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Shell’s long view

By Ed Crooks: Sunday September 10, 2017

Royal Dutch Shell this week set out its views on the outlook over the next few decades, in presentations to investors in New York and London. Shell has been thinking deeply for decades about how to model the future. The scenarios it sets out are more explicit about the uncertainties involved than other projections, which sometimes seem to imply that we can be confident oil consumption in 2040 will be 110.8m barrels per day, or with other overly precise figures.

That approach can be frustrating: everyone wants more certainty, and confident projections are appealing even when they are misleading. And Shell’s broad-brush portraits of two possible states of the world as “oceans” and “mountains” – a landscape it first sketched out in 2013 – can sound a bit New Age. But its approach is more rigorous than many.

It also helps outsiders to understand and challenge its conclusions, by publishing quite a lot of detail about its models for energy supply and demand, which it posted on its website this week. The energy demand model presents scenarios for possible growth in consumption to 2060 and beyond, while the global supply model takes estimates for the worldwide resource base for oil and gas, and projects how much of that can be produced and at what rates.

One conclusion from Shell’s analysts is that they find it very hard to see a peak in oil demand emerging before the 2030s, and even then it will be only if “all the stars are aligned”. For all the excitement over electric vehicles, Shell expects them to have little impact on oil demand in the coming decade. A rise in electric car sales from less than 1 per cent of the world market next year to 10 per cent by 2025 would displace less than 800,000 barrels per day of world oil demand, or about 0.8 per cent of total consumption.

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