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.
Table of Content Page Number
1. The Europe energy strategy and energy efficiency………………………………………. 3
2. Alternative sources of energy, gas, renewables, coal and gas with carbon capture,
Storage and nuclear power……………………………. ……………………………………….5
3. Policies and technology………………………… ……………………………………………6
4. The impact on oil and gas industry and remedies……………………………… ……………9
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 and gas, 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).
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.
1. The energy Strategy that Europe seeks to adopt is based on three objectives. a) It seeks to avoid reliance on the Russian Oil b) Improve production in the energy sector c) 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.
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 to improve the net work facilities for transporting heat from the generation plants to homes and commercial centers. It’s estimated that about 10% of the heat supplies is lost during transportation on average but it some instances up to 50% is lost in transportation networks (Tindale, 2014). The other strategy is to expand the capacity for EU to import LNG gas by constructing new pipeline 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 production in the energy sector and to reduce the loses that increase the cost of consumption. The Russian crisis that was occasioned by its reduction 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 carbon emissions. Renewable energy is costly and currently the sources are not fully developed. 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 as it’s considered risky and dangerous to human health.
The alternative sources of energy that EU has planned to undertake are the use of renewable energy like hydro electricity, wind energy and the geothermal energy extraction. 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 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.
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 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 be fully implemented (Bistline, 2010). 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 strategies target the improvement of capacities 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. The Construction of the new pipeline from the Caspian Sea to Europe, from Azerbaijan to the coast of the 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 transforming a nations power consumption from the oil and gas powered industries to green energy consumption or other non- pollutant sources of energy are the cost implications that may be required to implement the construction of such 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 (Tindale, 2014).
These projects require substantial amounts of funds to improve and expand the current infrastructures that will eventually be passed on to consumers in the form of increased rates of electricity or energy supplied (Tindale, 2014). 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 of CSS applied. In general, the cost of power or energy will increase with margins ranging from 30% – 60% (Tindale, 2014).
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 fully exploited and integrated to the national energy supply system will eventually do away with the use of fossil energy. The future of the energy industry is based on green energy policies that seek to stop or minimize the use of oil as a source of energy. These sources of alternative 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 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 2050 (Tindale, 2014). 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.
The factors affecting the size and the structure of the current oil and gas sectors in Russia are Political, economical, environmental and technological. The Russian economy largely depends on the oil exports which also shapes its political environment. 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. 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 (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 deeper seas. The further away they are the more expensive their transportation costs raises their final market prices in the consumer markets (Longwell, 2002).
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 renewable energy use across the world. The green energy revolution is expected to generate billions of dollars in commercial activities. The renewable energy resources include solar, water, wind, bioenergy and geothermal. These resources when fully exploited then the reliance on oil as the only source of energy would certainly reduce. The policies that aim at promoting green energy are expected to erode the future oil market prices but it will take many years the global economy can rely on other sources of energy leave alone renewable energy.
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