Shell Expects Oil Rebound as Shale Fails to Fill Supply Gap
Royal Dutch Shell Plc sees oil prices rising because supply from shale drilling in the U.S. won’t be enough to satisfy growing global demand.
The industry needs to find an extra 4 million barrels to 5 million barrels a day every year to meet demand and replace depleted fields, Shell Chief Financial Officer Simon Henry said in an interview on Tuesday.
“Lower oil prices increase demand and reduce investment, and it already has,” Henry said after a conference organized by Chatham House in London. Global consumption of about 93 million barrels a day is increasing by 1 million every year, he said.
Oil producers are delaying or canceling projects and cutting costs after crude slumped about 40 percent over the past year as the Organization of Petroleum Exporting Countries gave up defending prices in favor of grabbing market share from U.S. shale producers.
“Within three to four years there will be a recovery,” Henry said. “Whether it will take one, two or three years, that’s difficult. It will depend a bit on whether OPEC has cohesion or not and on the reaction in the U.S. on the shale and also other big investments.”
Related article: What will Opec do about the oil supply?
OPEC Meeting
OPEC, which supplies about 40 percent of the world’s oil, probably won’t cut production quotas at a meeting in Vienna this week because the rationale for the current policy remains in place, according to Henry.
Shell, which currently pumps more gas than oil, seeks to meet climbing global energy demand through cleaner production, he said, urging regulators to set up a carbon-pricing system. Such a framework would create an economic incentive to switch from coal, the biggest source of greenhouse gases, to less-polluting options such as gas.
“The worst thing for us is uncertainty because actually we then don’t invest at all,” the CFO said. “Use the market-based mechanism,” then businesses can “work out the best way to deliver the ultimate objective.”
Shell added more gas assets in April when it agreed to acquire BG Group Plc for $70 billion. The Anglo-Dutch company aims to complete filings for antitrust approval in the main jurisdictions affected, including Europe, China, Australia and Brazil, by the end of this week, Henry said.
“In every country so far the response has been neutral to good,” he said. Shell doesn’t expect to complete the merger until early next year.
Source: Bloomberg – Shell Expects Oil Rebound as Shale Fails to Fill Supply Gap
