Royal Dutch Shell Plc (IW 1000/6), 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,” CFO Simon Henry said on a conference call on Nov. 1. “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 Corp., 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% 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 on Nov. 2.
The Anglo-Dutch company bought BG Group Plc for $54 billion this year in a move it said was partly aimed at increasing its gas business. Gas made up about 48% of the company’s total production in the third quarter ended Sept. 30, according to data compiled by Bloomberg. U.K. competitor BP Plc had 38% 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 Oct. 11. Those vehicles will have a bigger impact in 30 to 50 years, although there’s a chance it could happen sooner, he said.
By Rakteem Katakey