Europe faces painful “industrial rationalization” over its energy crisis, which risks political troubles, Shell’s boss warned on Sunday as the oil giant joined a natural gas project in Qatar.
Shell Chief Executive Ben van Beurden agreed to a deal for a 9.3 per cent interest in Qatar Energy’s North Field South project, which will play a key role in the Gulf state’s efforts to expand liquefied natural gas (LNG) production in to increase by 50 percent over the next five years.
At the signing ceremony in Doha, van Beurden said that European industry is being hit hard by the energy crisis, which is being exacerbated by the Russian invasion of Ukraine.
Europe has cut consumption “quite effectively, quite significantly,” after losing 120 million tons of Russian gas a year, van Beurden said, but “a lot of that reduction will come from shutting down industry.”
Europe has been desperate for quick alternatives to Russian gas, but van Beurden said Europe would need large quantities of LNG for decades.
“A lot of people are saying, turn down the thermostat or maybe don’t turn on the air conditioning,” he said.
“But there’s also the question, ‘why don’t we shut down the fertilizer plant that we have’ or ‘let’s shut down production of some petrochemicals in general’. And that rationalization, if it lasts long enough, becomes permanent.”
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Van Beurden said there have been “some winning streaks” in Europe in terms of demand reduction, but added “some of this is actually bad news in the long term, namely economic or industrial rationalization”.
The Shell boss, who is retiring at the end of the year, said industrial cuts could trigger some “rejuvenation” but also pose risks.
“To do this on this scale, this abruptness at a time of general economic challenges, I think will put quite a bit of pressure on the European economies and maybe a lot of pressure on the political system in Europe,” he said.
British Shell is the second European company to take a stake in North Field South, after France’s TotalEnergies.
25 percent of the project is reserved for international energy giants.
The expansion of the North Field, the world’s largest proven gas reserves, is expected to increase Qatar’s LNG production by 50 percent to about 127 million tons per year by 2027.
Shell and TotalEnergies took an interest in the North Field East zone earlier this year.
“Natural gas is gaining importance amid the recent geopolitical turmoil,” Qatar’s Energy Minister Saad Sherida al-Kaabi said while welcoming the Shell deal.