OIL AND GAS RETAIL
Executive Summary
The political tension existing between Russia, the European Union and its immediate neighbours
is affecting the production and the expansion of the oil market. But the reduction in oil
production is compensated by increases in oil prices due to shortages in the global market. The
Russian Ural Mountains contains the world’s richest reserves for natural gas, coal and oil. Oil
and gas exports make up to 70% of Russia’s total exports and accounts to about 16% of its GDP.
Russia supplies about 30% of the total energy needs of the European Union. To avoid reliance on
the Russian oil, the European Union has opted to exploit other alternative sources of renewable
energy. Countries like Denmark have already laid out plans to be self reliant on renewable power
sources by the end of the year 2050 while countries like Poland still rely heavily on the Russian
oil to power its economy. (U.S. Energy Information Administration, 2014)
Introduction
Russia is one of the countries with a mixed economy of high income while the state controls
most of the strategic resources in the economy. The Russian economy relies mostly on its energy
revenues to maintain its capital and recurrent expenditures. The Crimean crisis has led to a
recession in Russia that has affected its economy largely due to its dependency on the energy
revenues.
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- The energy Strategy that Europe seeks to adopt is based on three objectives. 1) It seeks to
avoid reliance on the Russian Oil 2) Improve efficiency in the energy sector 3) Improve
environmental conservation.
The reliance on oil from Russia has made it possible for the Russian government to continue its
forceful annexation of the Crimea region as a source of its own oil supplies and revenue source.
Most of the European member states depend largely on the Russian oil as a source of energy.
(U.S. Energy Information Administration, 2012)
The EU seeks to exploit alternative sources of LNG gas, maximize the use of renewable energy
like hydro electricity, wind energy and the geothermal energy extraction, Coal and gas with the
carbon and storage popularly referred to as CCS and also introduce the use of nuclear power.
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To improve efficiency in the energy sector, the EU has made plans to retrofitting the double
glazed insulation to existing building in European homes to curb the loss of energy in a bid to
improve the efficiency of energy consumption during winter. It also seeks the net works for
transporting heat from the generation plants to homes and commercial centers. It’s estimated that
about 10% of the heat supplies are lost during transportation on average but it some instances up
to 50% is lost in transportation networks. (Tindale, 2014) The other strategies is to expand the
capacity for EU to import LNG gas by constructing new pipeline facilities to the coasts of
Caspian sea to Europe, from Azerbaijan to the coast of the Mediterranean sea in Turkey known
as the Trans-Anatolian pipeline whose contracts have already being worked out and signed and
the construction on Italian Trans-Adriatic pipeline. These infrastructures have been
recommended to improve efficiency in the energy sector and to reduce the pilferages that
increase the cost of consumption. The Russian crisis that was occasioned by its termination of
the supply of gas from the Ukraine region to the EU prompted the initiatives to develop
alternative sources of energy. The major challenge is to develop the use of renewable energy in a
bid to conserve the environment and to promote the protection of the environment through the
control of the carbon emission. Renewable energy is costly and currently the sources are
inadequate. The nuclear energy can be used to supplement the sources of renewable energy but
with the Japanese incident of the 2011 Fukushima accident most countries are reluctant to adopt
the nuclear energy.
The use of coal energy also needs restriction as it’s the largest contributor of the greenhouses
gases that deplete the Ozone layer which is a major component that’s required to safeguard
global warming.
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- The alternative sources that EU has planned to undertake are the use of renewable energy like
hydro electricity, wind energy and the geothermal energy extraction, Coal and gas with the
carbon and storage popularly referred to as CCS and also introduce the use of nuclear power.
The objective of CCS is to restrict the CO2 to its own bases of operation and preventing it from
entering the atmosphere. It’s a system that is also known as the geoengineering technique. (Smit,
Reimer, Oldenburg and Bourg, 2014) The use of the traditional shale gas to power domestic
energy supplies in European household is also another form of alternative gas supply that can be
exploited to reduce the dependency on fossil generated energy. Some governments in countries
like Germany, France and Bulgaria had banned fracking either formally or informally should
now reconsider their use and legalize it. Renewable gas can be generated from farm waste,
sewage system, food and manure. All these options should be fully exploited and combined to
reduce the use of fossil energy. The use of these alternative sources of energy can supplement
environmental protection measures as most of these wastes actually end up in the rivers and
streams that eventually find their ways into the seas and oceans affecting different kinds of
marine life. - The European Union’s major policy is to reduce its energy imports from Russia to minimum
levels. Russia supplies almost 30% of Europe’s energy supplies as at the end of year 2012.
