Shell Oil Case Study

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Contents

Executive Summary        

History        

Business Summary        

Business Principles        

Competition        

Chevron        

BP        

Exxon Mobile        

The Organization of Petroleum Exporting Countries        

Factors in Oil Price Forecasts        

Supply of Oil        

Demand of Oil        

Short Term Oil Price Forecasts        

U.S Monetary Policy’s Impact on Short-Term Oil Price        

Long-Term Oil Price Forecasts        

Long-Term Oil Supply Analysis        

Conventional Oil Production Supply        

Unconventional Oil Production Supply        

Alternative Energy Supply        

Solar Power Supply        

Nuclear Power        

Hydraulic Fracking        

Long-Term Oil Demand Analysis        

Demands in developing countries        

World Environmental Pressure        

Conclusion        

Bibliography        

Executive Summary

The oil market in 2015 is full of uncertainty. After the plunge of oil price in 2014, people first believe that the oil price will bounce back in 2015, it did at the beginning, During March-June 2015, the price increased from $48 to $60. But started from July, it declined again from $60 to $41, a historical low point in 5 years. It is hard to predict the oil price in 2016 and long-term under such situation.

Although the US has cut its production in 2015, we believe the world’s oil market will still be over supplied in 2016. With OPEC’s firm stand on keeping its member nation at full output capacity, we don’t think the upcoming OPEC meeting in Dec will change its production target. To worsen the oversupply situation, Iran just announced that it will double its oil export in 2016, since the oil sanctions upon Iran is about to be lifted. This will add more than 2 million barrels per day to the market. On the demand side, EIA estimates the global consumption of petroleum and other liquids grew by 1.4 million barrels per day, which is a good news to the oil market. The main driver is still China. The outlook of China’s economy growth of 2016 is optimistic by most analysts. But there are some uncertainties involved, for example, some analyst believe that the mild winter we are experiencing this year will affect the heating-oil demand if it lasts long enough,  which eventually will lower the price of crude oil. Besides, the US monetary police will also put pressure on oil price, the upcoming interest hike of Federal Reserve will likely to drive the price downward. So,we believe that the short-term price forecast is still pantheistic, the oil price will keep low at 2016.

Long-term prediction is a lot harder than short-term due to the number of uncertain factors. The supply growth is mainly rely on OPEC countries, but due to geopolitical issue, it is quite possible that some OPEC countries’ production will experience disturbance in the future such as Iraq. The demand growth is driven by developing countries such as China and India. There are many other factors that needs to be considered such as unconventional oil source ( Shale oil, sand oil), alternative energy growth and world’s environmental issue.

History

The Royal Dutch Shell Group was created on the year 1907. Its creation is a direct result of the merging of two companies; Royal Dutch Petroleum Company and the “Shell” Transport and Trading Company. The merge is motivated by the competition of Standard Oil Company. Royal Dutch Petroleum Company is a Dutch Company founded in 1890 in order to develop an oil field in Sumatra. The “Shell” Transport and Trading Company was a British company, founded in 1897 by Marcus Samuel and his brother Samuel Samuel. The name “Shell” came from the fact that their father owned a trading company which imports and sell sea-shell.

Due to patriotic reasons, the merge didn’t result in one company but two. One Dutch company who held 60% ownership and was in charge of production and one British Company who held 40% ownership and was in charge of transportation and trading.

During World War I, the Shell group is the main supplier of fuel of the British Expeditionary Force. In 1919, Shell purchased the Mexican oil company, Mexican Eagle Petroleum Company and formed a marketing company called Shell Mex which marketed Shell product under the brand “Shell” and “Eagle”. In 1921, the Shell Chemical was founded in order to march into the chemical petroleum products market. By the end of the 1930s, Shell was the leading oil company of the world who held 11% of oil market.

During World War II, Shell had a significant share in the world’s military product contract, after the invasion of Netherland by the Germany, Shell moved it’s headquarter to Curacao. Shell is also one of the first companies that used a computer.

In the 21st Century, the Royal Dutch Shell plc was formed to be the sole parent company for the Shell Group. Soon after the formation of the new company, the Royal Dutch Petroleum Company and “Shell” Transport and Trading Company delisted themselves respectively.

Business Summary

Shell has four major business groupings, includes: Upstream International, Upstream Americas, Downstream and Projects.

Upstream International:

This part of shell manages the upstream sector outside of the Americas. It searches for potential underground or underwater crude oil and natural gas fields. It mainly operates in Algeria, Cameroon, Egypt, Gabon where is the giant Rabi-Kounga oil field, Ghana, Libya, Morocco, Nigeria, South Africa and Tunisia; and in the downstream sector in 16 other countries. It also manages the Midstream sector which includes the transportation and storage of its upstream product.