Royal Dutch Shell Has A New Mindset

In an interview with Bloomberg TV, Ben Van Beurden, the CEO of Royal Dutch Shell, said his company had changed its mindset to a “lower forever” price of oil. Perhaps the most significant thing about his new position is that it refers to a change in “mindset,” rather than mere adoption of a new business plan.

Photo of Ben Van Beurden by Agência Brasil Fotografias (some rights reserved)

Van Beurden clearly believes that Shell has to be prepared for a depressed price of oil, and consequently of the oil industry, from which it never recovers. This is a complicated issue involving a wide range of pressures from competing technologies. One competitor for oil is natural gas, in which Shell has long had its position.

Notably, Van Beurden also added that his next major purchase would be an electric car.

Other competitors include technologies that are almost certain to lead us to abandon fossil fuels altogether. These range from walking and biking to using solar and wind power to provide energy for transportation and heating. They include alternatives, such as biofuels and synthetic fuels. They also include efficiency.

Royal Dutch Shell offshore drilling platform in Seattle (Dennis Bratland, Wikimedia Commons)

There is not merely competition for fossil fuels, but outright opposition. These are impelled by a need to deal with pollution and climate change, both of which are currently threatening our health and our financial well-being, and in the future will increasingly threaten our security.

Addressing these problems, fossil fuel companies and utilities have taken a variety of different positions. One is to build a new business plan, working to deliver clean energy to customers while reducing costs. In Vermont, Green Mountain Power’s CEO Mary Powell has been doing this. Another approach is the one followed by DONG Energy, which has been giving up its oil and gas holdings altogether after making itself a world leader in the field of offshore wind power.

At the other end of the spectrum are those organizations whose leadership has asserted that their companies will not be affected by changes in the field of energy. Exxon’s former CEO Rex Tillerson, who is currently the U.S. Secretary of State, told his shareholders at the annual meeting in 2016 that they did not need to worry; no assets would be stranded. The shareholders found out within months that he was wrong on assets of over two billion barrels of oil.

We live in changing times. Traditional technologies are already close to obsolete. Solar power, with battery backup to keep things running at night, is already delivering electricity at prices that out-compete combined cycle natural gas.

The problem with denial is that it will catch up with you, if you indulge in it too long. And this is not true just of companies, but of those who work in the interests of passing technologies. Most famously, the official position of the U.S. federal government is that climate change and pollution are not problems. Our executive branch has a lesson to learn, and if it does not learn it before things get worse, it will have to deal with the political consequences.

For some of our political leaders, “sustainability” seems to be a dirty word. They might do well to consider the implications of that view. A stubbornly held marriage between a political party and a program of denial can only end with the demise of both.

In the case of Shell, the company is not only taking on a new, albeit somewhat conservative, business plan. It is taking on a new mindset, which means that it is not planning for any growth of oil business profits that might happen with higher oil prices. It is making itself “fit for the forties,” Van Beurden said, referring to a continuation of lower oil prices.

It seems likely that other companies will do the same. And as oil passes away, renewable power will replace it. As renewable power rises, with prices expected to continue falling, natural gas will also almost certainly join oil in a terminal decline.

The implication is that the new mindset takes into account a shrinking market in which prices do not improve. This means a continued pursuit of efficient use of resources, writing off increasingly irrelevant infrastructure, and ongoing reductions in activity.

In short, the oil industry has to be prepared for a final phase of continued negative growth. And though some companies are attempting to switch to natural gas, because they are familiar with that, they will have to be ready for continued negative growth in that industry, too.

For an industry that has been built on a mindset based on growth, this will not be easy. Unfortunately for those companies – and those governments – that are unwilling to be ready for an inevitable change from the obsolete and obsolescent to current technology, the alternative is not sustainable. And anything that is unsustainable, as we know, will die.