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Shell announces low-impact green plan

Energy major wants to make offsetting carbon part of its business model, but lays out slow reduction in oil and gas production and lower green investment than BP
Shell announces low-impact green plan
  • Royal Dutch Shell raises carbon intensity reduction aims
  • Oil and gas producer says it hit peak production in 2019, and peak carbon emissions in 2018

Royal Dutch Shell (RDSB) has announced a unique path to net zero carbon emissions within the energy industry, slowly reducing oil and gas production and selling offsets to customers to hit its climate goals. This is distinct from the renewables energy-heavy plans of fellow oil and gas majors. 

Shell confirmed that its oil and gas production had peaked in 2019 at 2.7m barrels of oil equivalent per day (boepd), and that it would decline by 1-2 per cent a year from now on, because of divestments and natural decline. The company also talked up the long-term prospects of its chemicals and integrated gas businesses. 

Shell has upped its carbon intensity goals, too, with the next milestone a 6-8 per cent drop from 2016 levels by 2023, on route to a total reduction by 2050. Cutting carbon intensity does not mean emissions fall overall, although the company said its total emissions had peaked in 2018 at 1.7 gigatonnes. 

Spending will be maintained in the chemicals business, to $4bn-$5bn (£2.9-£3.6bn) a year, similar to the 2019 level, while upstream capital spending will fall around 20 per cent from the 2019 level at $8bn a year. For the “growth pillars” of the company under its net zero plan, renewables spending will be $2bn-$3bn. 

Investment in electric vehicles will also ramp up. Shell aims to increase its global charge points from 60,000 to 500,000 by 2025. 

There was little market reaction to the announcement, although investors will be able to show their feelings at the annual general meeting in an advisory vote on the transition plan. 

Chief executive Ben van Beurden said by 2050 Shell would not sell any “carbon-based energy that is not unmitigated”. Mr van Beurden said it would sell mitigation to customers, passing the cost onto its buyers. Carbon offsetting is critical for Shell’s transition plan, but beyond spending $100m on “nature-based solutions” such as tree planting and pushing for a ramp up in carbon capture and storage (CCS) technology, there was not a whole lot of detail in how this will be achieved. 

Management reiterated plans to maintain Shell's “progressive” dividend, increasing 4 per cent a year, and also reduce net debt to $65bn from $75bn as of 31 December. Last week, Shell increased its 2021 quarterly payout even after the Covid-19-hit 2020 performance. This was the second increase since it cut its dividend by two-thirds in April last year in reaction to the oil price crashing. 

The company is focused less on ramping up its investment in renewables than fellow major BP (BP.), which set both spending and capacity targets on green energy generation. Van Beurden said the company “did not have a volume metric or target approach to things”. 

He said Shell would be “causing investments to happen” and participating, but not buying up renewable capacity. This week, BP committed to spending over £460m a year for the right to build up to three gigawatts (GW) of wind turbines in the Irish Sea. 

Finance chief Jessica Uhl gave the example of Amazon as a client to demonstrate the “customer-first” plan. “Yes we’ll provide green electrons, but we’ll also make sure they have green electrons 24 hours of the day,” she said, adding Shell could also sell them green aviation fuel and other products. 

Jefferies analyst Giacomo Romeo called the net zero carbon plan “one of the most stringent carbon reduction plans in the sector”. “How this will be achieved remains partially unclear, based on the limited low-carbon growth targets provided,” he said. 

Shell needs a lot to go right for its carbon offset plan to work here, including a massive ramp up in CCS capacity, and will largely need the energy transition to trundle along without any radical shifts in fossil fuel demand for this plan to work. Sell at 1,284p. 

Last IC View: Sell, 1,309p, 4 Feb 2021