Shell Gives “Full-Throated Defense” of Fossil Fuels in Strategy Plan ENERGY COMPANIES | SHELL
The company also touts the flexibility of gas resources as a complement to the growth of renewables. It notes that the electricity sector is rapidly decarbonizing and current low carbon energy profile
Shell Gives “Full-Throated Defense” of Fossil Fuels in Strategy Plan
April 2, 2024
We continue to be impressed with Shell’s still relatively new CEO, Wael Sawan, who took over the CEO role last June. At an investor meeting last June, Sawan unveiled a new strategic direction for the company — back to more drilling for oil and gas and less dithering with renewables (see New Shell CEO Reverses Course – More O&G Drilling, Less Renewables). Sawan is also high on LNG and “sees a long-term role for natural gas in the world’s energy mix.”
Make no mistake; Shell still must salute the “everything is beautiful when it’s renewable” flag (see Shell’s New CEO Pledges Allegiance to “Climate Action”). However, also make no mistake that Shell was, is, and will continue to be in the fossil energy business for the foreseeable future. And that confounds leftist weenies who thought Shell was caving in to Big Green like other European companies (*cough* BP, Equinor, Total *cough*). While Shell still salutes “lower carbon” and all that nonsense, it’s going to continue to grow LNG and oil drilling.
The company recently released an updated version of its “Shell Energy Transition Strategy 2024” document (full copy below). According to analysts writing on OilPrice.com, the update is “actually a full-throated defense of the fossil fuel industry and a guidepost to its likely expanding role in the future.”
Here’s how the analysts describe Shell’s strategy pivot:
Shell Oil Company recently released a revised version of climate-related goals entitled “Shel
l Energy Transition Strategy 2024”. This is Shell’s first strategy revision since 2021. The company made several minor revisions to its net carbon intensity targets which measure total carbon emitted divided by total energy sales. The target for 2030, which had been a 20% reduction, was lowered to 15-20% and the corporate carbon intensity target for 2035 was “retired.” Some commenters noted that Shell appeared to be backing away from its previous environmental commitments. However, after reading “Energy Transition Strategy 2024”, we came away with a different view.
The Energy Transition report is actually a full-throated defense of the fossil fuel industry and a guidepost to its likely expanding role in the future. The report incorporates management’s “four core beliefs” about the industry and they’re worth enumerating. First, management is bullish on LNG production believing it will play a critical role in industrial applications and as a replacement for coal in power generation. Second, they foresee a continued significant role for oil production in the transportation sector but with growth in demand slowing over time due to EVs.
The last two core beliefs address the energy transition more directly. Third, low carbon molecules and renewables “will underpin the future energy system.” This sounds like an expectation for more green hydrogen since management already reduced spending on renewables. And fourth, new carbon abatement and removal technologies “will be needed for the world to achieve net zero.” In other words compliance with our carbon remediation targets will require technologies or operating efficiencies that presently do not exist.
With respect to the power sector, Shell continues to see a big role for natural gas as it increasingly displaces coal as a boiler fuel. The company also touts the flexibility of gas resources as a complement to the growth of renewables. It notes that the electricity sector is rapidly decarbonizing and that current low carbon energy production (renewables plus nuclear) already approaches 40%. Shell believes this trend will continue as final energy usage is increasingly electrified with continued adoption of EVs and heat pumps, for example.
In the Energy Transition document, Shell states that its environmental goal is to be a “net zero emission energy business by 2050.” Although the fourth point in these core beliefs suggests it will take a minor technological miracle (or two) for this to actually occur. But more importantly, we believe 2024 is the year energy corporations begin to distinguish themselves in terms of environmental goals. Some like Shell will acknowledge that first and foremost they’re in the oil and gas business and that expanding that business and creating value for shareholders takes precedence over environmental constraints. In a way, Shell’s managers are suggesting what a future looks like with more electrification but without decarbonization. Interestingly this is a view they probably share with many current utility CEOs—just swap out coal for natural gas as boiler fuel—and leave us alone.
Lastly, this brings us to our final observation regarding the phrase “net zero by 2050”.
That date is still 26 years from now. No corporate manager can realistically make a promise with respect to capital allocation that far in the future. But this Easter holiday weekend we have begun to take a different view. Many religious services will conclude with a priestly benediction. When it comes to corporate efforts at CO2 attenuation, we think it helps to imagine a priest intoning to his congregation, “And may all your carbon emissions be net zero by 2050”. And the corporate parishioners answer with a hearty, “Amen.”*
Shell released the following short video of CEO Wael Sawan touting the “Five things to know” about Shell’s energy transition strategy:
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Shell Energy Transition Strategy 2024: Five things to know
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Copy of the Shell Energy Transition Strategy 2024: