Shell braces for ‘lower forever’ oil prices by investing in renewables
ROYAL Dutch Shell is bracing for a peak in oil demand by the end of the next decade by edging towards renewable power and the electric vehicle industry.
Ben Van Beurden, the Shell boss, said the oil major had changed its company mindset to a “lower forever” oil price environment and was focusing on being “fit for the forties”, in reference to the faltering oil price, which has struggled to remain above the $50-a-barrel mark. The group is already shifting its production focus from oil to natural gas, but in its clearest statement of intent to date, Mr Van Beurden said that within the next year Shell will reveal early plans for a deeper presence in renewable energy and the electrical chain to tap into the boom in electric vehicles.
On Wednesday the UK followed France’s pledge to halt the sale of internal combustion vehicles by 2040, just weeks after the world’s fastest growing economies, China and India, also called time on traditional fuel engines. Mr Van Beurden said the “absolutely necessary” backing was welcomed by the oil group, which is already taking into account a “very aggressive scenario” in which oil use could peak in the 2030s. The forecast tipping point is a full decade earlier than predictions from the International Energy Agency.
Shell plans to spend $1bn (£890m) a year on its New Energies division, set up last year to develop hydrogen fuel cells and biofuels that could be used by the aviation and shipping industries to cut their reliance on oil.
Mr Van Beurden assured investors that its advance into low-carbon electricity would be “deliberately capped at a moderate pace”. He added that the new generation of non-combustion vehicles did not “mean it’s game over” for oil. Instead, new oil projects will need to be “resilient in a world where oil has peaked”.
Mr Van Beurden outlined the new company mindset after revealing a trebling of profits to $3.6bn for the last quarter compared to a dismal period in the same months last year.
Shell has sold off $25bn of its lessprofitable assets and slashed costs by 20pc since the oil price crash in 2014 to cut $9bn from its debt pile. “The main positive from the numbers was that divestments helped drive a near $6bn reduction in net debt, taking gearing to 25.3pc,” said Lydia Rainforth, an analyst at Barclays Capital.
But the bank warned that despite the better than expected earnings, the market is likely to be disappointed by Shell’s cash flows, which took a heavy knock from the relapse in oil prices.
Shell’s underlying cash flow was reported at $9bn, lower than Barclays’ $9.7bn expectations. Shell’s B shares ended up 14p at £21.11.