THE WALL STREET JOURNAL/DOW JONES NEWSWIRES: Shell Chmn Sees World Oil Demand Up Near 3% In 2004: “During his speech, van der Veer made no reference to the possibility that the company will restructure itself in the aftermath of a damaging reserves scandal earlier this year” (ShellNews.net)

DOW JONES NEWSWIRES

Posted 21 October 2004

LONDON -- Royal Dutch/Shell Group (RD, SC) Chairman Jeroen van der Veer said Wednesday that global oil demand is growing at a pace of almost 3% this year - the fastest rate since 1978.

But, he said, this pace - driven in part by extraordinary demand from China - is unsustainable.

"It will not continue (next year)," Van der Veer said. "Two record years in a row is unlikely."

The Shell chairman dismissed reports that the world's supply of oil has reached capacity.

"I think that is wrong. Oil supply is not at capacity, but demand is close to present capacity," he said.

Speaking before an industry awards luncheon banquet, van der Veer acknowledged that finding future oil and gas deposits is a challenge, but that this isn't because of a lack of resources in the ground.

He predicted the peak in oil and gas production is beyond 2030, but declined to forecast when. Over the next quarter century, both oil and gas supply and demand will rise - with gas more preferred than oil, he said.

He also predicted that recent record prices of more than $50 a barrel for benchmark oil wouldn't last.

"The outlook (for oil) will be lower than $50 a barrel, but I am not sure when," van der Veer said.

Van der Veer said that success in finding and producing the new oil and gas reserves is contingent on oil companies gaining what he calls "four green traffic lights."

"And you need all four at the same time," he stressed.

He described the green lights, or favorable investment conditions, as: an agreeable regulatory framework; a tax structure that allows for an acceptable return on investment; competent and skilled industry workers; and an "entrepreneurial spirit."

He complemented the U.K. system, "but I leave it to your judgment what you think about the regulatory framework in Russia."

This was an apparent reference to the abolition a couple of years ago of investment-friendly production sharing agreements and the ongoing back-tax and license tussle with authorities that threatens to put Russia's biggest oil producer Yukos (YUKO.RS) out of business.

Shell is the biggest Western oil and gas investor in Russia.

Turning to the North Sea, van der Veer said investment in the mature basin dividing the U.K. and Norway is "not over." He backed up his bullishness, noting Shell's capital expenditure in the North Sea will rise 12.5% to $1.5 billion this year.

Oil and gas production is declining in the U.K., and in Norway oil output is broadly flat.

Van der Veer said Norway holds promise, predicting that only one-third of its oil and gas resources have been extracted.

He pointed to Shell's 17.04% stake in the huge Ormen Lange gas field as an example of the North Sea's remaining riches.

Next year, Shell will start contributing about $1.7 billion in capital expenditure toward the Norwegian gas field and pipeline development.

Scheduled to come on stream in 2007, Ormen Lange will produce 20 billion cubic meters of gas a year at peak conditions over a life span of 40 years, the Shell chairman noted. Much of the gas will be exported to the hungry U.K. gas market, the world's third biggest.

During his speech, van der Veer made no reference to the possibility that the company will restructure itself in the aftermath of a damaging reserves scandal earlier this year.

The market predicts the company will unify the boards of holding companies Royal Dutch Petroleum Co. and Shell Transport and Trading PLC, but van der Veer offered no clues to that outcome. Shell is expected to make a statement on the matter next month.

-By Michael Wang, Dow Jones Newswires; 44-(0)207-842-9386; michael.wang@dowjones.com