Energy Giant Shell Says Oil Demand Could Peak in Just Five Years
Comment of the Day

November 02 2016

Commentary by David Fuller

Energy Giant Shell Says Oil Demand Could Peak in Just Five Years

Royal Dutch Shell Plc, 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 on a conference call on Tuesday. “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 percent 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.”

Gas, Biofuels

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.

David Fuller's view

As Yogi Berra said: “It’s tough to make predictions, especially about the future.”

Nevertheless, Shell’s forecast by Chief Financial Officer Simon Henry: “… that peak [for oil demand] may be somewhere between 5 and 15 years hence…” makes sense to me.  It is backed by the continued development of alternative sources of energy, from renewables to natural gas and nuclear power. 

Royal Dutch Shell is in a comparatively strong position among major oil companies because natural gas is now approximately 48% of its total production and rising.  With its lower levels of pollution, natural gas is a hugely important transitional source of energy in the gradual switch from fossil fuels to renewables.

Let’s face it – countries will be under increasing pressure to reduce the burning of fossil fuels while CO2 emissions and the obvious trend of global warming continue.  Exxon Mobil’s forecast that demand for oil will continue to rise until 2040 is not realistic, in my opinion.  By that time we could even be very close to the commercial development of nuclear fusion.  That will be the most important energy advance since the first - when primitive mankind learned how to create fire.  

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