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The EU policies target the promotion of renewable energy using modern technology that
minimizes the carbon emission. (U.S. Energy Information Administration, 2014) Coal energy as
a source of renewables has some setbacks because of its high air pollution rate. (Tindale, 2014)
However, the use of CCS (Carbon Capture and Storage) has been introduced to reduce such
emissions. (Metz, 2005) CCS is a process where carbon dioxide is captured from the large point
emission sources such as the fossil generated fuel power plants and transporting it in a way that
it’s not exposed to the environment usually using underground geological formation. (Wilson
and Gerard, 2007) The objective of CCS is to restrict the CO2 to its own bases of operation and
preventing it from entering the atmosphere. It’s a system that is also known as the
geoengineering technique. The first trial of the use of CCS to minimize the release of carbon
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dioxide into the atmosphere was applied in Schwarze Pumpe in eastern Germany that was being
operated by a firm known as Vattenfall in the year 2008. It was the first successful application of
technological feasibility and also economic efficiency in the protection and conservation of the
environment in bid to create a sustainable environment for future generations. (Bistline, 2010)
The EU policies on renewable energy have been given more weight by the German Chancellor
Angela Merkel estimated that the EU transition to the use of renewable energy in all the sectors
will take probably fifty years to fully implement its operations. (Tindale, 2014) Gas is relatively
better than the use of Coal in energy production when it applies to environmental conservation
and protection measures. However Germans can’t be persuaded easily to adopt the nuclear
energy production method as they consider it unsafe following the Japanese experience in the
year 2008 in Fukushima. Germany would prefer to use coal energy than the nuclear.
The other policies are to improve efficiencies in handling and transporting the energy generated.
Most of the power supplied or generated is lost during its transportation and also on its
application. It’s estimated that about 10% of the heat supplies are lost during transportation on
average but it some instances up to 50% is lost in transportation networks. (Tindale, 2014)
EU policies aim at controlling and improving efficiency in the energy production plants and also
in storage systems. The replacements of the heating systems in some cities have to be overhauled
to improve the efficiencies in gas handling and transportation logistics. (Tindale, 2014)
The other policies target the development of new pipelines to transport gas and oil from different
coasts in the region to supplement or reduce the dependency on the Russian energy. Construction
the new pipeline from the Caspian Sea to Europe, from Azerbaijan to the coast of the
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Mediterranean Sea in Turkey known as the Trans-Anatolian pipeline and the construction of the
Italian Trans-Adriatic pipeline are some of the policy statements that EU plans to implement.
- The impact of the above argument are cost implications that may be required to implement the
construction of the renewable energy plants like the hydro electricity power plants, wind energy
power generators and the geothermal power generation, Coal and gas extraction with the modern
system of carbon and storage formulas referred to as CCS and also introduction of the use of
nuclear power that is generated from nuclear power plants.
These projects require substantial amounts of funds that will eventually be passed on to
consumers in the form of increased rates of electricity or energy supplied. The construction of
the pipelines from different coasts in Europe to different destination to transport oil and gas will
also take time to construct. Other forms of harnessing the energy will also be adopted. These
methods will create jobs and also increase the circulation of money in different economies in
Europe. The economies of these affected countries will start showing signs of growth especially
as the new infrastructures are constructed.
The application of CCS in controlling the CO2 emissions to the atmosphere will certainly have
some cost implication which naturally may lead to extra costs in energy generation. (Tindale,
2014) The CCS will initially need power or energy to capture and compress the CO2 and it will
need extra capital costs to set up the whole system. These processes will increase the
consumption of energy and also the energy requirements of such plants. For example, in a coal
powered plant, the CCS will require about 25% of the energy generated to operate the CSS
system while in a gas powered plant the CCS will require 15% of the total energy output of the
plant to maintain the CSS system. The cost of capture and storage of CO2 varies with the method
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of CSS applied. In general, the cost of power or energy will increase with margins ranging from
30% – 60%. (Tindale, 2014)
Some countries like Italy, Germany, France and Bulgaria that had originally banned fracking
either formally or informally will have to legalize its use as it would be economical and
convenient to utilize its use instead of relying on the Russian oil. Renewable gas generated from
farm waste, sewage system, food and manure can be harnessed and collected and transferred to a
power grid so that it can be distributed to other consumers. These options when be fully
exploited and integrated to the national energy supply system will eventually do away with the
use of fossil energy. These sources of alternative of energy generation can supplement
environmental protection measures. If the sources of energy are restricted to renewable energy
supply then the use of expensive CCS operations will also reduce drastically and it will also
reflect on the charges that the consumers are paying to obtain power. The CCS systems depend
on the energy extraction method and the materials that are being extracted.
