One of the world's largest energy companies has revealed the stark impact of lower petroleum prices on its revenues.
In a note updating its first-quarter outlook, Royal Dutch Shell stated that each $10 per barrel decrease in the price of Brent oil costs the corporation about $6 billion per year. (All figures are in U.S. dollars).
Brent crude hit an 18-year low on Monday (March 30) before climbing up slightly to $22.71 per barrel, as of this writing.
It's the benchmark price for worldwide oil prices. And it's been in a freefall as a result of an oil-price war between Saudi Arabia and Russia.
This will cost Shell between $400 million to $800 million in the first quarter.
"As a result of COVID-19, we have seen and expect significant uncertainty with macro-economic conditions with regards to prices and demand for oil, gas and related products," Shell stated. "Further, recent global developments and uncertainty in oil supply have caused further volatility in commodity markets."
Shell added that "liquidity remains strong", due to a new $12-billion revolving credit facility commitment and an earlier $10-billion credit facility signed in December.
"Together with cash and cash equivalents of circa $20 billion, available liquidity will rise from $30 billion to more than $40 billion," the corporation declared. "In addition, the Shell Group has access to extensive commercial paper programmes."
As of this writing, Royal Dutch Shell's ADR Class B shares are up 7.36 percent to $33.70 on the New York Stock Exchange.
Shell is the largest investor in LNG Canada, which is a consortium of huge energy companies developing a liquefied natural gas plant in Kitimat, B.C.
It's expected to receive fracked gas from northeastern B.C. via the $6.6-billion Coastal GasLink pipeline project, which is owned by TC Energy, KKR, and the Alberta Investment Management Corporation.
Together, they're part of a $40-billion infrastructure project—the largest in Canadian history.
Canada's economy jeopardized
Meanwhile, Canadian oilsands producers are being hammered by the sharp fall in the price of Western Canadian Select. It's crashed to $4.69 per barrel.
According to Bloomberg, the purchase price has fallen below shipping costs.
Plummeting oil prices have driven the Canadian loonie down to about US$0.70. If the dollar doesn't stage a recovery, that could lead to higher prices for imported goods, including food.
Canada is the world's fourth-largest producer of crude oil and fifth-largest producer of natural gas.
In a 2019 book, The Green New Deal: Why the Fossil Fuel Civilization Will Collapse by 2028 and the Bold Economic Plan to Save Life on Earth, U.S. economic forecaster Jeremy Rifkin made the case that Canada and the United States would face severe economic consequences by not making a more rapid transition to renewable-energy production.
He suggested that "misguided policies to keep the fossil fuel spigot wide open in North America" could lead to $1 trillion in stranded corporate assets by 2030.