Phillips 66 SWOT and PESTLE Analysis

Strength

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Weakness

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Opportunity

1. Innovations and creating high grade products: Phillips 66 is engaged in showcasing technological expertise to produce high-grade petroleum coke upgrading and Sulphur removal. The company already has more than 1,750 active patents in around 70 countries as of 2019. It focuses on conducting research so as to design improve production of today’s conventional fuels, while leveraging the company’s expertise in new ways through its Technology segment. The company is not only substantially increasing its research and development efforts on technologies that complement its existing businesses, but also on alternative and renewable energy sources and environmental preservation.

2. Development of new energy resources: Through the efficient use of a variety of energy sources, Phillips 66 believes that future energy needs can be secured. For the short term, these needs can be fulfilled through oil, natural gas and coal, while in a long run, there is a need of other energy supplies. These alternative energy supplies include renewable, such as wind and solar power, alternatives such as nuclear power and additional fossil fuels such as oil shale, natural gas hydrates and clean coal. In order to fulfil these needs, the company is working to develop energy sources and new technologies – from conventional to heavy oil and natural gas, to alternative supplies of energy – in applications that leverage the company’s expertise and build on existing businesses.

3. Emphasis on renewable energy sources: The world is currently dependent on Coal, oil and natural gas for its energy needs. It is well documented that it has a detrimental impact on our environment and is causing global warming. The world needs more emphasis on using green and renewable energy sources as a substitute for the fossil fuels. Current emphasis has led to a decline of fossil fuels usage from 68% in 2011 to around 57% in 2035. Within the European Union also, renewable energy had a considerable share of around 24.3 % of the total energy produced from all sources. There is also increased emphasis on renewable fuels, alternative energy mandates and energy conservation efforts that also led to the reduction in demand for refined petroleum products. Government also provide tax incentives and other subsidies that helped in making renewable fuels and alternative energy more competitive with respect to refined petroleum products. All these actions lead to reduction in the margins of refined petroleum products and also caused hindrance in their ability to compete with renewable fuels.

Threat

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Political

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Economic

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Social

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Technological

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Legal

1. Effect of regulations and societal sentiments: There are societal norms which help the company in continuing its operations, creating future developments, transportation and the use of carbon-based fuels. The company’s strategy is to expand the existing assets and create scope for additional assets. There are also some factors that responsible in policy decisions relating to the production, refining, transportation and marketing of carbon-based fuels. These factors are political pressures and the influence and protests of environmental and other special interest groups. For example, the company’s Midstream segment’s growth plans include the construction or expansion of pipelines. This construction of pipelines involves many regulatory, environmental, political, and legal uncertainties. There are many uncertainties which are beyond the company’s control. This causes additional expenses which increase the budgeted cost and may also lead to delayed execution and completion of projects. Simultaneously the funds expenditure does not ensure the company’s revenues. These delays or cost increases not only negatively impact the company operations’ results but also the cash flows and the return on capital employed. There is an Act known as the Energy Independence and Security Act 2007 (EISA). This law has set the requirement of additional renewable fuels for the transportation of motor fuels. There are quite many things that are uncertain in EISA and may probably affect the Phillips 66 business.

2. Laws and regulations relating to environmental remediation: There are certain environmental remediation obligations such as CERCLA, RCRA and their state equivalents that impose different obligations on Oil companies like Phillips 66. These remediation obligations include responsibility to clean up. The need of clean-up arises from petroleum releases from underground storage tanks. These storage tanks are located at many previously and currently owned and/or operated petroleum marketing outlets throughout the United States. There are federal and state laws that assess and remediate the contamination caused by such underground storage tank releases. This also bears a cost to Phillips 66 that was $690 million in 2018. This is forecasted to grow to $740 million and to around $700 million for 2019 and 2020 respectively.

3. Adoption of climate change regulation: After the legislation for climate change is adopted, the company gas suffered an increase in operating costs. This also has reduced down the demand for its refined petroleum products. The main reason for this legislation is to ensure steps to reduce down the green-house gas emissions. Thus the U.S. government, several state and international governments, have taken into consideration or adopted legislation or regulations in an effort to reduce greenhouse gas (GHG) emissions. These proposed or promulgated laws are going to be applied across the entire world. This includes the places where the company have interests or may have interests in the future. Recently COP 21 has entered into force on November 4, 2016 after the Paris Agreement negotiations at the 2015 United Nations Conference on Climate Change. This has led to the incurrence of the additional costs so as to comply with the adoption of new laws and regulations. This results in creating adverse implications on the Phillips 66’s financial condition, results of operations and cash flows in future periods. Simultaneously it also adversely affects the demand for the refined petroleum products

Environmental

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