Royal Dutch Shell SWOT & PESTLE Analysis

Strength

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Weakness

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Opportunity

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Threat

1. Fluctuation in prices of crude oil, chemicals and natural gas: Crude oil, chemical and natural gas prices are affected by global as well as regional demand and supply. They are also affected by government actions such as ban on diesel automobiles or a tax deduction for purchasing renewable automobiles. The factors affecting demand and supply are natural disasters, operational issues, political instability and actions by the producing countries. If the prices reduce, then Upstream and Integrated Gas businesses would generate less revenue. Low prices could also affect Shell’s long-term capital investments and the payment of dividends. On the other hand, high prices could reduce the demand for the products of the Downstream business. The resulting increase in costs from the high prices could affect Shell’s entitlement to prove reserves under some production-sharing contracts.

2. High competition in the oil and gas industry: All the businesses of the company face high competition. Though the company attempts to differentiate the products, many of the products are competing in commodity markets. Failure in cost management and performance improvement could be detrimental to the financial condition. The company also competes with state-owned oil and gas entities having access to financial resources, who might be politically motivated while making business decisions. Shell might be at a disadvantage compared to these state-owned entities during bidding on new projects as these entities might not need competitive returns. Shell ranks second in the world according to 2018 revenue figures with a revenue of $388.4 billion, behind China’s Sinopec ($432.54 billion). Petro China is very close behind Shell at $347.76 billion.

3. Disruption of operations by cyber-attacks: Shell relies heavily on IT systems for operation of business processes. The IT systems have dependency on contractors. Shell is often the target for cyber-attacks that attempt to gain access to the systems and data. The company has been hit by cyber-attacks in the past. In 2008, an employee of one of Shell’s contractors had used personal information of Shell employees in running an unemployment insurance claim scam. In 2009, hackers stole personal information of 1400 New Zealand customers and 4500 Australian customers. Shell focuses on timely detection to try and prevent repeat of such incidents as they could damage the reputation and affect the financial performance.

4. Rising climate change concerns may lead to regulatory measures: The company faces the threat of additional legal and regulatory measures due to increasing climate change. Not only will these call project delays and project call offs, but can also lead to reduced demand for fossil fuels, increased compliance obligations and even the chance of litigations. The company is currently fully implementing the terms of the Paris Agreement which was adopted by 195 nations in December 2015. The aims of the agreement are to limit increases in global temperatures to below two degrees Celsius. The agreement however brought along with it several regulations that aim at reducing the emission of greenhouse gases (GHG). Shell thus has been faced with increased compliance costs and operational restrictions in order to ensure that its GHG emissions are compliant with regulations.

Political

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Economic

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Social

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Technological

1. Artificial intelligence applications in battery technology: The worldwide sales of electric vehicles are expected to cross 30 million by 2030. This requires improvement in battery technology for which artificial intelligence might be the key. The battery market is expected to be worth 250 billion pounds by 2025. Current electric vehicle batteries cannot be charged as quickly as it takes to fill a fuel tank. They also do not have a high range. AI can help in the creation of such batteries. Because of its applications across multiple industries, AI can help in battery development by quickly analyzing complex models. Shell’s Smart Manufacturing system is an application of AI in predicting oil demand and supply shortages.

2. Application of blockchain technology at various points of oil and gas supply chain: Blockchain technology finds applications in various industries as a secure way of recording transactions. In 2017, a blockchain department was set up by Shell for building blockchain applications throughout the company in various areas. A blockchain platform for lubricants tracking is being developed to counter the sale of fake Shell lubricants. A startup named Applied Blockchain has helped Shell develop an internal trading platform on blockchain technology. The trading team performed the first ever derivative trade of oil products using blockchain on November 1, 2018. Shell is a member of the Energy Web Foundation that promotes adoption of blockchain in the energy sector.

Legal

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Environmental

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