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Shell’s defence of big oil is too hopeful

September 11, 2017, 11:40:00 AM EDT By Reuters

By Andy Critchlow

LONDON, Sept 11 (Reuters Breakingviews) – Royal Dutch Shell, looking deeply into its crystal ball, sees a future that’s still heavily dependent on oil. The Anglo-Dutch giant expects crude will continue to play a major role in global energy supply for decades, even in its less oil-friendly scenario. That optimism goes someway to justifying the billions of dollars it continues to invest in exploiting new reserves and expanding its fuel network. But it’s also a view that may place too much faith in the combustion engine – and China staying with its current strategy.

Despite growing evidence that the oil era is grinding to an ugly and disruptive halt, Shell remains optimistic. On Sept. 8, the company updated its two core strategic models – labeled Mountains and Oceans – which both come to similar conclusions about the future of crude and liquid hydrocarbon fuels. Although peak demand will happen sometime after 2030, and governments will keep intervening to cut carbon emissions, oil could still account for more than a fifth of all energy even by 2060.

This matters to Shell investors. Its $50 billion takeover of BG Group in January 2016 made it the largest shipper of gas amongst its peers. However, oil remains core to its profitability. If oil has a future, it makes sense for Shell to keep investing in it.

The problem is that Shell’s projections could easily be proven wrong. China’s state news agency Xinhua has reported that Beijing is studying banning cars running on fossil fuels in the future – following similar policies in France and the United Kingdom. That will in turn embolden manufacturers of electric vehicles to intensify their efforts to produce cheaper and longer range alternatives. The car has enriched oil companies like Shell and their shareholders for over a century – its demise may be theirs too.

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– Royal Dutch Shell has updated its forecasts for global energy consumption and production through to 2060.

– The Anglo-Dutch company said on Sept. 8 that it foresees oil playing a significant role in global energy supply through to 2060 and doesn’t anticipate a peak in demand coming before 2030, despite the growth in electric vehicle sales.

– China has begun studying banning the manufacture and sale of cars running on conventional fossil fuels, the official Xinhua news agency reported on Sept. 10. The world’s second largest oil consuming nation is expected to make up for weakening demand in developed nations, which are focusing on reducing hydrocarbons usage to head off climate change.


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