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Research on external factors (suppliers, customers, competition, environment, etc) that are influencing Royal Dutch Shell at the moment. Example would be: Tesla and e-vehicles might threaten the worldwide gas demand. I need a list of most important forces that influence that business with links on resources that proofs that information (only credible well-known sources).
Hello! Thanks for your question about external factors influencing Royal Dutch Shell. The short answer is that Shell faces a wide range of external threats including oil price fluctuations, political and fiscal factors, instability, growing attention to climate change, wider macroeconomic factors, and capital markets risk.
Below you will find a deep dive of my findings.
METHODOLOGY
To answer this question I first investigated Royal Dutch Shell's most recent annual report (2015), which outlines the various risk factors that they're concerned about. I then identified those that are external, summarized them below in the findings, and included any additional details I was able to gather.
OIL PRICE FLUCTUATIONS
At a general level, Shell's number one external risk is fluctuating energy prices (for oil, natural gas, and petrochemicals). While low prices obviously create a more difficult operating environment due to less revenues per unit of output, high prices can also create challenges by reducing the share of revenues provided to Shell due to the details of production-sharing agreements and also by increasing global demand for support services (thereby their increasing cost). Low prices can also result in projects being cancelled if they are no longer regarded as economically viable.
Global energy prices can be driven up a wide range of external factors including: operational issues by third-party owners of key production facilities; natural disasters and adverse weather affecting production areas; and political and/or economic instability in key producing countries affecting global supply.
POLITICAL & FISCAL FACTORS
In addition to the affect that political and economic instability has on global energy prices, these factors also pose a direct risk to Shell. With operations in more than 70 countries, Shell must deal with wide variety of different degrees of political and economic stability. Prolonged low oil prices reduces the energy revenues of countries, which in turn increases their chance of enacting negative rules on Shell to increase national profits (particularly by those countries that are highly dependent on energy revenues).
1.) Forced divestment;
2.) Expropriation;
3.) Cancellation or renegotiation of contracts;
4.) Additional taxes or other negative tax rules;
5.) Controls on trade, prices, or foreign exchange;
6.) Local content requirements;
7.) New environmental regulations; and
8.) New data disclosure regulations.
Also within this category are risks associated with overzealous regulatory bodies that may operate beyond their constitutional authority (but which may be allowed to operate as such due to popular demand), that attempt to exact higher costs on Shell or fail to uphold their side of existing contracts.
Additionally, legal changes may be implemented in one jurisdiction that, if Shell were to comply with these, may result in Shell then breaking the law in another jurisdiction.
DIRECT AFFECTS OF INSTABILITY
While political, economic, and social instability indirectly affect Shell through the resulting price changes and legal amendments, these periods of instability can also directly impact Shell's operations. For example, instability in Nigeria, North Africa, and the Middle East can has had the direct result of damage and theft of assets or the inability to continue operations in certain oil producing regions. Likewise, pandemic diseases are flagged by Shell as another external risk, both in terms of their risk to operations, but also as a potential source of increasing other forms of instability.
ATTENTION TO CLIMATE CHANGE
Shell identifies growing attention to climate change as one of the external risks it faces, both in terms of reducing demand for fossil fuels (and thereby lowering prices), and also the growing regulatory burden that is likely to result as governments take greater actions to address greenhouse gas (GHG) emissions.
The attention to climate change also has the potential to damage Shell's reputation, which in turn could affect demand for the company's products or it's ability to secure approvals for existing and new operations.
This said, there is also evidence that this attention to climate change has also benefited Shell, for example by advocating for a shift from coal-fired power plants to gas-powered plants (which produce less GHG emissions)
Because Shell is an international company, macroeconomic conditions - both in individual countries and on a global scale - pose external risks. This can take a wide range of different forms, including a currency crash in one country making the revenues sourced from that country less valuable, interest rate increases in a country making the cost of borrowing there higher, or global economic slowdowns affecting demand for energy inputs (thereby depressing their prices). Shell specifically identifies the company's large exposure to the EU as a significant external risk in case there were any major change in value of the euro or economic collapse in the region.
CAPITAL MARKETS RISK
Beyond the energy market specifically, Shell also holds significant capital markets risk. This is due to the sizable pension commitments that Shell holds to its current and past employees. Should there be any major drop in global capital markets performance, this would in turn have a negative impact on Shell's pension investments, and could force the company to tap into operational funds in order to meet its pension obligations.
TROUBLES IN NIGERIA
Encompassing many of the above factors, there have been particular recent difficulties for Shell in Nigeria, so I figured it would be worth highlighting these specifically. Nigeria currently accounts for around 15% of Shell's oil and natural gas liquid output and 9% of its natural gas output. That said, the country has proven to be a particularly difficult operating environment, with recent legal challenges regarding corruption and pollution, as well as ongoing operational challenges due to unplanned disruptions, theft and sabotage.
CONCLUSION
To wrap it up, as a global company operating in more than 70 markets, in an environmentally/politically sensitive and economically significant industry, Shell faces a wide range of external threats to its operations.
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