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DAILY EXPRESS: WE’LL BEGIN TO RUN OUT OF OIL WITHIN 7 YEARS

Daily Express image Jeroen van der Veer 

Jeroen van der Veer, chief executive of Royal Dutch Shell

Saturday January 26,2008
By Graham Hiscott, Consumer Editor 

DEMAND for oil and gas will outstrip supply within seven years, the head of one of the world’s biggest energy producers warned yesterday.

Jeroen van der Veer, chief executive of Royal Dutch Shell, predicts conventional supplies will fail to keep pace with population growth and booming economies.

The comments, from the boss of a multinational energy giant, will be seen as a wake-up call to the world.

If proved correct, the shortages would have have devastating consequences for almost everyone.

Oil and gas prices would soar, affecting everything from heating the home and filling-up the car, to the cost of manufacturing and the price of retail goods.

Mr van der Veer’s comments came in a hard-hitting statement ahead of the World Economic Forum in Davos, Switzerland.

He said: “After 2015, easily accessible supplies of oil and gas will no longer keep up with demand.”

The world faced having to choose between two scenarios for the future, he warned.

The first, which Shell calls Scramble, involves nations concentrating on their own energy needs, paying little attention to energy efficiency and continuing to pump out greenhouse gases.

The second, dubbed Blueprints, would see countries working together to cut CO2 emissions through the use of taxes and better vehicle, building and fuel design.

Mr van der Veer said: “Shell traditionally uses its scenarios to prepare for the future without expressing a preference.

“But, faced with the need to manage climate risk for our investors and our descendants, we believe the Blueprints outcome provides the best balance between economy, energy and environment.”

Oil prices soared to a record US$100 dollars (£51) a barrel at the end of 2007, with wholesale gas for this year also at an all-time high.

Jeremy Nicholson, director of the Energy Intensive Users Council, said: “It seems to be at the pessimistic end of predictions. However, nobody is expecting the price of oil to go back to levels of a couple of years ago when it was selling for around $20 (£10) a barrel.

“Worldwide demand is rising and supply can only increase at a certain rate.

“Even when you find new deposits of oil and gas, it takes time to put them into production. And that’s without the problem of a shortage of refinery capacity.

“If his comments are proved correct, you could see the cost of oil soaring above $100 a barrel because the only way to bring supply and demand into line is to choke off demand.”

Simon Wardell, senior energy analyst at Global Insight, said: “The prediction could well be true if we were to rely on conventional sources of oil.

“However, there are unconventional sources and things like bio-fuels that could act as substitutes.”

Nick Rau, energy campaigner at Friends Of The Earth, rejected Shell’s backing for nuclear power but welcomed Mr van der Veer’s call for action.

He said: “At least they are acknowledging that oil reserves are decreasing.”

http://www.express.co.uk/posts/view/32789/We-ll-begin-to-run-out-of-oil-within-7-years

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One Comment

  1. Paddy Briggs says:

    Plus ça change! When I was in The Netherlands in the early 1980s I sat on the Energy commission of the Ministry of Economics as Shell’s representative. There was much debate at the time over the high levels of profits that Shell was making from its (part) ownership of the Groningen gas reserves. Part of Shell’s defence of these profits was that the reserves were finite, that much investment had been made upfront, and that, therefore, it was legitimate for the company to get a good level of financial return. The key variable in this argument was the extent of the reserves. Obviously Shell’s argument to be allowed to secure high levels of return on capital was boosted if the reserves were estimated at a lower level – the higher the actual reserves then the longer they would last and the longer that Shell’s profit streams would last as well. Shell’s reservoir engineers and others assessed the Groningen reserves at a particular level and published their estimates. Shortly after this the then Professor of Energy Studies at Erasmus University in Rotterdam, Peter Odell, went public saying that Shell and other oil majors consistently underestimated hydrocarbon reserves. His argument, as I recall it, was that insufficient attention was given by Shell to future scientific and technology advances that would allow difficult reserves to be tapped or would turn uneconomic reserves into viable ones.

    Given Shell’s more recent propensity to over-estimate rather than under-estimate reserves the Groningen story is somewhat ironic! However the substantive point of Odell’s argument remains valid and he was certainly proved right over Groningen where Shell’s estimates of the early 1980s have proved to be huge under-estimates. Odell knew that it was in Shell’s interests to preach a pessimistic credo about Groningen – and it is in Shell’s interests to continue to be pessimistic about reserves at a global level. Why? The main reason is the same as it was back in the 1980s – the wish on the part of the Oil majors to avoid the imposition of windfall profits. The three largest oil companies (Exxon, Shell and BP) made nearly $60billion in profits over the last year between them (Shell $18.2billion). With oil continuing to be priced at around $90 these levels of profits are pretty much assured for the foreseeable future. Shell argues that it is up to governments to support diversification away from traditional energy and is looking for subsidies to develop its Renewables activities – again this argument is reinforced with a doom and gloom scenario over reserves in relation to increased demand. Similarly Shell has a huge potential profit stream from the development of its oil sands projects – especially in Canada. These projects are controversial for environmental reasons but permissions to proceed can be expected to be easier to obtain if legislators are worried about future energy supply security.

    History teaches us that man has an almost infinite capacity to innovate – not least where hydrocarbon production is concerned. High oil prices are a driver of innovation and this, when combined with the certainty of increased global oil demand and the near-certainty that energy use throughout the 21st century will continue to be dominated by hydrocarbons means that we can expect the spur for innovation to be high and the technology effects on production to be considerable, if unpredictable. But to suggest that “We’ll begin to run out of oil within 7 years” as the Shell-inspired Daily Express headline suggests is nonsense and alarmist. Calculated self-interest is at play here and nobody should be fooled by it.

    © Paddy Briggs January 2008