Oil prices are set to remain at the current six-year lows for the rest of 2015, the boss of the country’s largest oil and gas company will warn tonight.
Ben van Beurden, the chief executive of Royal Dutch Shell, is expected to say that the oil industry should not expect a quick rebound in the price of crude, just the day after another North Sea oil operator reported its first loss in 15 years.
“The market will remain volatile in 2015, if only because for now, Opec (the Organisation of the Petroleum Exporting Countries) shows no sign of wanting to resume its role as swing supplier”, Mr van Beurden is set to say.
“But for the longer term, I see no change to fundamental drivers of oil markets such as rising demand and the need for new supplies.”
Oil companies across the globe have been hit by a more than 50pc drop in crude prices since June, with the cost plummeting from $107 a barrel to under $50 recently, putting them under pressure to make new cost cuts.
Opec, which pumps a third of the world’s crude, shocked markets last November when it decided to allow oil prices to go into freefall after its members agreed to keep their production levels unchanged. Despite concerns over the economic impact of weak oil prices from Venezuela, Nigeria and Iran, the cartel isn’t expected to meet again until June.
Mr van Beurden is expected to issue the warning when he delivers a keynote speech in London on Thursday, where he will also caution over the potential long-term consequences of supply not keeping pace with rising demand if investment continues to be cut back.
Some analysts fear that more than $100bn (£65bn) of oil and gas related projects could be cancelled, or delayed in the short term, due to the 50pc fall in the price of crude over the past six months.
The financial strain has hit smaller operators such as Tullow hardest. The Anglo-Irish oil company yesterday reported a $2bn (£1.3) pre-tax loss because of the dramatic fall in oil prices and revealed plans to reduce costs by $500m over the next three years.
At the end of a week of briefings for the oil and gas industry in London, Mr van Beurden will also warn that at current price levels oil supply may fail to keep pace with rising demand, which could store up trouble in the future.
“Compared to last year, the International Monetary Fund expects the global economy to grow. So, global oil demand is expected to grow as well. But seeing today’s prices, supply will probably not keep pace with this growth,” he will say.
Shell, Britain’s largest company by market value, has already said it will cut its spending by $15bn over the next three years and has shelved a petrochemicals project in Qatar. The company is not alone in trimming spending. Oil giants such as BP, Chevron and Exxon Mobil have all announced cuts to their capital expenditure over the past month and some experts fear that the sharp retrenchment of the industry could see oil prices rebound back above $100 per barrel.
The Shell boss will also use his speech to dismiss concerns over the so called “carbon bubble”, a theory which suggests that the world’s existing fossil fuel reserves are overvalued because the majority must be left unburned in the ground if extremes of global warming are to be avoided.
UK energy secretary Ed Davey caused controversy last December when he said that oil companies were in danger of becoming the “sub-prime assets of the future”.
However, Mr van Beurden will defend the continued role of hydrocarbons in the global energy mix and call on the oil industry to play a more active role in the climate change debate.
He is expected to say: “The debate about the future of energy is not always very balanced, partly because we keep such a low profile and there’s so little dialogue within our sector. Our industry should be less aloof, more assertive. We have to make sure that our voice is heard by members of government, by civil society and the general public.”
Last month, the Anglo-Dutch company bowed to shareholder pressure to be more public about how it will address global warming. The company’s board agreed to support a motion proposed by the Church of England and 150 other shareholders calling on the company to explain more fully its policy on climate change.
Mr van Beurden will also tell oil industry executives of the continued importance of fossil fuels. He is due to say: “The world’s energy needs will underpin the use of fossil fuels for decades to come. So, rather than ruling them out, the focus should remain on lowering their carbon emissions.”
Meanwhile, it has emerged that Shell and BP are in a standoff with the government of Abu Dhabi about upfront payments to renew contracts to operate some of the emirate’s biggest oil fields. According to a report in the International Oil Daily yesterday the sheikhdom wants both companies to pay signing bonuses worth around $7bn to secure acces to the huge oil fields.
Last week, french rival Total surprised the market after it said an agreement had been reached with Abu Dhabi for part of the concession. The company is understood to have paid $2.2bn upfront as part of the deal.
Source-Telegraph