Europe facing prolonged energy crisis, requires 'very quick' shift to alternatives: Shell CEO

Europe's energy crisis is set to last more than one winter, testing solidarity among countries and necessitating a "very quick" build-out of alternative supply, Shell CEO Ben van Beurden said Aug. 29

Speaking alongside TotalEnergies' CEO Patrick Pouyanne, van Beurden said European governments need to "confront the reality" and find solutions to what could be a prolonged crisis when asked to comment on the plunging Russian gas supplies to Europe.

"We will have a potentially difficult [winter] where a lot of things will be tested, how we still have our industries going, but also solidarity in the EU will be tested no doubt, and we should all be very mindful and responsible when it comes to that. But I also do not think this crisis is going to be limited to just one winter," van Beurden told journalists during the ONS conference in Norway.

"It may well be that we'll have a number of winters where we'll have to somehow find solutions through efficiency savings, rationing and a very, very quick build-out of alternatives that we may have, be it alternative gas imports or hopefully alternative energy sources ... within Europe."

At the same event, Pouyanne said "Europe has to think about its future without Russian gas in the medium and long term".

"There are of course short-term challenges that governments will tackle, which people of Europe will have to tackle, that's war," he said.

"But fundamentally my advice to European policymakers and governments is yes, we have to think without it -- medium and long term. Fundamentally, we must think about the future of Europe without Russian gas, and renewables are part of the solution," he said.

European TTF benchmark gas prices hit Eur315.88/MWh on Aug. 26, up more than six-fold since a year earlier, according to the Platts assessment from S&P Global Commodity Insights.

'Precarious' oil

Van Beurden warned that oil markets generally looked "pretty precarious" with insufficient supply, echoing assertions made by analysts that only a few producers within OPEC+, such as Saudi Arabia, could produce more.

"Oil markets are tight; they'll remain tight for some time to come. On the supply side, it's a very well-known fact that OPEC cannot produce at its declared volumes, simply because their capacities also are running out."

"I think we will have a pretty precarious situation between supply and demand, with supply struggling to really meet demand and demand at this point in time helping out a little bit by being depressed," van Beurden said.

"Hopefully, new capacity will be able to be brought on line, and we will not have big upsets," he said, noting EU plans to end Russian seaborne crude imports from Dec. 5.

"We have to see what the Dec. 5 will bring, but it looks to be quite a volatile market probably for some time to come."

Spending boost

Asked whether they planned to ramp up spending on the back of bumper earnings, the two CEOs gave contrasting responses, with van Beurden saying Shell preferred to concentrate on projects that would be part of the long-term energy future.

With an overall investment budget of $27 billion this year, van Beurden said "less than half" is related to oil and gas supply, including $8 billion in the "upstream" category and $4.5 billion related to LNG. "Could we quickly change that? The honest answer to that is no," he said.

"We can decide to develop large new projects and take sanction of them in the next 12 months, but that is not going to help us out this winter. It will take a much longer time to bring new energies on. If that is the case, I would much rather bring on ... the CCS projects or power projects or hydrogen projects. If we are going to increase investments at some point in time it will be in the energy system of the future, while we don't necessarily cannibalize the energy system of today."

Pouyanne was more positive on upstream spending, noting TotalEnergies had increased its plans for 2022, encountering criticism from investors, from an original target range of $14 billion-15 billion to $16 billion now.

The company is expected to step up drilling in the North Sea, where overall production has been stabilizing after a slump in 2021.

"One of the contributions at a time when we make quite a lot of cash flows from our companies is to supply more. So, what do we do — we mobilize all short-cycle projects we have in the North Sea, and of course in other countries like Angola, Nigeria, [as] we think that it's a good time to bring as much energy as we can to the market," Pouyanne said.