Shell's Voser Concerned About Slowing Economic Growth as Stimulus Ends

Royal Dutch Shell Plc Chief Executive Officer Peter Voser said the global economic growth may slow in the second half as governments end their stimulus spending, cutting demand for fuels.

“Asia-Pacific and the Middle East are growing substantially again,” he told reporters in Singapore today. “The U.S. is picking up and Europe is slightly lagging still. I am somewhat still concerned about the second half when the stimulus packages actually start to slow down.”

Investors have swarmed into commodities on expectations demand will rebound as economies expand again, in part due to billions of dollars of government spending. Crude oil futures in New York have more than doubled to above $85 a barrel from a four-year low of about $32 a barrel in December 2008.

“There is a strong demand expectation over the short- to medium-term that is being reflected in the oil price,” he said at the official opening of Shell’s petrochemical plant in Singapore. “The market sees a strong recovery in that sense. The restrictive OPEC position where they have quite a few million barrels shut in, that keeps the market in a certain balance. I don’t see that changing that fast.”

The Organization of Petroleum Exporting Countries, the producer of 40 percent of global supply, holds more than 5.6 million barrels a day of spare capacity. The group has been holding back production since December 2008 in a bid to support prices amid the recession.

The swings in oil prices has led Shell to base their long- term projects on the basis of crude trading between $50 a barrel to $90 a barrel, Voser said today. For natural gas, the company considers futures at the Henry Hub at between $4 and $8 per million British thermal units.

“We test all of our projects in that range,” Voser said. “At the low end you are testing your cash margins and your cash flow. And at the higher range you’re testing how much of the high oil price you can actually keep and how much is creamed away through taxes.”

Voser is in Singapore, Asia’s biggest oil trading center, for the official opening of its Shell Eastern Petrochemicals Complex next to its crude refinery at Pulau Bukom. The facility includes a mono-ethylene glycol plant on Jurong Island that was opened last December.

The centerpiece of the complex is a cracker that has the ability to produce 800,000 metric tons of ethylene, 450,000 tons of propylene and 230,000 tons of benzene a year. Shell began exporting chemicals from the facility in March.

Shell is boosting its petrochemicals capacity to meet rising demand from Asia’s fast-growing economies, including China, for raw materials used to make plastics.

The project “upgrades the bottom of the barrel to high- value hydro-carbons,” said Ben van Buerden, executive vice president for Shell Chemicals. “You can express this as a bottom-line impact that is very, very significant.”

Shell’s chemical sales climbed 11 percent in the first quarter of 2010 versus a year ago, the company said on April 28. Earnings climbed to $313 million against a loss of $74 million during the same period in 2009.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.

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