Porter’s Five Forces Analysis of Shell Plc (formerly Royal Dutch ShellPlc)
Key Facts
| Name | Shell Plc (formerly Royal Dutch Shell Plc till Jan 2022) |
| Industry | Energy & Petrochemical, Petroleum Refining |
| Founded | 23rd April,1907 |
| Headquarters | Hague, Netherlands (till Jan 2022)/London,UK (New) |
| CEOs | Ben van Beurden |
| Revenues | US$ 261.8 Billion (As of Dec 31,2021,Annual Report-2021)
US$ 180.54 Billion (As of Dec 31,2020,Annual Report -2021) |
| Profit / Loss | US$ 20.6 Billion approx. (As of Dec 31,2021,Annual Report-2021)
US$ -21.53 Billion approx. (As of Dec 32,2020,Annual Report-2021) |
| Competitors | China Petroleum, Exxon Mobil, BP Plc, Chevron Corp,Total Energies |
Company Overview
Headquartered in London, United Kingdom Shell Plc Shell ranked on 15th by Fortune 500 is present in more than 70 countries with more than 46000 retail stations. It was officially merged by Marcus and Samuel sons of Senior Marcus Samuel with Royal Dutch in 1907.Its reported revenues are US$ 261.8billion with a net profit of 20.6 Billion with a net assets valued at US$ 404.4 billion, as of FY Year 2021.Shell reported a bounce back recovery from 21.53 Billion loss in FY 2020.
Porter’s Five Forces Analysis
The most widely referred model to design companies’ strategies in reference to its industry for better profits and less exposure to competition is “Porter’s Five Forces Analysis”, defined byProfessor Micheal E. Porter in 1979,at Harvard Business School.
Shell Rivalry among Existing Competitor
- Shell Business Revenue Analysis FY 2019-2022: Shell gave a record recovery revenue of US$ 216.5 Billion, which is a recovery growth of 45% in FY 2021, compared to a year prior US$ 180.54 in FY 2020 respectively. The reported revenues before COVID-19 impacted are 344.87 Billion in FY 2019, which dropped by almost by 50% in FY 2020.
- Shell Business Segmentation: Shell is operating through following Business Segments including Integrated Gas (including Renewable and Energy Solutions), Upstream, Oil Products (including Marketing), Chemicals (including Chemical and Products) and Corporate.
- Shell Business Segmentation-Integrated Gas Renewable and Energy Solutions Operates in Natural Gas liquefied operations and related solutions and activities with the search for renewable and energy solutions.
- Shell Business Segmentation-Upstream: Mainly operates mainly in crude oil and natural gas extraction, exploration, delivery and sales. Also take care of these main activities.
- Shell Business Segmentation-Downstream This mainly operated in the end products which are the outcome of the refinery process including gasoline, diesel, aviation fuel etc.
- Shell Business Segmentation-Projects & Technology: It is the functional service provider to all the other departments and well equipping them in technology including Upstream and Downstream.
- Shell Business Segmentation Revenue Contribution FY 2021 and FY 2020: The Shell Revenue comprises of the following Segmentation by following amounts and percentage of Total Revenue.
- Shell Business Segmentation Revenue Contribution FY 2021: Integrated Gas contributed US$ 52.4 Billion which is 20% of the total revenue, Upstream contributed US$ 9.16 Billion which is 5 % of the total revenue, Oil Products contributed US$ 182.89 Billion 69.9 % of the total revenue, Chemicals contributed US$ 16.9 Billion 6.4 % of the total revenue and Corporate contributed US$ 0.04 Billion 0.01% of the total revenue in FY 2021. (Source Annual Report Page 246 and Page 247)
- Shell Business Segmentation Revenue Contribution FY 2020: Integrated Gas contributed US$ 33.28 Billion which is 4 % of the total revenue, Upstream contributed US$ 6.7 Billion which is 3.7 % of the total revenue, Oil Products contributed US$ 128.71 Billion 70 % of the total revenue, Chemicals contributed US$ 11.7 Billion 6.4 % of the total revenue and Corporate contributed US$ 0.05 Billion 0.02 % of the total revenue in FY 2021.
- Shell Business Segmentation Geographical location wise Revenue Contribution FY 2021 and FY 2020: The Shell Revenue contributed by geographically as follows: US$ 78.54 Billion from Europe, US$ 87.07 Billion from Asia-Oceania-Africa, US$ 73.64 Billion from USA and US$ 22.23Billion from Other Americas in FY 2021.The Shell Revenue contributed by geographically as follows: US$ 50.13 Billion from Europe, US$ 65.13 Billion from Asia-Oceania-Africa, US$ 50.85 Billion from USA and US$ 14.40 Billion from Other Americas in FY 2020.
- Battle of the Brands-Global Crud Oil Industry: Global Crud Oil Industry reached a production volume of 4.2 billion metric ton in 2021.The leading ‘Oil Producing’ countries are U.S., Saudi Arabia, Russia and Canada.
