Shell sees no risk of 'stranded assets' as reserves life shrinks

By Dmitry Zhdannikov

LONDON (Reuters) - Royal Dutch Shell said on Thursday it saw little risk of having "stranded assets" in its portfolio as the world shifts to low carbon energy because the oil major will have four-fifths of its current oil and gas reserves extracted before 2030 anyway.

Shell (RDSa.L) has one of the lowest reserves life ratio among its peers and last year it saw reserves plunging to new lows after divesting a large number of assets.

The major now sits on 12.2 billion barrels of oil equivalent, down from 13.2 billion at the end of 2016, and enough to sustain the current annual production of 1.383 billion barrels for less than nine years.

Reserves life has long been one of the key metrics monitored by investors to assess oil firms' future resilience.

Long reserve life was especially important during years when oil was seen as a finite asset and analysts predominantly believed in the theory of "peak oil", suggesting the world will soon run out of good oil reserves.

But as the United States, the world's largest oil consumer, discovered at the start of this decade it had abundant reserves of shale oil and as demand patterns also began to shift toward greener energy, the "peak oil" theory faded.

Instead it was replaced by a "peak demand" theory suggesting oil consumption will plateau and start declining soon due to electric vehicles, while large quantities of oil will not be produced and remain stranded under the ground.

In such circumstances, having a short reserve life arguably makes more strategic sense as it allows companies to adjust faster to quickly changing consumption patterns.

Shell said its assessments indicated "a low risk of stranded assets in the current portfolio".

"As of 31 December 2017, Shell estimates that around 80 percent of its current proved oil and gas reserves will be produced by 2030, and only 20 percent after that time," it said.

It said it was confident it would thrive through potential changes in the energy system to 2030 while growing new businesses to reduce costs and improve emissions.

"The company is expanding in the power market ... This includes investments in areas such as wind generation in the Netherlands, supplying power to retail customers in the UK and offering hydrogen refuelling and electric-car charging."

"Longer term there is great uncertainty in how the energy transition will unfold, but Shell believes its strategic flexibility will allow it to adapt in step with society."

Out of Shell's total proved reserves of 12.2 billion barrels, oil constitutes 4.6 billion, synthetic Canadian crude another 0.65 billion barrels while the rest is natural gas.

Shell has previously announced ambition to reduce net carbon footprint of the energy products it sells by around half by 2050.

The plan is fairly unique for the industry as it covers not only emissions from the production of energy products, but also those from the consumption of Shell's products by its customers.

(Reporting by Dmitry Zhdannikov, editing by David Evans)