February 12, 2015 / 3:36 PM / in 3 years

Shell boss sees world oil supply lagging demand

Shell branding is seen at a petrol station in west London, January 29, 2015.Toby Melville

LONDON (Reuters) - The head of Royal Dutch Shell expects global oil supplies to fall behind demand growth as the recent halving of crude prices forces companies to cut production.

In excerpts from a speech Shell Chief Executive Ben van Beurden is to give at the International Petroleum Week dinner on Thursday evening, he said he expected oil prices to remain volatile in 2015 as the market struggles to find a balance.

"Seeing today's prices, supply will probably not keep pace with this growth. It may even decline, as prices are close to cash costs, according to consultants like Wood Mackenzie," van Beurden said.

As projects are postponed and cancelled around the world due to the low oil prices, new supply could fall in 2 or 3 years, failing to catch up with the expected economic growth.

"The market could tighten quickly," he said.

But at the same time, if U.S. shale oil production, the main driver of the rise in global oil supplies in recent years, proves resilient in the face of the lower prices, the oil price recovery could take longer.

"Either way: The market will remain volatile in 2015, if only because for now, OPEC shows no sign of wanting to resume its role as swing supplier," van Beurden said.

Oil prices have halved to around $55 a barrel since last June. Prices took a sharp dip after the Organization of the Petroleum Exporting Countries (OPEC) decided not to cut output in November.

Most major oil companies have slashed exploration spending in 2015 by more than 10 percent compared to last year as they adjust to the low-price environment.

Shell, the largest European energy major, announced a relatively modest three-year, $15 billion (10 billion pound) cut in potential spending last month as van Beurden warned against over reacting.

CLIMATE DEBATE LEADERS

In his speech, van Beurden urged the oil and gas sector to take a leading role in the fight against climate change to introduce "realism and practicality" into the debate.

While criticising peers for not being vocal enough over environmental issues, van Beurden rejected the idea that renewable energy can replace fossil fuels fully as the world's population grows and with it demand for energy.

"Yes, climate change is real. And yes, renewables are an indispensable part of the future energy mix. But no, provoking a sudden death of fossil fuels isn't a plausible plan."

Reporting by Ron Bousso. Editing by Jane Merriman

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