Shell's chief executive Ben van Beurden has warned global energy leaders to brace for the shock of falling oil use as soon as the 2020s, warning that those who trivialise the threat of climate change will exhaust public tolerance for fossil fuel companies if they are not careful.

"We have to acknowledge that oil demand will peak, and it could already be in the next decade. It could happen. There are people who believe it will grow forever but I don't subscribe to that," he told the CERAWeek energy forum of IHS Markit.

Mr van Beurden said the industry is skating on thin political ice - notwithstanding the election of Donald Trump in the US - and needs to shore up its flank. "Social acceptance is just disappearing. I do think trust has been eroded to the point that it is becoming a serious issue for our long term future," he said.

"This is the biggest challenge of my career. We're under a lot scrutiny and pressure. It is not a rational discussion any more, it's emotional," he said. Regulators across the world are starting to demand that fossil fuel companies account for 'stranded assets' and financial risks from climate change, leading in turn to a shareholder pressure on the boards.

Claims of peak demand are anathema in the US oil capital of Houston. "Wishful thinking," said Chevron's chief John Watson. Saudi Arabia's energy minister Khalid al-Falih said talk of peak demand is ridiculous and ultimately dangerous, discouraging vitally-needed investment before alternatives are on offer. "They are compromising the world's energy security," he said.

Mr van Beurden advised the oil and gas industry to take an activist approach to show that it takes the threat of global warming seriously. Shell is already the biggest provider of renewable energy in the US through its wind farms. It is planning to invest $1bn a year in green technologies, and carbon capture and storage.

"You can be too early on this, as we discovered to our detriment. You have to get the timing right," he said. This time the stars are finally coming into alignment as renewable costs fall to parity with fossils.

Shell can afford the luxury of this 'moral' position because it has already made the switch to natural gas, the lone fossil fuel winner of the Paris Agreement on climate change. Gas emits roughly half the C02 of coal in power generation. It is also the perfect back-up for intermittent solar and wind.

“The largest contribution Shell can make to reducing emissions globally in the near term is to continue to grow the role of natural gas,” he said. The company has finished integrating BG following the $52bn takeover in 2016, creating a gas giant and $4bn of synergies this year. "We have taken a tremendous amount of cost out," he said.

The BG merger is one prong of the strategy. The recent sale of $8.5bn of oil sands acreage in Canada is another. Shell is today far less exposed to the political risk of climate change.

The group has not abandoned oil, although it has pulled out of Alaska where it wasted $9bn on a "dry well". Mr van Beurden said the regulatory overkill in Arctic waters, married with high costs, made it pointless to continue.

David Fuller's view

Ben van Beurden is a brave man, having entered the wounded lions’ den at the CERAWeek energy forum of HIS Markit in Houston, and delivered this message.  I trust he came away unscratched.

I think he is right.  In fact, I said so, more or less, in Monday’s Comment of the day.  I won’t repeat all those points but you can either scroll back to Monday, or use these two links to access Email of the day 2 on crude oil, and also AE-P’s earlier article: Permain Shale Boom in Texas Is Devastating for OPEC.

Oil is obviously an immensely important commodity.  However, its days as a fuel are now in decline, for all the reasons mentioned above.  That will not change.  However, oil is a very useful chemical, both today and in the foreseeable future.  That will be no consolation for oil producers because both the demand for oil and its price will be much lower a decade from now.

These changes are entirely due to our era of accelerating technological innovation.  To appreciate the significance of this, just consider the example of oil over the last decade.  In fact, only a few years ago experienced commentators were still telling us that the world was rapidly running out of crude oil.  Today, I suggest there is far more oil available than the world will ever require.

Please note: In the interests of full disclosure, I have a personal long-term investment in Royal Dutch Shell B, which currently has an estimated P/E of 14.66 and Yields 6.56%, according to Bloomberg.  If RDSB pulls back much further, I will buy a little more, using some of the accumulated dividends in my account.  Shell’s increasing emphasis on natural gas and even its green diversifications should help the share, not least in protecting the dividend.

Here is a PDF of AE-P’s article.