Shell warns of $22 billion hit from coronavirus price slump

Royal Dutch Shell is writing down the value of its assets by as much as $22 billion as lower oil prices push the Anglo-Dutch company to accelerate a shift away from fossil fuels.

Shell (RDSA) slashed its outlook for energy prices Tuesday, saying in a statement that it expects Brent crude to cost $40 per barrel in 2021 and $50 per barrel in 2022. Prices are forecast to rise to $60 per barrel in 2023.

McKittrick, California, April 29, 2020: There are over 1,100 producing oil wells in the McKittrick oil field, just north of the town of McKittrick on Cal. State Route 33. With the falling price of oil, some pumpjacks that need repair are being left idle. (Carolyn Cole/Los Angeles Times via Getty Images)

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The company said the changes to its price forecast reflect the economic trauma caused by the coronavirus pandemic, which has plunged countries around the world into recession and sharply reduced demand for energy.

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.”

Shell said in a statement that it would continue to “adapt to ensure the business remains resilient.” The company cut its dividend in April for the first time since World War II in an effort to conserve cash.

A BP Plc logo sits on a totem sign at filling station in Cambridge, U.K., on Monday, June 8, 2020. BP Plc?plans to cut 10,000 jobs as the coronavirus pandemic accelerates the company's move to slim down for the energy transition. Photographer: Jason Alden/Bloomberg/Getty Images

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Other companies are making changes, too.

BP (BP) agreed to sell its petrochemicals business for $5 billion on Monday, saying the company’s resources would be better deployed elsewhere as it tries to achieve net zero emissions by 2050 or sooner. BP (BP) announced earlier this month that it would write down the value of its assets by as much as $17.5 billion in the second quarter.

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.”