By Jeffrey Ball | Shell Faces "Lower Forever" | Fortune | February 2018
Last March, Royal Dutch Shell said it was selling most of its stake in Canada’s oil sands, a vast project that has extracted millions of barrels of sticky, gooey hydrocarbons from the ground in a process that resembles mining more than drilling. The oil and gas giant announced that it was unloading its oil-sands assets, for $7.25 billion, so that it could double down on businesses “where we have global scale and a competitive advantage.”
Left unsaid was a deeper reason for the divestiture. Months of deliberations behind closed doors at Shell headquarters in The Hague, Netherlands, had led the top brass at the world’s largest non-state-owned oil company by sales to conclude that the energy industry was changing fundamentally—in a way that could turn the profitable oil-sands operation into a liability.
Internal studies by a group of analysts within Shell known as the “scenarios” team had concluded that global demand for oil might peak in as little as a decade—essentially tomorrow in an industry that plans in quarter-century increments. Hastening the peak was an onslaught of increasingly competitive fossil-fuel alternatives, from solar and wind power to electric cars, whose prices were dropping far faster than Shell executives had expected. When the oil-demand peak came, Shell believed, petroleum prices might begin a slow slide, dipping too low to cover the costs of oil-sands production.
This wouldn’t be just another oil-price cycle, a familiar roller coaster in which every down is followed by an up. It would be the start of a decades-long decline of the Oil Age itself—an uncharted world in which, in a phrase gaining currency at Shell, oil prices might be “lower forever.”
If that scenario materialized, and you were stuck holding the oil sands, Jeremy Bentham, the head of Shell’s scenarios team, tells me, reprising in his British lilt the gist of a memo he wrote to his boss not long before the company decided on the sale, “you were—gosh, forgive me—fucked.”
Shell—a cash machine that racked up $9 billion in profit in the first nine months of 2017; a colossus that employs 90,000 people in more than 70 countries; a corporation that, were it a nation, would have the world’s seventh-largest carbon footprint, behind Germany; and the No. 7 company on Fortune’s Global 500 list last year, with $240 billion in sales—is in an existential squeeze. It has concluded that oil demand is likely to peak sometime between the late 2020s and the late 2040s because of an epic shift underway in the energy industry: a transition from petroleum to electricity.
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