1. INTRODUCTION Royal Dutch/Shell officially opened an oil extraction facility on June 19, 2003 in Alberta, Canada where an estimated 180billion barrels lie beneath the tar sands. With the plant rolling out less than 200 000 barrels per day at $12 each, the company faces increased competitive pressures and a growing number of uncertainties. At this point in time, the strategic decision must be made of whether to expand capacity in the tar sands and if so, when. This study identifies key uncertainties and situational analysis tools to be used by Royal Dutch/Shell to answer the question of capacity expansion (See Figure 1). Uncertainties are classified into four levels with level one being low through to level four; the situation of true ambiguity (Courtney, Kirkland & Viguerie, 1997). “Residual uncertainties” which cannot be accurately predicted even with extensive analyses are of concern REFERENCE/cut out. Figure 1: Table displaying major uncertainties faced by Royal Dutch/Shell, respective levels of uncertainty and situational analysis tools. 2. UNCERTAINTIES FACED BY ROYAL DUTCH/SHELL 2.1 The Price of Oil and Investor Interest In Alberta Oil price and investor interest can have a significant impact on the success or failure of oil production ventures in Alberta. With the cost of production remaining relatively stable it is the primarily the price of oil that determines the profitability of the oil industry in Alberta and investor interest. In this situation the price of oil and investor interest are intrinsically linked. Advocates pro utilization of this vast and largely untapped resource have assumed that oil prices will remain stable when evaluating the future viability and potential investor interest in the Alberta industry. However, assumptions such as this can be disastrous if they are without sound basis. Key factors that may influence the price of oil in the future: Saudi Arabia’s vast reserves and low costs giving Saudi the ability to manipulate prices and in the past has instigated price collapses scaring investors away from marginal projects such as the tar sands project. Political and social unrest in the Middle East potentially jeopardizing oil and forcing prices upwards. This would encourage increased investment in less volatile regions such as Alberta. Global demand for oil; developing countries such as China have the potential to drive demand for oil and put inflationary pressure on prices as supply outweighs demand. The price of oil and investor confidence represents a level two uncertainty. There are a few distinct outcomes which define the future, one of which will occur.
The Alberta Oil Sands are large deposits of bitumen in north-eastern Alberta. Discovered in 1848, the first commercial operation was in 1967 with the Great Canadian Oil Sands plant opening, and today many companies have developments there. The Alberta Oil Sand development is very controversial, as there are severe environmental impacts and effects on the local Aboriginal peoples. This essay will discuss the need for changes that can be made for the maximum economic benefit for Canada, while reducing the impact on the environment and limiting expansion, as well as securing Alberta’s future. Changes need to be made to retain the maximum economic benefits of the Alberta Oil Sands while mitigating the environmental and geopolitical impact. This will be achieved by building pipelines that will increase the economic benefits, having stricter environmental regulation and expansion limitations, and improving the Alberta Heritage Fund or starting a new fund throu...
The Alberta tar sands have the second largest oil reserves in the entire world, only smaller than Saudi Arabia’s oil reserves. This vast supply of oil has created a large interest in the extraction and then production of different types of oil in Canada. The tar sands are believed to hold around 174.5 billion barrels of oil. The estimates are across the board but if it is true, the oil industry in Canada would become its largest export and substantially boost the economy. The tar sands were producing 53% of Canada’s oil output, but by the end of this year it will be around 83%. This number could increase to 99%, if the tar sands are fully taken advantage of. The extraction of oil has already begun and covers around 602 square kilometers of land. The problem is that ...
One of these factors was the logistical nightmare of redeveloping the infrastructure needed to transport oil to the refinery. As early as 1881, Standard oil operated approximately 3,000 miles of pipelines, eventually owning ninety percent of the nation’s pipelines. Although transcontinental railroads were an available alternative, pipelines were cheaper, reduced handling and storage fees, and were more efficient. The fact that modern oil companies invest hundreds of millions of dollars into speculating for sustainable natural oil deposits implies that such deposits are rare and hard to identify with a passing glance. If the spurts of oil proved to be isolated incidents, the capital invested in building pipelines and reestablishing a monopoly would have been squandered.
At the turn of the century there was a new law named “Capture” therefore; whoever produced the oil owned the oil. If you did not produce the oil then somebody else would be willing to produce the oil. The consequences if the production of the well ran dried out weight the reward. “Oilmen were not the only ones who knew that production was often short-lived; bankers quickly learned that no prudent lenders extended a loan on the basis of oil production. “ It was a reality that oil production started of strong and quickly dropped off within a matter of a couple months. The risk was not worth the reward for either party which is the bakers or the oilmen. The ferocious cycles from boom to bust, from having more than enough oil to not enough would swing the price for oil up and down like a roll coaster. When a new oil field came in, the local markets hand more than enough oil, pushing the prices lower, making oil more affordable. However, whenever the oil production dropped it would send the prices sky rocketing making it unprofitable to stay in business. Pattillo Higgins would be willing to take on this challenge head on of producing oil. [Who is Higgins, Ernest? By giving at least a short introduction the readers w...
