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Shell takes $22bn hit as sun sets on big oil's golden age

Ed Clowes
Shell 

Shell has written off up to $22bn (£18bn) after warning that the coronavirus oil crash has triggered a long-term price slump - sparking speculation that the sun may be setting on a golden age for fossil fuel firms.

The energy titan said on Tuesday that it would take an accounting hit of between $15bn and $22bn in its second-quarter results as the pandemic hammers all divisions of the sprawling business.

It raises the spectre of many thousands of job cuts in addition to a voluntary redundancy scheme which launched in May. Analysts said the bumper blow is a sign that the oil and gas market is changing permanently.

A Covid-19 collapse in demand has forced prices far below the levels needed for most North Sea firms to turn a profit, and is speeding up a wider push into renewable energy which threatens the existence of previously rock-solid businesses.

International oil benchmark Brent crude has collapsed by more than a third to under $42 this year, triggered by a worldwide economic shutdown that forced factories to close and kept millions of drivers indoors. Shell does not expect prices to return to $60 a barrel until 2023.

Luke Parker, of consultant Wood Mackenzie, said: "The impairment Shell has announced is about more than an accounting technicality, or an adjustment to near-term price assumptions.

"It’s about fundamental change hitting the entire oil and gas sector."

The announcement brings Shell's forecasts for the industry in line with a similarly beak outlook from major rival BP. Earlier this month, BP announced that it would write down the value of its assets by between $13bn and $17.5bn

Mr Parker said: "Within this writedown, Shell is giving us a message about stranded assets, just like BP did a few weeks ago."

Shell expects fuel sales to have slumped 40pc in the three months to the end of June due to a sharp fall in consumption as a result of global travel restrictions.

The change to the Anglo-Dutch behemoth's outlook comes amid a sweeping review of its operations after chief executive Ben van Beurden in April announced plans to cut greenhouse gas emissions to net zero by 2050. 

Shell said it will continue to adapt to ensure the business remains resilient, as the industry seeks to shift its focus away from fossil fuels.

On Monday, BP announced plans to sell its global petrochemicals business to billionaire Sir Jim Ratcliffe for $5bn – achieving its divestment targets a year ahead of schedule.

Analysts at RBC said: "The lower near-term price deck for oil and gas is not a huge surprise given Shell’s initial comments post Covid-19 and current spot prices."

In April, the company slashed its dividend for the first time since the Second World War following the collapse in the oil price.

Shares fell nearly 4pc in London after the writedown was unveiled.

Mr Parker said: "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."

"Today, companies are building strategies around these ideas."