Oil Prices: Forget Lower for Longer, Shell Says Get Set for "Lower Forever"

Shell believes peak demand for crude will occur by the late 2020s.

Depending on Royal Dutch Shell's influence in the crude market, the new mantra 'lower for longer' - a reference to dealing with lower oil prices - could be short-lived: Ben van Beurden, the company's chief executive officer, says he and his colleagues are gearing up for a world of "lower forever" prices.

That's because Shell believes demand for oil could peak by the late 2020s or early 2030s, far sooner than other experts think will be the case: for example, BP forecast oil consumption may start declining by 2035 in its "fast transition" and "even faster transition" scenarios, and the International Energy Agency doesn't see oil peaking until after 2040.

Van Beurden tempered his remark by stating, "Even in the most aggressive scenario, where policies really work at their best, where technology really makes a lot of strides in the near future, oil isn't going to peak before the late (2020s) or early 2030s, and when it does peak it's not going to go out of fashion overnight.

"Supply will shrink faster than demand can shrink, and therefore, working on oil and gas projects will remain relevant for many decades to come."

Shell is basing its expectations partially on the rise of alternative powered automobiles: "A lot of things are happening when it comes to electric vehicles at this point in time, and that's all good in my mind," van Beurden said, adding, "If you want get to a 2 degrees C future, you have to electrify the more advanced economies even further; so electric mobility has to happen, has to happen fast."

Van Beurden is putting his money where his mouth is: a company spokesman said the CEO will switch from a diesel car to a plug-in Mercedes-Benz S500e in September; chief financial officer Jessica Uhl already drives a BMW i3 electric car.

If numbers are anything to go by, Shell is quite content with a "lower forever" world: it has been able to boost its profits more than expected, increase cash flow to $12.2 billion, and reduce debt due to asset sales  since the oil price collapse kicked in.

Far from stopping its cost-cutting, Shell is "getting fit" to be competitive in a $40 per barrel market: "The external price environment and energy sector developments mean we will remain very disciplined," said van Beurden.

Shell's mindset will presumably please policy-makers in the U.K.: citing poor air quality as the biggest environmental risk to public health, the government has declared that new gas and diesel cars will be banned from 2040 onward; but apart from an announcement that financial support to make the transition from gas to electric would be provided, no details of the ban were forthcoming.

If nothing else, Shell's strategy to gird for decreased prices seems to be a wise one: earlier this week, a host of analysts predicted oil will not rise significantly beyond the $40s any time soon, and JBC Energy GmbH said prices could well drop below the $40 mark in the first quarter of next year.