According to one government analysis, the crude from Canada’s oil sands will emit seventeen percent more greenhouse gas pollution than there processes used for conventional oil, making it even more controversial against environmentalists (Davenport par. 6). The concerns are reflected in great quantity of carbon in the tar sands, “Ensure that they will play an important role in whether or not climate change gets out of hand” (Clayton 2). In addition, the Environmental Protection Agency (E.P.A) noticed the impact it would have on greenhouse gas emissions. According to the E.P.A., “The recent drop in global oil prices might mean that contraction of the pipeline vault spur increased development of Canadian oil sands—and thus increase planet-warming greenhouse gas emissions” (Davenport par
America is dependent on other nations for their ability to create energy. The United States is the world’s largest consumer of oil at 18.49 million barrels of oil per day. And it will continue to be that way for the foreseeable future considering the next largest customer of oil only consumes about 60% of what the U.S. does. This makes the U.S. vulnerable to any instability that may arise in the energy industry. In 2011, the world’s top three oil companies were Saudi Aramco (12%), National Iranian Oil Company (5%), and China National Petroleum Corp (4%). The risk associated with these countries being the top oil producers is twofold. One, they are located half way around the world making it an expensive to transport the product logistically to a desired destination. And two, the U.S. has weak, if not contentious,...
In 2004, crude oil producers around the world expected a 1.5% growth in the world’s demand for crude oil. The actual growth rate was more than double the projections at 3.3%. This growth was due to rapidly industrializing of foreign countries such as, China and India. Therefore the lack of crude oil affected the supply of gasoline to consumers at the pump.
Since the 19th century, gas has gradually become a necessity to mankind. It has been used for lighting our houses, to produce heat, to cook our food and to run our vehicles. As time passed, the price of gas has known many changes in Montreal. By the year of 2008 the price was relatively low, but suddenly became very high in 2014. This year in Montreal, the prices are as low as 3.4 US $/G. When considering the previously mentioned facts, we ask ourselves why the price of gas is low and what are the factors fluctuating its price. The main factor responsible of gas price changes is the cost of oil.
The U.S dependency on foreign oil presents many negative impacts on the nation’s economy. The cost for crude oil represents about 36% of the U.S balance of payment deficit. (Wright, R. T., & Boorse, D. F. 2011). This does not affect directly the price of gas being paid by consumers, but the money paid circulates in the country’s economy and affects areas such as; the job market and production facilities. (Wright, R. T., & Boorse, D. F. 2011). In addition to the rise in prices, another negative aspect of the U.S dependency on foreign crude oil is the risk of supply disruptions caused by political instability of the Middle East. According to Rebecca Lefton and Daniel J. Weiss in the Article “Oil Dependence Is a Dangerous Habit” in 2010, the U.S imported 4 million barrels of oil a day or 1.5 billion barrels per year from “dangerous or unstable” countries. The prices in which these barrels are being purchased at are still very high, and often lead to conflict between the U.S and Middle Eastern countries. Lefton and Weiss also add that the U.S reliance on oil from countries ...
The extraction of crude oil from the Athabasca oil sands is carried out by surface mining and in situ mining. 90% of recoverable bitumen is located too deep to be recovered by surface mining (Mossop, 1980). Both techniques require invasive processes to successfully extract the bitumen from the subsurface and result in degradation of the land upon which they ar...
The article addresses the issue of being successful in a highly uncertain business environment. Some managers prefer to play it safe by adopting a wait-and-see strategy while others may invest in flexibility that allows their companies to adapt quickly as the market evolves. The companies sometimes neglect the fact that having a successful strategy depends on several factors, including their industry position, assets, or their willingness to take a risk in investing in such strategies. The paper introduced some of the tips and terminologies that could help managers facing uncertainty decide on whether to play safe or bet big. The traditional practice is to put a vision of predicted future events
OPEC was established in the 1960's and ever since, Saudi Arabia gained a reputation of being the major power of the organization. Saudi Arabia has the biggest oil reserves in the world and production costs lower than any country. (economist.com 2003)This means that it is a natural monopoly and economies of scale arises; when the long run average total cost falls as the quantity of output increases as illustrated in figure 1. (Gans, J. King, S., Mankiw, N., 2003) Saudi Arabia is the undisputed leader of OPEC.
The current world dependence on oil leaves much to be said about the impact of Saudi Arabia and the Middle East on foreign policy and international politics. Presently the world's largest consumer of oil, the U.S. depends on Saudi Arabia and much of the Middle East for the energy to run its businesses, its homes, and most importantly, its automobiles. In the past few months U.S. consumers have felt the pressures of increasing gasoline prices as they struggle to commute and live their daily lives. This leaves the U.S. with important decisions to be made on behalf of its citizens and its position in the international realm.
MSCI, a budgetary investigation firm with extraordinary aptitude in surveying the estimation of intangibles like carbon hazard, examined the petroleum business ' execution in five key classifications: operations, wellbeing and security; capacity to get to assets in developing markets; carbon discharges; interest in option vitality; and interest in unpredictable fossil powers like oil sands and oil shale, coal bed methane and coal crease gas, and both gas-to-fluid and coal-to-fluid energizes.
This is the open-system view of the organization. Prior to the accident, BP was concerned with its procurement process, technology development, infrastructure and human resource. BP was also using SWOT Analysis through which the company examined strengths, weaknesses, opportunities and threats. Internal analysis here refers to BP’s capabilities and resources, which define her strengths, and weaknesses while opportunities and threats derive from the external context of BP operations. However, after the accident, BP became more aware that the external environment is where opportunities and threats exists and must be constantly monitored and scanned. This can be explained with The ‘PESTEL’ model which identifies the key elements of Political (Legislation/ Ideology, government expenditure and legislative factors); Economic (Macro-economic factors and business cycles); Socio-demographic (Changing societal attitudes towards ethical standards and life style choices); Technological (technologies that can affect an organization); Ecological / Green issues (Opportunities and threats, impact of pollution or reclying and carbon reduction) and legal factors (legislative or regulatory framework under which the company operates that create opportunities and threats). The essence of using the PESTEL model here is to identify the key drivers that allows scenario planning to occur in relation to market