Explore the PESTLE analysis of Shell to uncover factors shaping its global energy operations and strategic decisions.
If I ask you to list the world's top most renowned petroleum companies, I am pretty sure Shell would be a significant part of that list.
In almost every country and city, Shell has gas stations. Besides providing petroleum facilities on a huge scale, Shell is also famous for producing lubricants.
Shell manufactures lubricants for cars, trucks, factory machines, ships, planes, and other machines. Moreover, it is also famous for producing coolants for engines.
Shell has been operating in different parts of the world for decades. Its unique marketing strategies and quality products have made it survive the cut-throat competition.
Since Shell is one of the most significant petroleum companies with a presence across the globe, today, we have decided to conduct a Shell PESTLE Analysis to see how different external factors impact the operations of Shell.
Before proceeding to the PESTLE analysis, let's look at the history of Shell so that we get to know about the brand a bit.
Have you ever wondered why a petroleum company has the name Shell? The reason for having this unique name is simple. Before Shell entered the petroleum industry, its founder, Marcus Samuel, used to sell antiques.
At that time, the demand for seashells was high since people used seashells in interior design in the 19th century. Looking at the growing demand for seashells, Marcus imported and sold them in London.
Soon, Marcus became aware of the import and export business, and later, his sons started exporting oil. From 1892, his sons started transporting oil. It soon became big since few companies had the resources to transport oil through the sea.
Soon, both brothers formed a company named Shell and started transporting oil in red, eye-catching containers with Shell written on them. Shell made huge profits by transporting oil.
Shell established its first oil refinery in 1897. However, later, that refinery was destroyed when the US attacked Japan in World War 2.
In 1907, Shell merged with a small competitor named Royal Dutch to form the Royal Dutch Shell group. By doing so, Shell reduced its competition and increased its market share.
After the merger, Shell expanded rapidly. It spread its operations in Europe and different parts of Asia. Furthermore, Shell's products started gaining popularity after a famous motorist won a motor rally using Shell's motor oil.
Shell played a crucial part in both World Wars. It became a significant fuel supplier for the British army. During the war period, it expanded significantly since the demand for vehicles and fuel was high.
After World War 2, Shell suffered since the demand for fuel fell. Moreover, a lot of infrastructure had gotten damaged during the war, which impacted Shell negatively.
In the 1960s, oil was explored in different parts of the world, including the Middle East, and due to this, Shell decided to internationalize the company by hiring locals in the top positions so they could run the company better.
In the 1980s, Shell increased its market share by acquiring small companies. Moreover, it focused on adapting modern drilling techniques, which reduced operational costs.
In the 2000s, Shell expanded to new territories, dissolved its partnership with the Royal Dutch Shell Group, and formed Roal Dutch Shell Plc. Between 2015 and 2016, Shell bought BG Group. Due to this, Shell's oil and gas portfolio expanded.
Currently, Shell is operating in more than 70 countries. It employs more than 90,000 employees across the globe. In 2022, Shell generated revenue of $381.3 billion.
After discussing the operations and history of Shell, Let's proceed further and discuss what PESTLE analysis is. PESTLE analysis is a tool that businesses use. This tool helps us to highlight what external factors impact the operations of businesses.
In today's article, we will conduct Shell's PEST analysis to see what political, social, environmental, economic, technological, and legal factors impact Shell.
Political Factors That Affect Shell
Political factors are the factors that are associated with government policies and the political environment. In this section, we will discuss how various political factors impact the operations of Shell.
Government regulations have a significant impact on Shell. The government may impose high tax rates on companies in the oil and gas industry. This will impact Shell negatively since its profits will fall.
However, Shell can prosper if the government decides to provide subsidies to the companies operating in the oil and gas industry. Besides tax, the government can restrict the import and export of oil.
Restrictions on the import and export of oil will negatively affect the operations of Shell. In case of restrictions, Shell won't be able to transport oil, so its operations will halt.
Moreover, the political environment of countries also impacts Shell. Since Shell operates in more than 70 countries, several countries are experiencing political unrest due to protests and riots erupting in these countries.
Political unrest impacts the operations of Shell negatively because, during protests and riots, the infrastructure of Shell can be damaged.
Furthermore, international conflicts between countries have a negative impact on Shell. For example, Shell had to close its operations in Russia and leave due to the recent conflict between Russia and Ukraine. Hence, global operations have a negative impact on the operations of Shell since they make Shell suffer.
Economic Factors That Affect Shell
Economic factors are the factors that are linked with the international or domestic economy of a country. In this section, we will look at what economic factors affect the operations of Shell.
Oil prices impact Shell significantly. It is one of the most significant economic factors affecting Shell's operations. As the oil prices fluctuate, the profit of Shell also fluctuates.
When the prices of oil are high, Shell makes high revenue. However, along with the high revenue, the production costs of Shell also increase.
On the other hand, when the international price of an oil barrel falls, the profits of Shell fall. This is how the prices of oil impact Shell.
