CHAPTER 2 MACRO-ENVIRONMENT ANALYSlS 36 ILLUSTRATION 2.1 BP's PESTEL In 2016, the world's oil industry was facing a toughening macro-environment. Dppo rtunities I Threats A High Government support New growth regions Business mergers New production technologies PESTEL analysis can be done using published sources (e.g. company annual reports, media articles a d' sultants, academics, government officials and financial a a P o d b s 'Id consultants' reports) or more extensively by direct scussion with managers, customers, suppliers, con "Ialysts. It is important not to rely just on a firm's rranagers, who may have limited views. A PESTEL "Ialysis of the world oil industry in 2016 based on .Iblished sources shows a preponderance of threats ver opportunities. In the figure above, the scale of Opportunities and Threats on each of the PESTEL mensions is indicated by the relative extent of the ars. Just taking 12 issues for illustration, the figure 10WS more and longer bars on the Threats side than the Opportunities side. Thus: Political. Global instability raised potential threats to supply and distribution, with tensions in oilproduc ing regions such as Russia and the Middle East, and in major oilconsuming regions, such as the South China Sea. Shortterm, prices were depressed by Saudi Arabian policy to maintain output despite declining demand: oil prices had halved during 2015. The main opportunity was various measures of government support, particularly in favour of shale oil production in China and the West. Economic. During 201415, the world had recorded declining economic growth, with only a modest upturn forecast for 2016. High growth regions such as India and Africa still offered opportunities and Western oil companies were reducing their costs through mergers. p E T L . _ _ High Global Instability Saudi Arabian policy Slow world economic growth Lower car usage Fuel efficiency technologies Climate change Pollution liabilities Decarbon isation Social. In the West, car usage is declining; in the USA, the number of car passenger miles has fallen by more than 10 per cent since 2007. Technological. More fuelefficient cars were also reducing demand, with average miles per gallon improving by 40 per cent since the early 1980s. More positively, technology offered oil producers opportunities to reduce costs: e.g. more efficient production using digital sensors. Ecological. Climate change raised indirect legal and political threats, but also posed direct threats, as global warming changed demand patterns and threatened production and distribution infrastruc- ture with more extreme weather events. Legal. Oil companies were facing higher legal penal ties for pollution: in 2015, BP had to pay $18.7bn (11.2bn, 14bn) in fines for the Deepwater Hori zon disaster. Global agreements such as the 2015 Paris Climate Change Conference were increasing legal measures to promote decarbonisation. Questions 1 In the light of this analysis, what strategic options would you advise a Western oil producer such as Shell or BP to consider? 2 Have the Opportunities and Threats changed since 2016? How would you update this analysis