Royal Dutch Shell (RDSB) has laid out its plan to be leaner and greener by 2022. The energy major will cut 7,000-9,000 jobs as part of a $2bn-$2.5bn (£1.5bn-£1.9bn) annual cost-saving plan. This is around 10 per cent of its current workforce, and includes the 1,500 employees who took voluntary redundancy this year.
The oil and gas industry has seen earnings smashed this year because of Covid-19, while increased investor pressure has led to greater commitments to cut emissions. Earlier this month, BP (BP.) said oil demand had likely peaked in 2019.
The job cuts announcement came alongside an operational update for the September quarter. Wild weather in the US has seen upstream guidance tightened to 2.15m and 2.25m barrels of oil per day, while average prices are at a 15-20 per cent discount to Brent spot, meaning earnings will be poor once again. Shell loses $6bn in its annual cash flow from operations for each $10/bbl movement in the oil price.
Consultancy Rystad Energy said oil supply would likely overshoot demand in the December quarter, given current Covid-19 trends. OPEC has also kept supply up, meaning prices could dive again.
In the June quarter, Shell got a boost from its trading division, which had $1.5bn in underlying earnings in the period. This will not be repeated in the September quarter, with “below average” results expected.
In a Q&A posted to its website, Shell chief executive Ben van Beurden said the company would not stay in business in the long-term in its current state. “[Reaching net zero by 2050] does mean dramatic change for Shell – and that includes changes to our business plans over time,” he said. Broadly Mr van Beurden said middle management would be in the firing line, while cuts would be used to maintain margins in the upstream division, and make the refining business “smaller but smarter”.
Panmure Gordon analyst Colin Smith said the job cuts implied “wrenching change” within the company but did not look incrementally meaningful.
A broader strategy update is expected in February. However, Mr van Beurden gave some insight into Shell’s long-term future. “We will have some oil and gas in the mix of energy we sell by 2050, but it will be predominantly low-carbon electricity, low-carbon biofuels, it will be hydrogen and it will be all sorts of other solutions too,” he said.
The emissions linked to oil sales will be offset by carbon capture technology and tree planting, the Shell boss said, although much work is still needed to demonstrate the former’s viability as a credible path to net zero emissions. Questions are also commonly raised about where the millions and millions of trees that would need to be planted to offset emissions from the world’s fossil fuel companies.
