,500 fuelling stations spread all over the country (Morale et al 2010). The number has barely reduced to 9000 stations in the year 2016. For the last 5 years, there has been a decrease of 6% in the number of fuelling stations. Moreover, the closure involves independent and dealer owned entities. Notably, hypermarket owned fuelling stations are growing as opposed to the latter (Jensen and Andersen 2014, p.698). This is because they are located in retailing businesses and have more fuelling stations. The idea behind their survival is ability to meet the needs of the customers through establishing accessible stations. In the past year, hypermarket fuelling stations have a market share of 39% in terms of sales volume. Independent dealers have continually been facing pressure from restructuring their business model due to pressure subjected by hypermarket (Morales et al.2010, p.300). Price of the petroleum product is critical factor of consideration to lure the customers. The hypermarket fuelling stations enjoy huge profit since they can lower their prices to attract more customers. They have a base to do so since they have more stations.
Growth opportunities are sought on non-fuels commodities. It is increasingly becoming evident where petrol fuelling stations (PFS) are exploiting the economies of scale to merge other business ideas such as supermarkets. The idea is to converge the customers to shop as well fuel their cars at their convenience. The extra investment has enabled some fuelling stations to open more branches to increases their revenue. Considerable efforts are put in place by investors in this line of business to remain relevant. The worrying situation is that the figure continue diminishing. There is no exponential growth realized in PFS industry. The impact on consumer and overall service efficiency have contributed largely to the closure of many stations.
Effects of Environmental Legislations
The Paris agreement of 2015 set a dynamic framework for the countries to take extra measures regarding the environment (Ghosh 2015, p.15). According to the requirements which were corporately agreed by the various nations, strong actions were required to be taken to ensure the world does not continue to face the challenges of climatic change. Implementation of the policies by various nations has seen some economic sectors beings affected negatively for the benefit of the surrounding. Coordinated global actions to work in unison in mitigating the causative agents of environmental destructors were agreed upon. The outcomes of the agreement affirmed the need of every country to remain accountable for any action that threatened the general balance in the environment. Additionally, technological advancement to reduce wastes in the environment was part of the outcome that was discussed (Ghosh 2015, p.24). All these help in curbing activities that result to emission of greenhouse gases in the atmosphere. Closure of more petrol stations in the U.K has been affected by the legislation since the government is discouraging the use of fossil fuels. Environmental policies have been used as a tool to prevent pollution.
Economic profitability of Petrol Filling Stations in the UK
The idea behind running any business is making a profit to cater for the operating cost. Retail market for petrol in the United Kingdom has been cited to decline which has resulted to closure of some PFS which fails to withstand the market structure (Morales et al. 2010). The consumption of petrol has decreased considerably compared to the diesel. This is due to manufacturing of diesel engines which are easy to maintain compared to the petrol fuelled vehicles. The cost of both petrol and diesel increased last year which contributed to low outcomes on the retailers who operated individual filling stations. The rise in prices is trickled down to the consumer who ends up paying more at the end of it all. Consequently, various factors have attributed to the increased prices (Jensen and Andersen 2014, p.700). One is cost of production. It is estimated that the richness of oil producing wells is depreciating. As the time progresses by, the cost of mining is becoming more complex since the sources are becoming exploited. This calls for locating new ones which comes with an extra cost of exploration. The second contributor is the transportation cost.A well-established transport sector brings in huge revenue to the government (Sharif and Lwee 2017). The taxing of the product along the way scares the investor from importing the petroleum product. Since they cannot cease to conduct the business, they opt to charge a little higher prices.
Key drivers in the market have also contributed to the reduction in profitability made by petrol filling stations. The first one is reduction in annual mileage (Ghosh 2015, p.27). The National Transport department in the UK has reduced the mileage to cover. The reduction is a move to prevent further air pollution contributed by increased emission of carbon dioxide in the air. This translates to reduction in purchasing of petrol. Additionally, the fuel type of vehicles has an impact on the profits made. In the year 2010, 89% of the vehicles in circulations had petrol engine while 11% were powered by diesel (Morales et al. 2010). Come the year 2016, petrol engine stood at 69% while diesel had risen to 31 %( Jensen and Andersen 2014, p.765).The results depicts an increase of diesel vehicles in the market. Ideally, the market for petrol is reducing and it is anticipated to continue in the retrogressive method. Adding to this, consumption of fuel by vehicles is decreasing due to improvised engines. The manufacturers are conforming to the new standards of safeguarding the environment (Morales et al. 2010, p.300). Embracing the new technology of designing vehicles which emits less carbon dioxide are infiltrating the market. The consumption of fuel for a petrol vehicle in the current year is lower compared to 5years ago (Sharif and Lwee 2017).Essentially, people are also becoming more cautious with what can distract their safety. There is more awareness on the contributors of pollution and people are shifting to activities which would not place their health at risk. Basically, the rate of purchasing vehicles in U.K is reducing due to awareness of greenhouse gases. Enlightenment of the citizens has reduced the sustainability of the booming business of petroleum products. Emergence of hypermarket was an idea to increase the sales of petrol as the market became unpredictable. The idea of discount is employed on any nonfuel purchase in the retail store. The customers are attracted to fuel in their station (Ghosh 2015, p.28). However, the revenue from the sales of petroleum product still recorded lower values. Hypermarket aims to maintain the operation cost from the extra sales made from the non-fuels. In other words, the profit realized from the PFS are too low sustain continuous operation without a side investment.
