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Shell Predicts Peak Oil Demand As Early As 2021

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Royal Dutch Shell headquarters (file image)

By MarEx 2016-11-04 11:16:59

In an investor conference call Tuesday, Shell CFO Simon Henry said that peak demand for oil may come in as little as five years. 

"We’ve long been of the opinion that demand will peak before supply,” Henry said. "That peak may be somewhere between five and 15 years hence, and it will be driven by efficiency and substitution, more than offsetting the new demand for transport.”

His statements (first reported by Bloomberg) fly in the face of general oil industry wisdom, which predicts increasing demand over the long term. Saudi Aramco and Exxon both predict a gradual rise for a long time to come. 

Henry said that Shell's recent strategy of shifting its investment mix towards natural gas reflects its bearish view of the oil market's future. Shell recently acquired the energy firm BG Group, which was heavily weighted towards gas; with the merger, Shell is now the world's largest trader of LNG. 

“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. 

Henry's forecast parallels a recent prediction from the World Energy Council and Accenture, which found that oil demand would peak in the next several decades but that natural gas demand would increase through 2060 - with strategic implications for the oil majors. 

"Misspending including misallocation of capital has always been a risk for energy assets, and will continue to grow due to fundamental shifts in the industry," said Nuri Demirdoven, managing director at Accenture Strategy. "Leading companies across all scenarios will be those that adapt quickly and . . . rethink the balance of their energy portfolio." 

Shell is also one of seven oil majors joining together to launch a new renewable energy fund, to be announced Friday at an event in London. Reuters reports that among other areas of investment, the fund will focus on carbon capture and storage technology, which (if made economical) would lessen CO2 emissions from the use of petroleum products.