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Page added on July 28, 2017

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Oil Prices: Forget Lower for Longer, Shell Says Get Set for “Lower Forever”

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Depending on Royal Dutch Shell‘s influence in the crude market, the new mantra ‘lower for longer’ – a reference to dealing with lower oil prices – could be short-lived: Ben van Beurden, the company’s chief executive officer, says he and his colleagues are gearing up for a world of “lower forever” prices.
That’s because Shell believes demand for oil could peak by the late 2020s or early 2030s, far sooner than other experts think will be the case: for example, BP forecast oil consumption may start declining by 2035 in its “fast transition” and “even faster transition” scenarios, and the International Energy Agency doesn’t see oil peaking until after 2040.
Van Beurden tempered his remark by stating, “Even in the most aggressive scenario, where policies really work at their best, where technology really makes a lot of strides in the near future, oil isn’t going to peak before the late (2020s) or early 2030s, and when it does peak it’s not going to go out of fashion overnight.
Electric mobility has to happen, has to happen fast

Ben van Beurden, Royal Dutch Shell

“Supply will shrink faster than demand can shrink, and therefore, working on oil and gas projects will remain relevant for many decades to come.”
Shell is basing its expectations partially on the rise of alternative powered automobiles: “A lot of things are happening when it comes to electric vehicles at this point in time, and that’s all good in my mind,” van Beurden said, adding, “If you want get to a 2 degrees C future, you have to electrify the more advanced economies even further; so electric mobility has to happen, has to happen fast.”
Van Beurden is putting his money where his mouth is: a company spokesman said the CEO will switch from a diesel car to a plug-in Mercedes-Benz S500e in September; chief financial officer Jessica Uhl already drives a BMW i3 electric car.
If numbers are anything to go by, Shell is quite content with a “lower forever” world: it has been able to boost its profits more than expected, increase cash flow to $12.2 billion, and reduce debt due to asset sales  since the oil price collapse kicked in.
Far from stopping its cost-cutting, Shell is “getting fit” to be competitive in a $40 per barrel market: “The external price environment and energy sector developments mean we will remain very disciplined,” said van Beurden.
Shell’s mindset will presumably please policy-makers in the U.K.: citing poor air quality as the biggest environmental risk to public health, the government has declared that new gas and diesel cars will be banned from 2040 onward; but apart from an announcement that financial support to make the transition from gas to electric would be provided, no details of the ban were forthcoming.
If nothing else, Shell’s strategy to gird for decreased prices seems to be a wise one: earlier this week, a host of analysts predicted oil will not rise significantly beyond the $40s any time soon, and JBC Energy GmbH said prices could well drop below the $40 mark in the first quarter of next year.
Ship and Bunker


3 Comments on "Oil Prices: Forget Lower for Longer, Shell Says Get Set for “Lower Forever”"

  1. Sissyfuss on Fri, 28th Jul 2017 7:58 am 

    And I reiterate, climate disruption will be the greatest salesman for EV sales. “Hey Honey, it says that the entire grain crop was wiped out by rain bombs. What say we run down and look at the new model Teslas?”

  2. rockman on Fri, 28th Jul 2017 2:33 pm 

    “Shell is “getting fit” to be competitive in a $40 per barrel market…” Maybe Shell is misquoted and said it’s getting ready for “higher oil prices” for ever. After at all $40/bbl oil will be selling for a higher inflation adjusted price then the majority of the last 70 years. In fact at times selling for almost twice as much:

    https://inflationdata.com/articles/charts/inflation-adjusted-oil-prices-chart/

    As for as prices and profits go they are not solely a function of demand but the supply/demand dynamic. Shell may one day be producing half as much oil as it was during the recent price peak. And could be generating a better profit margin on that future date. As pointed out many times: higher oil/NG prices don’t automatically equate to higher profit margins. That’s a function of what you sell it for AND what it cost you to find and produce it.

    Also remember Shell is a vertically integrated company like the rest of Big Oil. And historically those refineries make a better profit margin at LOWER oil prices: refineries BUY oil. High oil prices = higher operational costs.

  3. Roger on Fri, 28th Jul 2017 5:32 pm 

    “Supply will shrink faster than demand can shrink, ….”

    That’s another way of saying “PEAK OIL” is coming.

    “So, electric mobility has to happen, has to happen fast.”

    Of course, the appeal for electric cars is couched in terms of the politically correct “2 degrees” propaganda so as to avoid causing a panic.

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