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OilPrice.com: Shell Warns Spare Oil Capacity Is Running Very Low

Spare Oil Capacity Is Running Very Low

OilPrice.com: Global spare capacity is running very low, which will keep oil and gas markets on edge for some time, according to the chief executive of supermajor Shell.

“Spare capacity is running very, very low,” Shell’s CEO Ben van Beurden said on Wednesday, as carried by Reuters.

While global spare energy capacity continues to deplete, demand for oil and gas is still recovering despite the current economic and pandemic challenges, van Beurden told reporters.

“I do believe that we’re going to be facing quite a bit of uncertainty in markets for some time to come,” Shell’s top executive added.

Global spare capacity for crude oil production is believed to be held mostly by the large producers in the Middle East, such as Saudi Arabia and the United Arab Emirates (UAE). However, Saudi Arabia, the world’s biggest crude oil exporter, has never tested the 12 million bpd capacity it claims to have, while it has never produced more than 11 million bpd for a prolonged period.

In addition, global refining capacity lost around 3 million bpd of processing capacity in the wake of COVID and the crash in demand, as refiners opted to close some money-losing facilities, also because of uncertain oil demand trends going forward. Shell was also among the refiners who downsized refining operations in 2020, with a view to be a net-zero emissions business by 2050 or sooner.

In the gas market, where Europe is scrambling to procure non-Russian supply, capacity to meet demand is also low. According to the chief executive of Shell, which is also a top LNG trader, it’s impossible for LNG to replace all Russian pipeline gas.

“I think it will be impossible to cover the entire pipeline gas capacity out of Russia with LNG,” van Beurden told reporters.

“If we are not going to take significant measures, like for instance energy savings, maybe a certain degree of rationing, it will be problematic,” he added.

By Tsvetana Paraskova for Oilprice.com


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