Shell takes $22bn coronavirus hit as oil giant slashes the value of fossil fuel assets

Oil giant Shell has warned it will slash the value of its assets by up to $22bn (£17.9bn) after the coronavirus hit demand for fossil fuels.

In one of the clearest indicators yet of just how badly Covid-19 has ravaged the oil and gas industry, Britain’s largest company said it expected sales to plunge 40 per cent in the second quarter of this year due to a sharp drop in fuel prices that is expected to be prolonged.

The world’s largest fuel retailer said that would cause a hit of between $15bn to $22bn this quarter. It comes after Shell recently conducted a climate-focused review of its business and announced that it plans to cut its net greenhouse gas emissions to zero by 2050.

Shell’s rival BP, which also set a net-zero target earlier this year, said last week that it would slash the value of its assets by up to $17.5bn.

Globally, demand for fuel dropped at an unprecedented rate in March and April as governments implemented international travel restrictions and ordered citizens to stay at home to limit Covid-19’s spread.

Consumption has begun to rise from those lows in recent weeks, while oil-producing nations have drastically slashed output to support prices, but a high level of uncertainty remains about the health of the global economy and future demand for oil and gas.

The recovery is expected to be long and slow in several fuel-hungry parts of the economy, including air travel, meaning difficult times for oil companies.

Despite these problems, and the prospect of a renewed push by governments to cut emissions after the pandemic, Shell forecast it would produce between 2.3 million and 2.4 million barrels a day next year, more than it had said previously.

However, it cut its forecast for prices from $60 per barrel to $50.

Shell’s shares, which millions of people own through their pension funds, dropped 3 per cent on Tuesday and are now worth barely half what they were at the start of the year.

Chris Beauchamp, the chief market analyst at IG, said: “In a world of falling oil demand and a bigger push towards renewables, these energy titans increasingly look like creatures from another era, something which should give investors pause for thought.”

Shell’s announcement was not “overly surprising”, said Nicholas Hyett, an equity analyst at Hargreaves Lansdown.

“The real question going forwards is whether Shell’s fairly downbeat expectations are downbeat enough,” he added.

“Oil prices have spent a large part of the last five years under $60 a barrel and while the collapse of several large US shale [oil companies] might reduce global supply, the outlook for demand is hardly robust.”