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Shell CEO: ‘carbon bubble’ campaigners ‘ignore reality’

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Shell CEO: ‘carbon bubble’ campaigners ‘ignore reality’

By Andrew Critchlow, Commodities editor: 19 May 2015

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Ben van Beurden, chief executive of Royal Dutch Shell has given a robust defence of the fossil fuel industry saying that “carbon bubble” critics “ignore reality”.

The head of the UK’s largest oil company told shareholders that the world faces an energy crisis unless investment into producing fossil fuels is maintained. This is because of there is likely to be a dramatic increase in demand as three billion people emerging from poverty over the next few decades.

“We will need sustained and substantial (oil) investment to support economic growth,” Mr van Beurden told shareholders gathered in The Hague, Netherlands.

He warned that a lack of investment in oil production could result in a catastrophic 70m barrel per day (bpd) shortfall in crude by 2040 as existing production declines and energy demand rises.

Oil and gas majors have been criticised by climate campaigners for not shifting away from hydrocarbons investment. Some of these critics believe that the only way global warming can be limited to within 2°C, the stated UN goal, is for the world’s fossil fuel reserves to stay in the ground and never be burnt.

Proponents of the “carbon bubble” theory believe that the share prices of energy companies could crash if the world turns its back on fossil fuels. Activists have argued that pension funds and major institutions should divest from fossil fuel companies such as Shell.

However, the argument ignores the dramatic increase in total energy demand that will be required over the next 25 years. According to the International Energy Agency (IEA) global energy demand will increase by 40pc through to 2040.

At the same time global oil demand is expected to hit 111m bpd of crude as growing economies in Asia require increasing amounts of fuel. Based on the IEA’s projections, a 20pc increase in overall emissions by 2040 will result in an average temperature increase of 3.6°C.

Despite concerns over global warming, a binding agreement to limit emissions may be difficult to achieve at UN climate change talks to be held in Paris in December. Proposals may face opposition from developing nations such as India who are fearful that curbs on fossil fuel burning will limit the potential of their economies.

Shell has come under renewed attack for its environmental record as it prepares to re-launch its quest to find oil in the Arctic’s Chukchi Sea off Alaska. Oil rigs in Seattle at the weekend were blockaded by hundreds of campaigners in kayaks.

Oil companies are also coming under pressure to cut investment after a 40pc slide in the price of crude over the past year. With crude trading at around $65 per barrel it has become hard for the industry to maintain investment and led to an estimated $100bn worth of projects being shelved.

However, the sharp pullback in investment has raised concerns that the world could soon face another shortfall in supply within a decade.

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