On 16 October 1973, a great oil crisis began when Organization of Petroleum Exporting Countries (OPEC) raised the price of oil by 70 per cent and reduced production. This was in response to the decision by the United States to re-supply the Israeli military during the Yom Kippur war, lasting until March 1974. As a consequence, the market price of oil rose substantially — from $3 a barrel to $12. The trend of recessions and high inflation in the world financial systems until the 1980s meant that the price of oil continued to increase until 1986. This, according to Shell, meant that ‘An era of cheap energy had come to an end and oil was no longer a buyer’s market’.

However, when the oil shock came in October 1973 after the Yom Kippur war, Shell was the only oil major prepared for it. In the early 1970s, Pierre Wack was a planner in Royal Dutch Shell in London, and had calculated the impact of a possible rise in the oil price and a likely increase in the world’s appetite for oil. He and his colleagues had mapped out a scenario in which the OPEC demanded much higher prices for their oil following the 1967 Arab–Israel six-day war. In effect, Shell’s managers were able to plan for this eventuality and apply this planning to the crisis following the Yom Kippur war while other oil companies struggled.

In order to survive, Shell adopted a policy of diversification, branching out into the areas of coal, nuclear power and metals. Firstly, in 1970 Shell purchased Billiton, an established metals mining company (which it later sold). In 1973, the company moved into nuclear power by forming a partnership with Gulf Oil to manufacture gas-cooled reactors and their fuels. Shell’s success in coal was limited. In the 1970s, the company also continued its work in developing the oil fields in the North Sea. While a huge investment was required due to the adverse weather conditions and the instability of the sea bed, the cost was justified due to the sheer size of the oil fields in the North Sea, as well as the fact that supply from the Middle East was reduced at the time.

QUESTIONS

1. If you were a regulator responsible for planning your government’s energy policy, how would you decide on your priorities? Safety and environmental sustainability would loom large as principles guiding your planning, but what else?

2. To keep all the variables in play, is there likely to be any better planning approach than scenario planning? What other planning approach might you investigate?

3. In relation to energy planning, can you compare scenario planning with contingency planning? Which do you think is most useful, and why?

4. The global agreement on the reduction of climate change forged in Paris in late 2015 carries with it the responsibility for all participant countries to plan their future energy generation and usage carefully. What are the obvious questions that will need to be asked at organisation, community and government levels? How will an organisation begin to contemplate the management of its planning process in relation to climate change and sustainability?