Ekenedilichukwu Onyechi
Regent University
Econ 230
7/1/2022
“Shell is a global group of energy and petrochemical companies that aims to meet the world’s growing need for more and cleaner energy solutions in ways that are economically, environmentally and socially responsible.” (Shell Global, 2022). Shell is one of the world’s largest oil companies in the world. It has five main business operations: Upstream, Integrated gas, Renewables, and Energy Solutions, Downstream, and Projects & Technology. The company’s main business is Upstream and Integrated gas operations, which manages the exploration and extraction of crude oil and liquefies natural gas activities. Its headquarters are in The Hague, Netherlands, with its registered office in London.
Royal Dutch company was founded in 1890 by Jean Baptiste August Kessler, Henri Deterding, and Hugo Loudon. The company’s first pipeline was established in 1892 in Sumatra, Indonesia. While the Shell Transport and Trading Company, Limited was founded by Marcus Samuel and established in 1897 and set up oil wells in Borneo, Indonesia in 1896. The two companies merged in 1907 as the Royal Dutch Shell company. Today the company is in over 140 countries and has over 11 subsidiaries, one of which is in Houston, Texas United States.
GDP is an indicator of how well the country’s economy is doing. It indicates the total value of goods and services in a country. Therefore, if the GDP of a country is doing well then it can be an indicator to a company how it may be doing in that specific market. It can also give insight into whether the company should expand into a country’s market. However, the same is said in reverse. If a country’s GDP is doing badly it can indicate how bad the company’s profits are doing. It can also alert a company whether they should put some money in reserves or pull out from that market. This logic can be used to analyze economic growth, if the economy is growing then that means there is a high demand for goods and services. Profit, sales, or revenue are normally high and increase when there is economic growth. Fluctuations in investments could either hinder or facilitate a company’s production. Patents can protect a company’s technology and information from being copied and used by another company.
Royal Dutch Shell is based in The Hague, Netherlands a densely populated country with about 17 million people. In terms of economy, the country has over 170 million consumers and is the seventeenth-largest economy in the world and the fifth-largest in Europe. The Netherlands has a gross domestic product (GDP) of $912 billion. In research from International Trade Administration (2021) “The 2019 World Economic Forum Global Competitiveness Index ranked the Netherlands as fourth among the world’s most competitive economies.”. Royal Dutch Shell’s second key market is the United Kingdom. The country owns 202 of its subsidiaries, the highest out of all its subsidiaries including its domestic subsidiary in Norway. The GDP of the UK is $2.708 trillion ranked fifth as of 2021.
The general demand for natural gas fluctuated during the years 2019-2021. In the year 2020, the demand for natural gas dropped by 4% from the previous year. The Covid-19 crisis brought a lot of repercussions on the product's growth potential forecast. Fortunately, with things opening back up, there is an expectation that the demand for natural gas will bounce back from 2020. It is expected of “...an average growth rate of 1.5% per year during…” the 2019 to 2025 period. However according to S&P Global “Global gas demand is set to turn negative in 2022 as a result of high prices and market uncertainty, with demand expected to fall by 0.3% this year, the International Energy Agency said April 20.” (Elliott, 2022). In terms of supply, every region has some contribution to the growth potential of natural gas. North America and the Middle East contribute to half of its net increase. The US, being the main supplier in recent years, is facing some setbacks, “…the IEA report World Energy Investment 2020 estimates that upstream spending on shale tight oil and gas is set to decline by 50% y‑o‑y in 2020.” (Paris, 2020). Natural gas production in the Middle East depends on the increase of conventional projects throughout its different countries. But uncertainties and oil price collapses have brought on risks in its forecast.
As for the company Royal Dutch Shell, it is predicted that their demand for natural gas will double by 2040. In 2019 there were 358 million tons of natural gas and last year their demand for natural gas increased by 2 million tons. According to Shell’s 2021 annual report “Global oil product demand rose by 5.6 million barrels per day (b/d) in 2021 to 97.4 million b/d, after a sharp drop of around 8.5 million b/d in 2020, according to the IEA.” (Royal Dutch Shell plc, 2021). Concerning profit Shell’s gross profit is 2020 was $40.354B, a 42.62% decline from 2019 and in 2021 it was $72.5B, a 79.66% increase from 2020.
“Comparative advantage is the ability of a country to produce a good or service for a lower opportunity cost than other countries.”(AMADEO, 2022). For example, countries like Saudi Arabia that can provide oil, natural gas, and chemical materials cheaper have a competitive advantage over a country like the US because of their low opportunity costs. This theory can be applied on a company level. Shell has a few advantages over other rival oil companies. One of them is its focus on quality and production control, compared to other oil companies Shell’s supply chain management stands out from others. Another advantage Shell has is having the world’s leading oil and gas brand, according to BrandFinance “Shell is world’s most valuable brand in oil and gas, valued at US$49.9 billion” (HAIGH, 2022).
References
AMADEO, K. (2022, March 30). What Is Comparative Advantage? The Balance. https://www.thebalance.com/comparative-advantage-3305915
Elliott, S. (2022, April 20). Global gas demand to decline by 0.3% in 2022 amid high prices, volatility: IEA. S&P Global Commodity Insights. https://www.spglobal.com/commodityinsights/en/market-insights/latest- news/natural-gas/042022-global-gas-demand-to-decline-by-03-in-2022-amid-high-prices-volatility-iea
HAIGH, R. (2022). Oil & Gas 50 2022 | The Annual Brand Value Ranking | Brandirectory - Shell leads all oil and gas brands as COVID, Ukraine and ESG issues disrupt global brand values. BrandFinance. https://brandirectory.com/rankings/oil-and-gas/
International Trade Administration. (2021, September 11). Netherlands - Market Overview. International Trade Administration | Trade.Gov. https://www.trade.gov/country-commercial-guides/netherlands-market-overview
Paris. (2020). 2021-2025: Rebound and beyond – Gas 2020 – Analysis. IEA. https://www.iea.org/reports/gas-2020/2021-2025-rebound-and-beyond
Royal Dutch Shell plc. (2021, March). POWERING PROGRESS. Friend Studio.
Shell Global. (2022). What we do. Shell. https://www.shell.com/about-us/what-we-do.html