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Shell chief Peter Voser warns of oil crunch without investment
Royal Dutch Shell chief executive Peter Voser is to call on the global energy industry to continue investing heavily in costly new production projects in order to avoid a return to the days of record high oil prices weighing on global growth.
Demand for energy will double over the next 50 years, Peter Voser will say Photo: Reuters
By Emily Gosden, and Andrew Critchlow
12:01AM BST 01 Oct 2013
Comment
“Supplying the world’s energy needs will be extremely tough,” Mr Voser will say in Tuesday's speech, seen in advance by the Daily Telegraph. “Our first priority must be to invest heavily in new supplies, and to maintain it through economic and political turbulence. Failing to do so would be a sure path to another crunch and major price volatility.”
Mr Voser’s comments come amid concern that a pullback in investment by some resource and energy companies following the global financial crisis could result in future shortfalls in supply if economic activity should pick up quicker than was previously expected.
Oil prices peaked at $147 (£91) a barrel in 2008 amid concerns over the world hitting peak production and Iran shutting off supplies from the Persian Gulf.
“The cornerstone of this investment must be a sound balance sheet,” Mr Voser will tell industry delegates attending the annual Oil & Money conference in London. “One strong enough to withstand volatile energy prices and revenues, and flexible enough to underpin billions of dollars of investment in new energy sources.”
Demand for energy will double over the next 50 years, Mr Voser will say, spurred by rapid industrialisation in China and across Asia. At the same time, world energy supply is struggling to keep up with prospective demand. The International Energy Agency (IEA) forecasts that crude oil output from wells producing in 2011 will have dropped by almost two-thirds by 2035.
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“The coming decades will see a historic change in human society and the global economy,” Mr Voser will say. “Billions of people are emerging from poverty in China, India and other emerging economies. They’re buying fridges, cars and washing machines, and all the consumer goods we take for granted in the West.”
Analysts have complained that earnings at Europe’s biggest oil companies such as Shell and Italy’s Eni have failed to keep pace with oil prices consistently above $100 a barrel. Citigroup warned in August that higher costs across the upstream production business and the capital intensity of major production projects have eroded profitability in the industry.
In his speech, Mr Voser will defend Shell’s commitment to a number of high risk and expensive energy projects such as the controversial Sakhalin 2 liquefied natural gas (LNG) scheme in Russia and a $19bn gas-to-liquids project in Qatar.
“Major deepwater and LNG projects can now cost tens of billions of dollars. That’s a far cry from the 1990s, when mega-projects cost several hundred million dollars. But the challenges of these projects must not obscure their importance. They are powerful engines of growth and profitability for our industry.”
Some analysts have questioned whether a change in management at Shell, with Ben van Beurden due to take over in three months, could see a change in strategy to focus the company on greater returns.
JP Morgan asked in a recent investor note: “Does he want to run a lowly-rated, large company or create a smaller, but premium-rated company
Royal Dutch Shell chief executive Peter Voser is to call on the global energy industry to continue investing heavily in costly new production projects in order to avoid a return to the days of record high oil prices weighing on global growth.
Demand for energy will double over the next 50 years, Peter Voser will say Photo: Reuters By Emily Gosden, and Andrew Critchlow
12:01AM BST 01 Oct 2013
Comment “Supplying the world’s energy needs will be extremely tough,” Mr Voser will say in Tuesday's speech, seen in advance by the Daily Telegraph. “Our first priority must be to invest heavily in new supplies, and to maintain it through economic and political turbulence. Failing to do so would be a sure path to another crunch and major price volatility.”
Mr Voser’s comments come amid concern that a pullback in investment by some resource and energy companies following the global financial crisis could result in future shortfalls in supply if economic activity should pick up quicker than was previously expected.
Oil prices peaked at $147 (£91) a barrel in 2008 amid concerns over the world hitting peak production and Iran shutting off supplies from the Persian Gulf.
“The cornerstone of this investment must be a sound balance sheet,” Mr Voser will tell industry delegates attending the annual Oil & Money conference in London. “One strong enough to withstand volatile energy prices and revenues, and flexible enough to underpin billions of dollars of investment in new energy sources.”
Demand for energy will double over the next 50 years, Mr Voser will say, spurred by rapid industrialisation in China and across Asia. At the same time, world energy supply is struggling to keep up with prospective demand. The International Energy Agency (IEA) forecasts that crude oil output from wells producing in 2011 will have dropped by almost two-thirds by 2035.
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“The coming decades will see a historic change in human society and the global economy,” Mr Voser will say. “Billions of people are emerging from poverty in China, India and other emerging economies. They’re buying fridges, cars and washing machines, and all the consumer goods we take for granted in the West.”
Analysts have complained that earnings at Europe’s biggest oil companies such as Shell and Italy’s Eni have failed to keep pace with oil prices consistently above $100 a barrel. Citigroup warned in August that higher costs across the upstream production business and the capital intensity of major production projects have eroded profitability in the industry.
In his speech, Mr Voser will defend Shell’s commitment to a number of high risk and expensive energy projects such as the controversial Sakhalin 2 liquefied natural gas (LNG) scheme in Russia and a $19bn gas-to-liquids project in Qatar.
“Major deepwater and LNG projects can now cost tens of billions of dollars. That’s a far cry from the 1990s, when mega-projects cost several hundred million dollars. But the challenges of these projects must not obscure their importance. They are powerful engines of growth and profitability for our industry.”
Some analysts have questioned whether a change in management at Shell, with Ben van Beurden due to take over in three months, could see a change in strategy to focus the company on greater returns.
JP Morgan asked in a recent investor note: “Does he want to run a lowly-rated, large company or create a smaller, but premium-rated company