Contamination and Environmental Harm of Petrol Filling Stations
Researches which have been conducted recently depict that petrol stations are impeding danger yet to explode in the near future. Environment is one of the important asset endowed by nature for free (Ghosh 2015, p.26). Disrupting the normal balance which exist harm all creations. The most affected places are homesteads which are located 100 meters away from the petrol station. The volatile benzene evaporate and might contribute to cancer to dwellers in those houses. The information published in the Journal of Environmental Science indicate that the pollution caused by vehicles in the urban centers is lesser than the one recorded in homes 100 meters away from petrol station(Morales et al. 2010,p.276). It indicated that the pollution stem out from evaporate when loading the fuel, spillages and during offloading. Moreover, leakages of the petroleum product could find their way into the water stream. This happens when floods carry away the spillages to rivers and other water catchment sites. The resultant effects is killing the aquatic animal through deprivation of oxygen which is core for their survival. Petroleum products should not be handled similar to any other product. They are inflammable and special attention is required to prevent fatal cases. According to WHO, more than 2.4 million people loses life in the world due to fire caused by these product (Ghosh 2015, p.27).The survey further suggest that properties worth 4.5 billion also gets wasted. Location of the station should be based with predefined rules of the country (Sharif and Lwee, p.26)
Petrol Stations indirectly contribute to the emission of carbon dioxide in the air. The higher the demand, the more the import. Increasing consumption of petroleum products results to high toms of carbon dioxide released in the air. This gas operate by creating an artificial blanket on the atmosphere hence increasing the earth temperatures (Morales et al. 2010, p.276). This a characteristic of the witnessed global warming. International countries have put a question on the safety of continued reliance on fossil fuels in the market with more clean energy being sought. Far and above, soil pollution is also witnessed in areas where the stations operates. It occurs through leakages which can take time to affect the soil structure. This has an implication of preventing proper growth of the plants hence reduction in the harvests. It is worth noting that the benzene which evaporates from the fuels also settle on the plant leaves hence blocking the normal process of aeration and photosynthesis. Compounding this with soil pollution completely damages the crops.
Noise pollution is another aspect of consideration when dealing with petrol stations. They operate continually day and night. The number of vehicles which come in and out increases as the time goes by (Jensen and Andersen 2014, p.900). It is estimated that during the day, more noise affects the neighboring homestead.This is because most of the drivers refills their vehicles at the middle of the day. Noise produced in the morning and night times is subsidized. Offloading and loading activities are also contributors to the noise. Sharif and Lwee (2017) notes that the waste water and solid waste is another set of hazard which is normally ignored. According to his observation, the waste water is a combination of various chemicals producing dangerous final products. Solid waste are sometimes dumped without treatment and anyone can get access to them (Morales et al. 2010, p.299). Some elements in these wastes can drastically affect the health of the individual. For example, the can used to store lubricants are sometime disposed in a careless manner. Children are curious to play with the bottles and they end risking their health. Aesthetic beauty is destroyed by disposal of solid wastes from the petrol stations.
The trends in the retail market of oil and the ownership structure
The entry of hypermarkets in the industry has constantly changed the operations of PFS. They are able to supply road fuel which accounts for 40 %( Deloitte 2012). They have offered a competitive pressure to privately owned PFS and oil companies. This is because they offer discounted prices hence attracting more customers. Oil companies have lost significant shares for the past 10 years therefore opting to exit retail business and concentrate on gas production. For example, Tesla has surpassed BP in oil retail. Total retail sales for PFS in U.K have increased from 28million in 1997 to a peak of 29.3 million in the year 2011(Deloitte 2012). Since this peak, the sales have been declining, with the retail sales for diesel being higher than that for Petrol.
Innovation required in the Downstream Sector of Oil and Gas
Creativity and innovation is key to the survival of any business. Growing revenue is a task which should be approached in a more though strategy, rather than blindly engaging in the business. As it was alluded earlier, disruption from the internal environment of the business should be embraced to create more room for profit (Ghosh 2015, p.30). Over the past three years, the most innovative industry grew 16% more than the leastinnovative (Jensen and Andersen 2014, p.900). This suggest that the key to claiming market share is attributed to the uniqueness that a business bring in the market. Customers are enticed by new products or an improved service in order to attract their purchasing power. Within a space of five years, the top innovators are expected to grow three times than the least innovative industry. Whilst petrol stations in the U.K try to remain relevant in the market, they are unable to assimilate the evolving technology (Morales et al. 2010, p.300). There is a gap existing in the industry of oil and fuel which has not been fully exploited. The investors are conducting the business in a manner that does not promise growth.The stations are continuing to make low turnovers due to rigidity in their business model. The standards offered do not conform to the modern market, which has gone digital(Sharif and Lwee 2017). Corporate world is embracing robotic automation to face off the errors done by human beings and also increase efficiency in service delivery. Such an invention has not been witnessed in filling stations, where one has to continually queue to wait for fuel. Instead, a more dependable way should be put across to make services more reliable. However, decline in profitability will continue to haunt the business owners. They should move forward by embracing new technology.
Ghosh, S. (2015). Environmental standards and political federalism: Do labor legislations matter? Environmental Development, 16, 15-30.
Deloitte.(2012). Study of the U.K Petroleum Retail market.
Jensen, P. T., and Andersen, A. (2014). Electrostatic charging at petrol stations. Examination of electrostatic charging- and discharging mechanisms related with petrol filling operation and petrol filling stations. 2014 International Symposium on Electromagnetic Compatibility. doi:10.1109/emceurope.2014.693-960
Morales Terrés, I. M., Miñarro, M. D., Ferradas, E. G., Caracena, A. B., and Rico, J. B. (2010). Assessing the impact of petrol stations on their immediate surroundings. Journal of Environmental Management, 91(12), 275-300.
Sharif, S., and Lwee, X. Y. (2017). Measuring market share of petrol stations using conditional probability approach.