Shell warns of higher prices and volatility

The chief executive of Royal Dutch Shell, Mr Peter Voser, has warned that oil and gas suppliers will struggle to keep up with global demand, pushing prices up and increasing volatility.

He says this applies “for the long term.”

He does not use the term peak oil.

He says that oil output from fields in production declines by 5% per year as reserves are depleted. His solution is that the world needs to add the equivalent of another four Saudi Arabias or ten North Seas over the next ten years, just to keep up with demand.

We believe firstly that this is impossible. If it were possible then the industry would not be suffering from the “inadequate investment” that he claims is causing the lack of production now. Companies would be falling over themselves to generate returns.

(Reality as the head of Shell sees it is that “the problem [is] not a lack of oil and gas in the ground… but inadequate investment following cuts by many companies since the start of the financial crisis.” With oil trading high, and ‘plenty of oil and gas in the ground’, these cuts do not make financial sense.)

We believe secondly that this is undesirable, because even supposing that we could add another four to six Saudi Arabias over the next ten years, we certainly could not add another six to eight over the following ten years.

Therefore it makes sense to do what Jack Welch would recommend — recognise reality as it is, not as it once was or how you would like it to be — and start taking action now, not to find and burn more fossil fuel but to find ways to prosper without it.

http://www.ft.com/cms/s/0/bbdda1c8-e485-11e0-92a3-00144feabdc0.html

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