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Ben van Beurden, CEO, Royal Dutch Shell

14th July 2015

Surviving in an uncertain landscape: Ben van Beurden, CEO, Royal Dutch Shell on the vital role the oil and gas industry will continue to play over the coming decades

Oil & Gas Technology speaks to Ben van Beurden, CEO, Royal Dutch Shell about the future prospects of the oil and gas industry in a complex environment

Ben van Beurden, CEO, Royal Dutch Shell
Ben van Beurden, CEO, Royal Dutch Shell

There can be no doubting how central the oil and gas industry is to the world economy. Earlier this year Barack Obama gave his State of the Union address. It took him less than two minutes to mention oil. “If he hadn’t been interrupted by applause, he would have got there even faster,” Ben van Beurden, CEO, Royal Dutch Shell says.

“This shows how important oil is to advanced economies. We all know why. Oil is an essential part of the energy mix. And energy, in turn, is the lifeblood of human existence. Without energy, our lives would be almost unrecognisable.”

Oil prices will of course be an important issue throughout the year. Since last summer, the price of Brent Crude has plunged. Higher shale production in the US, an unwillingness by OPEC to cut its own production, and an energy demand slowdown in China – these are just some of the factors shaping a complex situation.

“Low prices have big implications for exporting countries like Iran, Russia and Venezuela,” van Beurden says. “But also for shale-producers in the US, and even the domestic budgets of producers in the Gulf states. In consuming nations, low oil prices are an economic boon stimulating growth and demand.”

Given that dichotomy, what does van Beurden think will happen in 2015? “I can’t predict the future, but oil demand is clearly linked to economic growth,” he says. “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. It may even decline, as prices are close to cash costs, according to consultants like Wood Mackenzie. As a result, energy companies could shut down some of their existing production.

“If the brighter economic outlook becomes reality, the market could tighten, and this would support higher prices. But two questions remain. Firstly: How far and how long will prices fall? Secondly: How quickly can prices recover?

“A rapid recovery could occur if projects are postponed or even cancelled. This would lead to less new supply – not so much now, but in two or three years. Combined with economic growth, the market could tighten quickly in this scenario.” 

But what if the largest supply growth engine, US shale oil, proves to be resilient in the face of falling prices and the markets remain well-supplied? “In that case, with moderate economic growth, prices could stay low for longer,” van Beurden adds. “Either way: The market will remain volatile in 2015, if only because for now OPEC shows no sign of wanting to resume its role as swing supplier. 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. 

“Our New Lens Scenarios are one of the tools Shell uses to look at the future. In the two scenarios, ‘Mountains’ and ‘Oceans’, oil demand will continue to grow for at least two decades. And then, of course, production from oil fields typically declines at a rate of at least five per cent a year. This means that the need for new supply could be as high as five million barrels a day, year after year until at least 2030.”

This amount of supply cannot be delivered by OPEC or shale oil producers in the US alone. It will need to come from new and challenging areas, and has to be supported by an oil price that justifies huge investments.

“As I said, the oil price will remain an important issue throughout the year,” he continues. “While a boon to consumers, these are tough times for some producers. But at Shell, we’re determined to avoid a start-stop approach to investment.

“Shell will remain a large investor in 2015, with a strong focus on costs. And we will certainly continue to invest in research and development. R&D is our sector’s life line at a time of energy transition.”