Shell says oil demand could peak in five years

Controversial view puts it at odds with some of its biggest competitors who say crude will be pumped out of the ground in increasing quanitities for decades

Rakteem Katakey
Friday 04 November 2016 10:50
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87 per cent of UK spending on fossil fuels is on oil, gas or a combination of the two
87 per cent of UK spending on fossil fuels is on oil, gas or a combination of the two

Royal Dutch Shell, the world’s second-biggest energy company by market value, thinks demand for oil could peak in as little as five years, a rare statement in an industry that commonly forecasts decades of growth.

“We’ve long been of the opinion that demand will peak before supply,” chief financial officer Simon Henry said. “And that peak may be somewhere between 5 and 15 years hence, and it will be driven by efficiency and substitution, more than offsetting the new demand for transport.”

Shell’s view puts it at odds with some of its biggest competitors. Exxon Mobil, the largest publicly traded oil company, said in its annual outlook that “global demand for oil and other liquids is projected to rise by about 20 per cent from 2014 to 2040.” Saudi Arabia, the biggest producer, with enough reserves to last it 70 years, has said demand will continue to grow, boosted by consumption in emerging markets.

If renewable energy and other disruptive technologies such as electric cars continue their rapid advance, petroleum use will reach its maximum level in 2030, the World Energy Council has forecast. Michael Liebreich, founder of Bloomberg New Energy Finance, predicts a peak in 2025 and decline in the 2030s.

“For the first time, oil companies have to think seriously about the future,” Alastair Syme, an oil analyst at Citigroup Inc. in London, said by phone. Drillers that even a couple of years ago believed “every molecule of oil we produce will have a market,” have come to realize they “can afford to bring on only the most competitive assets.”

Shell will be in business for “many decades to come” because it is focusing more on natural gas and expanding its new-energy businesses including biofuels and hydrogen, Henry said. “Even if oil demand declines, its replacements will be in products that we are very well placed to supply one way or the other, so we need to be the energy major of the 2050s,” Henry said. “That underpins our strategic thinking. It’s part of the switch to gas, it’s part of what we do in biofuels, both now and in the future.”

Shell sees “oil and gas as being part of the energy mix for many decades to come,” it said in a statement Wednesday.

The Anglo-Dutch company bought BG Group for $54bn this year in a move it said was partly aimed at increasing its gas business. Gas made up about 48 per cent of the company’s total production in the third quarter ended 30 September, according to data compiled by Bloomberg. Rival BP had 38 per cent gas, including from units, in the period.

The anticipated increase in oil demand of about 20 million barrels a day over the next two decades will probably be big enough to overwhelm the impact of the electric car, Spencer Dale, chief economist for BP, said on 11 October. Those vehicles will have a bigger impact in 30 to 50 years, although there’s a chance it could happen sooner, he said.

Bloomberg

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