- Battle of the Brands China National Petroleum ranked 4th by Fortune 500 gave a record revenue of US$ 411.7 Billion, which is 45% increase compare to FY 2020, with a US$ 9.6 Billion Profits in FY 2021, which is a 111% increase from FY 2020.(Source Fortune 500)
- Battle of the Brands Exxon Mobil ranked 6th by Fortune 500 gave a record revenue of US$2.85 Billion with a Net Profit of US$ 23.04 in FY 2021.
- Battle of the Brands Rivalry: Exxon is a very close competitor of Shell both the companies are competing in same markets and same categories. Even Shell and Exxon has 50% ,50% partnership in Nederlandse Aardolie Maatschappij and have some other joint venture structures in UK.
Shell Threat of New Entrants
- Highly Technological Development with Research & Development Competitive Edge : Shell is working on all grounds including Technology Advancements for Sustainability even spent US$ 815 million in FY 2021 and US$ 907 million in FY 2020 for R&D projects for net-zero emission mission and renewable and sustainable fuels.
- Innovation through Digitalization Competitive Edge: Technology Advancements Digitalization and Technology Advancements for Entrepreneurs & Start-ups. Shell is working on robotics, cloud computing and advanced analytics. Shell also established Technological Centres globally for a better product and service innovation.
- Competitive Research &Development: Competitive and detailed research and development projects including 182 Projects in FY 2021. It also help the company in deciding future market demands and close down ways for competitors and new entrants as having a sound grip on the market.
- Economies of Scales& High Capital Requirement: These are also some major factors which creates hindrances for future entrants.
Shell Bargaining Power of Suppliers
- Supplier Relationship: Shell is maintaining a trust worthy relationship with supplies even doing activities to bring betterment in it’s supplier’s community. Including the Insolar Project which brings solar power to masses in Brazilian community.
- Withdrawal of Russian Suppliers: Being a giant Company and amongst the few leading oil producing companies Shell is in a more competitive advantage in terms with it’s suppliers. Likewise Shell sold off it’s Russian Business to Lukoil in March 2022.
Shell Bargaining Power of Buyers
- Customer Experience: To provide a better customer experience Shell is continuously working and investing in Research & Development Projects. Only in FY 2020 Shell completed 124 projects in collaboration with different universities.
- Established Brand: Shell has a strong brand standing and brand value with the declaration of Shell’s brand value is estimated at US$ above 11.2 billion by Adwired, as of January 2022, declared by Statista also it is declared with a US $ 49.9 Billion as of June 2022 declared by Statista.(Both sources mentioned).In such brand standing it is not easy for a new competitors to enter and win the market.
Shell Threat of Substitute Products or Services
- Electrification in Car Industry – Sales of EVs: Electrification definitely going to impact the oil dependency and also it will affect the global oil demand. This shows a 34% drop in the oil demand in US only by 2030 due to the shift to EVS.
- Russia-Ukraine War Due to the Russia-Ukraine war there is a hike in crude oil prices to record high 100 U.S. per barrel in February 2022 due to different route restraints. Shell closed down it’s major operations in Russia which almost cost $ 3 Billion approx. including 50% stake in Gazprom, reported by BBC.
References
- Forbes, Profile, Shell
- Fortune 500,Shell,Available at Fortune 500
- Shell, Annual Report .Available at Shell
- Shell, Company History, Shell from 1833 to 1945.Avaiable at Shell
- Statista (January, 10, 2023) Brand value of Royal Dutch Shell from January 1, 2018 to January 1, 2022 (in million euros) Statista.Available at Statista
- Transport Topics,(January 21,2021) Shell Drops ‘Royal Dutch’ From Name After Relocation. Available at Transport Topics
- Fortune 500, China National Petroleum. Available at Fortune 500
- Statista (September, 122022) Oil Production worldwide from 1998 to 2021 (in million metric tons) Statista.Available atStatista
- Statista (November, 24 2022) Global oil industry – Statistics & Facts .Statista.Available atStatista
- Statista (April, 27 2022) Operating Revenue of ExxonMobil from 2021 to 2021 (in million U.S.dollars).Available at Statista
- Fortune 500, Exxon Mobil. Available at Fortune 500
- BBC, (February 28, 2022) Shell to sell Russian investments due to Ukraine conflict. Available at BBC
- Shell Global .The Role Technology Play. Available at Shell
- Shell, Technology for Sustainability
- BP, (December 9, 2016) How will electric vehicles affect oil demand?
- Forbes,(June 18,2022) Exponential Sales of EVs, Means Less Gasoline, Less Crude Oil, Less Greenhouse Gases. Available at Forbes
- Statista,(June 09,2022) Brand Value of leading oil and gas companies in worldwide in 2022 (in million U.S. dollars).Available at Statista
- Statista (June 9,2022) Brand value of Exxon Mobile from 2015 to 2022 (in million U.S. dollars).Available at Statista
- Shell Make the Future (07-11-2017) How Insolar in bringing solar power to the masses
- Shell (May 25, 2022 ) Shell completes sale of retail and lubricants business in Russia ,Available at ,Shell