Besides that, economic conditions have an impact on Shell. In the period of economic growth, the demand for oil is high across the globe. In such times, Shell makes huge profits.
However, economic activity falls during periods of economic recession, so the oil demand also falls worldwide. In that case, the operations of Shell are impacted negatively, and Shell suffers financially.
Other than that, an economy's interest rates impact Shell significantly. If the interest is high in an economy, Shell won't be able to take loans to invest in new ventures. However, if the interest rates are low, Shell can take loans easily and invest in capital and infrastructure.
Moreover, inflation has an impact on the operations of Shell. During times of high inflation rates, the cost of labor and raw materials increases, which causes the operational costs of Shell to increase. As a result, the profits of Shell will fall.
High inflation also causes the demand for oil to fall. People start consuming less fuel, so the sales of Shell will fall. Hence, high inflation impacts Shell negatively.
Social Factors That Affect Shell
Social factors are related to a country's cultural and societal norms. In this section of the PESTLE analysis, we will look at how different social factors affect the operations of Shell.
Over the years, people have become aware of the environment and the damage fuel consumption can cause to the environment. As a result, many environmentalists are protesting against companies that are a part of the oil and gas industry.
Shell has to deal with the criticism coming from pressure groups and environmentalists. Besides that, Shell operates in various countries with different communities. It has to keep good ties with the locals so that they can support Shell by providing their assistance.
Moreover, every country has its own culture. In some cultures, investors are welcomed by locals, and they are accommodated. However, there are cultures where people are hostile toward multinational companies that arrive to carry out their operations.
It is easy for Shell to operate in countries where locals are welcoming instead of countries where locals create hurdles for Shell.
Besides that, the living standards of people where Shell operates impact Shell significantly. There are countries where people have a high living standard. In such countries, the demand for fuel and other vehicle-related products of Shell is high.
However, there are countries where people have low buying power. In such countries, not many people own vehicles, so the demand for fuel and motor lubricants is low. Hence, Shell makes low profits in countries where fewer people own vehicles, and the demand for fuel is low.
Technological Factors That Affect Shell
Technological factors are the technology-related factors that have an impact on Shell. This section will highlight how various technological factors impact Shell.
As technological advancement has occurred, advancements in drilling techniques have been observed. Moreover, the seismic imaging technique has made exploring oil and gas reserves easy.
All these technological advancements have positively impacted the operations of Shell as they helped the brand grow. Moreover, innovations in computer modeling and simulation tools help Shell understand reservoir behavior in a better way.
Besides that, digital and social media have made it easy for Shell to market itself more effectively. Shell uses social media and digital media to run its advertisement campaigns, which increase its customer base.
Furthermore, as new technologies emerge, such as the enhanced oil recovery technique, Shell can recover more oil and gas from the mature oil fields.
Moreover, advancements in refining and petrochemical technologies help improve Shell's product quality. By using these advanced technologies, Shell can provide quality products to its users.
Legal Factors That Affect Shell
Legal factors in a PESTLE analysis account for the laws and the legal framework of a country where a business operates. Every business has to abide by the laws of the country where it operates, or it might face penalties and bans.
Labor laws have a significant impact on Shell. Shell has to ensure that it doesn't have underage workers, or else the brand might face child labor charges.
Moreover, Shell has to ensure that none of its employees has to face discrimination in Shell's working space; otherwise, Shell can be sued based on the unequal treatment of the workforce.
Besides that, Shell has to follow the legal pathway by obtaining licenses necessary to extract and transport oil. Moreover, the oil brand must abide by the contracts to avoid lawsuits.
Furthermore, Shell has to uphold the data protection laws by keeping the data of its clients and users secure. In case of data breaches from Shell, the brand might have to pay heavy fines.
Environmental Factors That Affect Shell
Environmental factors are the factors associated with the environment. In this section, we will discuss how different environmental factors impact Shell.
Since Shell is involved in transporting and producing oil, traffic accidents or oil spills due to natural calamities can be fatal. Moreover, road blockages and sea storms cause disruption in the supply chain of Shell, which can cause fuel shortages.
Moreover, during the oil extraction process, Shell has to follow the environmental regulations, or else the oil company might have to pay heavy fines.
Besides that, Shell requires an abundant water supply to carry out its operations. However, due to water scarcity, Shell cannot get enough water. As a result, its operations are being affected negatively.
Shell PESTLE Analysis: Final Word
Shell is one of the world's most renowned oil-producing and transporting companies. It has been operating in the market for more than 170 years.
In this article, we discussed the history of Shell to see how the company evolved to become one of the biggest oil transporters. After that, we conducted the PESTLE analysis of Shell to see what external factors impact the operations of Shell.
The PESTLE analysis framework helped us identify the impact of different external factors on the operations of Shell.
If you enjoyed reading this article and want to know more about what PESTLE analysis is, here are more examples of PESTLE analysis.
