Shell expects to shrink by $22b as oil demand dives

The Anglo-Dutch oil and gas giant Royal Dutch Shell says the coronavirus pandemic has devalued it by billions of dollars and will likely leave a legacy of reduced demand for its products.

The company, which is headquartered in the Netherlands and was incorporated in England, is the world's biggest fuel retailer and was said to be the planet's ninth-largest company, and biggest outside China and the United States, by the compilers of the 2019 Forbes Global 2000.

On Tuesday, Shell said it would cut up to $22 billion from its value because of falling prices and shrinking demand.

It added that it would "adapt to ensure the business remains resilient" in the face of nations ordering people to stay at home to prevent the spread of the virus, something that has greatly reduced demand for fossil fuels.

The Financial Times said the company expects to record "post-tax, noncash impairment charges" of between $15 billion and $22 billion in the second quarter of 2020.

The British petroleum giant BP made a similar announcement a few weeks ago, saying it would shave up to $17.5 billion off its value.

The newspaper said the announcements illustrate a "growing awareness among executives at the biggest energy companies that tens of billions of dollars-worth of oil, gas, and refining assets could be rendered economically unviable".

The paper noted that Shell cut its dividend for the first time since World War II earlier this year after its earnings halved. It said companies appear to think the pandemic may have accelerated a global shift toward cleaner fuels.

Shell responded in April when Chief Executive Officer Ben van Beurden announced it would become a net-zero carbon producer by 2050.

The Reuters news agency said Shell, which has a market value of $126.5 billion, expects fuel sales to be 40 percent lower in the second quarter of the year in comparison to the same period last year.

Falling prices

The BBC explained that a barrel of oil sold for $66 at the start of 2020 but only $20 at the height of the lockdown. It said Shell expects a barrel to sell for around $60 in the long term but only around $35 to $40 next year.

Michael Bradshaw, a professor of global energy at Warwick Business School, told the BBC that decisions will massively impact fossil fuel companies.

"How individuals, governments, and businesses respond to the COVID-19 crisis in the months ahead will have long-term implications for the environment and the future of oil-producing companies and countries," he said.

Bradshaw said nations are deciding whether to rebuild economies based on fossil fuels, or whether to shift to green energy.

And he said individuals are making similar decisions.

"After the pandemic, we might have a different attitude to international air travel or physically going into work," he said.