The EU strategies of seeking alternatives of other sources of energy besides the Russian
Government, is a clear indication that the European market is unhappy with the Russians
annexure of Crimea. The EU strategy will be a gain to the proponents of green energy as some
countries like Denmark have already strategized on how to transition from their current
dependency on fossil energy to 100% dependency on renewable energy by the end of the year
- The other European countries like Germany, France and Italy that use to rely on the
Russian oil will also have to exploit other means of generating power for their consumers and
industrial power plants. As most countries currently prefer using renewable sources of energy
then the efforts to conserve and protect the environment will also have received a major boosts in
its pursuit for clean air.
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4b. The factors affecting the size and the structure of the current oil and gas sectors in Russia are
Political, economical, environmental and technological. The consumption of oil and gas remains
on the essential lists of most families and industries and it remains the most critical component of
the industrialized world growth factor. It’s the key component for all nations that are working
progressively towards economic prosperity and empowerment of populations. As the demand for
oil and gas increases, its production is not matching the increment. (Longwell, 2002)
The technological advancement in exploration techniques has led to rapid expansion in the new
discoveries of oil reserves in parts of Africa, North Alaska, Russia and in the Middle East.
Technological advancement has also led to new development of efficient methods of extraction
and refinery processes. These factors have led to rapid expansion in the oil industry. The
increment in prices of oil products has not been a factor in the production quantities; however,
technology and geopolitics have been at the center stage of the expansion processes.
The current business models are based on conventional wisdom and skillful economic
predictions that has led to the successes in the oil industry. Business models that combine
modern technology, good political relationships, experienced and talented personnel, efficient
environmental protection and economics that utilize the least possible cost per unit of production
standards in high risk pursuit for excellent finite commodities. (Longwell, 2002)
The rising prices will eventually encourage more diversification in energy consumption. The
alternative use of clean energy may gain more ground as a result of regular oil price increases.
The energy retail market will continue experiencing high prices as more demand in the energy
market continues to rise as the new oil discoveries are being made much further away and in the
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deeper seas. The further away they are the more expensive their transportation costs raises their
final market prices in the consumer markets.
To conclude, the new policies on renewable energy sectors across the world are targeting the
reduction of non- renewable energy use to manageable levels that will result in more clean
energy use across the world. The clean energy revolution is expected to generate billions of
dollars in commercial activities. The clean energy resources include solar, water, wind,
bioenergy and geothermal. These policies are expected to erode the oil market prices and
production rates but in reality it will take many years before the global economy can rely on
other sources of energy leave alone clean energy.
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References
Bistline, J.E., 2010, Energy Policy on the Role of Carbon Capture Technologies in Greenhouse
Gases Emissions and Reduction Models: A Parametric Study for the US Power Sector, Elsevier
(Abstract) Vol. 38, Issue 2. Viewed 28 November 2014 from
http://www.sciencedirect.com/science/article/pii/S0301421509008362
Longwell, J.H., 2002, The Future of the Oil and Gas Industry: Past Approaches & New
Challenges, World Energy Vol. 5 No. 3 Viewed 28 November 2014, from
http://www.worldenergysource.com/articles/pdf/longwell_WE_v5n3.pdf
Metz, B., 2005, IPCC Special Report on Carbon Dioxide Capture and Storage ,
Intergovernmental Panel on Climate Change, Working Group III (Cambridge University Press)
Smit, B., Reimer, J.A, Oldenburg, C.M. and Bourg, I.C., 2014, Introduction to Carbon Capture
and Sequestration ., Imperial College Press, ISBN 978-1-78326-327-1
Tindale, S., 2014, How to Reduce Dependence from Russian Gas, Center for European Reform,
viewed 28 November 2014, From http://www.cer.org.uk/insights/how-reduce-dependence-
russian-gas
U.S. Energy Information Administration, 2014, Russia, Independent Statistics & Analysis
Viewed 28 November 2014, from http://www.eia.gov/countries/cab.cfm?fips=RS
U.S. Energy Information Administration, 2012, Russia’s Crude Oil and Condensate Main Export
Destinations in 2012, Global Trade Atlas
Viewed 28 November 2014, from
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Wilson, E. J, Gerard, D., 2007, Carbon Capture and Sequestration; Integrating Technology,
Monitoring and Regulation , Blackwell Publishing. ISBN 978-0-8138-0207-7
