Some analysts think global demand for oil may never return to its 2019 record high, expecting instead that the the pandemic will permanently reshape the way people live and travel — and that consumers will push companies and governments to address climate change with more urgency.
Brent crude futures hit their lowest level in decades in April, falling below $20 per barrel. They’ve staged a comeback to trade above $41 per barrel, but that’s still well below where prices started the year.
The shifting market conditions mean Shell now expects to take a charge of between $15 billion and $22 billion in the current quarter, with its earnings report due on July 30.
The huge slump in demand for oil and gas this year is pushing many of the industry’s biggest companies to accelerate a shift to cleaner fuels. Shell has committed to achieving net zero carbon emissions from its own operations by 2050.
Luke Parker, vice president of corporate analysis at Wood Mackenzie, said the decision by Shell to write down the value of its assets is “about fundamental change hitting the entire oil and gas sector.”
“Just a few years ago, few within the oil and gas industry would even countenance ideas of climate risk, peak demand, stranded assets, liquidation business models and so on,” he said. “Today, companies are building strategies around these ideas.”
Other companies are making changes, too.
Demand for crude is starting to recover as countries restart their economies. But a potential resurgence of the virus poses a major risk to any forecasts, helping to keep a lid on prices even as a supply glut eases.
“Demand might still grow from here, and many companies are still chasing a share of that growth,” said Parker. “But make no mistake, the corporate landscape is changing, and the [major oil companies] are changing with it.”