The shock decision is part of a wider shake-up of the Anglo-Dutch oil company that will see all Shell's European head offices in London, Paris, Hamburg and Rotterdam close, with the potential loss of more than 4,000 jobs. Around 300 staff at Shell's oil exploration offices are likely to move to Aberdeen.
Shell blamed the cut-backs on the sharp fall in crude oil prices and the worst trading conditions for five years. It said a series of warm winters had reduced demand and that the economic crisis in Asia, where Shell has significant exposure, had also affected profitability.
The decision to close Shell-Mex House on the Strand in London will end the company's 65 year association with the building. The premises will be sold or leased as Shell shifts staff to other offices around the country, but jobs losses seem certain. Shell's International headquarters near Waterloo station, which employs another 2,000 workers, will be unaffected by the re-structure.
The prospect of redundancies at Shell will be a major culture shock for the workforce, as the company has built a reputation as a paternal employer with a "job for life culture". Its staff are not the best paid in the oil business but this is countered by perks such as good leisure facilities and generous pension arrangements.
But in the City, Shell has been seen as an over-staffed lumbering bureaucracy that has been slow to adapt to changing markets while underperforming its rivals.
Fergus MacLeod, a top rated oil analyst at City stockbroker BT Alex.Brown, said: "It is a huge cultural change for them. They have been slower to change than other oil companies and though these changes are welcome they probably do not go far enough."
John Toalster, oil analyst at SG Securities added: "Shell over-expanded in the 1970s and 1980s and tried to become the biggest oil firm in the world. But that didn't work and it became too large and bureaucratic. When other companies started to make cut-backs in the 1980s, Shell left it late."
While rivals introduced stringent 1990s-style cost-cutting programmes and highly "incentivised" management structures, Shell took a different approach. Last month it hired the services of a Buddhist monk to lead a meditation session for 500 of its managers.
Shell has historically been seen as one of the safest havens for investors' money with its steady, low risk approach. But recently the trading environment has worsened. The oil price has plunged from over $21 per barrel to little more than $13 in the last year and Shell's profit margins in refining, marketing and chemicals production have been squeezed.Reuse content