Ben van Beurden, the CEO of Royal Dutch Shell, and one of his senior executives envision low oil prices for some time unless energy producers cut production and the demand for fuel doesn’t rebound.
In a wide-ranging interview with Oil & Gas Technology published July 14, van Beurden spoke of competing benefits of the low price of oil for fuel demand, and its liabilities for those who produce it.
“Low prices have big implications for exporting countries like Iran, Russia and Venezuela,” he said.
“But also for shale-producers in the U.S., and even the domestic budgets of producers in the Gulf states. In consuming nations, low oil prices are an economic boon stimulating growth and demand.”
For the near term, van Beurden pointed to one key forecast that this year will see more worldwide demand than in 2014. “Compared to last year, the International Monetary Fund expects the global economy to grow [in 2015],” he said. “So global oil demand is expected to grow as well.”
But he stressed that many oil producers also are reluctant to explore and drill for oil because of smaller profit margins. Therefore, he said, “Supply … may even decline.” As for Shell itself, though, he said, “We’re determined to avoid a start-stop approach to investment.”
As for the global market, Van Beurden said that at best, “a rapid recovery could occur if projects are postponed or even canceled. This would lead to less new supply – not so much now, but in two or three years. Combined with economic growth, the market could tighten quickly in this scenario.”
But he pointed to one major snag in that view: U.S. shale oil. A boom in North American production over the past few years helped to create the glut that led to the steep decline in oil prices that began a year ago. OPEC, under the leadership of Saudi Arabia, decided to fight shale producers with a price war, hoping that keeping prices low would make shale extraction, already costly, unprofitable.
But if shale producers cut costs and take other steps to keep producing, van Beurden said, “With moderate economic growth, prices could stay low for longer.”
Van Beurden qualified his outlook by stressing that “I can’t predict the future,” but his director of oil and gas production outside America gave a more specific view of Shell’s expectations in a separate interview with Reuters, published July 16.
Andy Brown, a top Shell official, said the Anglo-Dutch oil giant forecasts no quick rebound in the average global price of oil, but only a gradual recovery lasting five years. He attributed this sluggishness to a slowdown in China’s economy, leading a drop in demand for fuel, and the continuing oversupply of oil.
The price of oil has fallen from more than $100 per barrel in June 2014 to under $60 today, and Brown said the company has believed for months that it will take until 2020 for the price to rise to a mere $90 per barrel.
In fact, he said, that was a key driver for Shell to offer of $70 billion to buy rival BG Group more than three months ago. This not only supports van Beurden’s insistence that low oil prices won’t cause Shell to trim investments, but also expands Shell’s capabilities in deepwater oil production and gives it immediate entree to markets for liquid natural gas (LNG).
“It will take several years [for oil prices to recover fully], but we do believe fundamentals will return,” Brown said. “Until such time, we, like other companies, will have to make sure we stay robust.”