“The economics aren’t good enough”, says Shell to explain its decision to withdraw from Cambo, the oil exploration off Shetland. I’m not so sure.
The principal driver of any upstream investment decision is the assumption about the oil price. And there is no more volatile and difficult to forecast factor than that. Obviously if the development costs of Cambo are exceptionally high then it requires a high oil price assumption to justify the capital expenditure. But are they?
My gut feel (no inside track !) is that it is not the “economics” at all but concern about the public reaction that is at the heart of this. Shell has become a very diffident corporation in recent times failing to robustly defend its business. Oil/Gas corporations like Shell do not (these days) create demand for hydrocarbons they supply it. This is not sophistry but reality. The criticism directed at the likes of Shell is mostly misplaced and ignorant.
The world needs oil and gas and until it stops doing so someone has to supply it. The need to reduce dependence on hydrocarbons is self evident but the main mechanism for this has to be government and consumer decisions.
If, over time, we continue to switch into renewables for power generation and to means other than oil fuels for our transportation on land, sea and air Shell, BP and the rest will lose customers. So be it, a good thing most of us would say. But for the foreseeable future we will continue to be hydrocarbon dependent. Shell should confidently state the reality of energy supply/demand and the part they play in it.