analysis

Analysis: Shell wants to play the net-zero game too

A Shell forecourt in the UK. Photo credit: Royal Dutch Shell / Ed Robinson.

By Anders Lorenzen

Last year, the British oil giant BP shocked many with an ambitious net-zero plan signalling a future away from fossil fuels.

Perhaps it was jealousy, but another oil giant, Royal Dutch Shell last month unveiled an upgrade to its net-zero plan released last year. It signals less reliance on its oil business, but not that shift away from fossil fuels many climate advocates and activists had hoped for, and significantly less ambitious than BP’s vision.

The peak of oil production 

In the strategy, the Anglo-Dutch group sets out to eliminate net CO2 emissions by 2050 with its oil output declining from its 2019 peak. The company says they’re in the process of expanding their renewables and low-carbon business. This comes as the company faces growing investor pressure to tackle climate change.

Analysts will pay attention to the announcement that their oil output has already peaked. This is significant, seen in conjunction with BP`s similar announcement last year. Two of the world’s biggest oil producers announcing they will not increase their oil production above their 2019 levels could significantly demonstrate that we have already reached peak oil. 

The plan, which is merely an update to their net-zero by 2050 plan unveiled last year, states that the company will grow its low-carbon business, including biofuel and hydrogen, in order to achieve its goals. However, in the near future spending is still mainly favouring oil and gas investments.

Shell’s CEO, Ben van Beurden said about the strategy: “We will use our established strengths to build on our competitive portfolio as we make the transition.”

Shell’s move has largely been welcomed by investors.  In what was believed to be an industry first, shareholders had an advisory vote on Shell’s transition plan. Normally, such votes are non-binding, however, investors see them as a mechanism to hold management publicly accountable for their progress in reducing emissions. 

Fossil fuels still dominant 

Shell’s strategy is to continue to be reliant on its retail business – the largest in the world. They want to increase their number of sites from 46,000 to 55,000 by 2025. In addition, they want to increase the number of electric charging points from today’s 60,000 to 500,000. The company declared that today they have access to charging infrastructure in over 35 countries and have acquired the electric vehicle charging provider, Ubitricity. 

The company also outlined a series of projects and initiatives around the world aimed at demonstrating how seriously they’re taking the low-carbon transition policy.

However, climate activists and green groups will surely be sceptical that the company did not outline any plan to grow its solar and wind power capacity, which is a stated aim in BP`s new strategy.  Critics will paint the Shell plan as lacking ambition.  Many would wonder how they grow their low-carbon business without increasing its solar and wind power business – the world’s leading renewables technologies.

In the near future, the company will invest at least 5$ billion a year in what they describe as a growth pillar – dividing its investments between its trading and retail business and renewables units. They had previously aimed to spend $3 billion on renewables and marketing combined.

But with a budget of $8 billion, much more will be spent on oil and gas production with the aim of growing their gas capacity by 55% or more by 2030.  In addition, they will spend $4 billion on liquefied natural gas (LNG) business and up to $5 billion on chemicals and refining with the company’s total annual spending amounting to $19 – $22 billion. Shareholder dividends will rely on oil and gas revenues.

Shell says its total emissions peaked in 2018 at 1.7 gigatonnes and its peak of oil production in 2019 was around 1.8 million barrels per day (BPD).  This amount is expected each year to decrease in yield by 1% to 2%, which figure includes the divestments of oil fields and the natural decline of fields. The company does pledge to end gas flaring by 2030 and keep methane emissions below 0.2% by 2025. In addition, the company aims to reduce its net carbon intensity by between 6% and 8% from 2016 levels by 2023, this will then rise to 20% by 2030, 45% by 2035, and 100% by the middle of the century. This is an upgrade from its previous targets which were 3% by 2020, 30% by 2035 and 65% by 2050 from the 2016 baseline. Worth bearing in mind that intensity represents emissions per unit of energy produced – technically this allows for higher production. 

Shell said that in order to offset emissions from its hydrocarbon business, which still represent by a large margin most of its business, it plans to put carbon back into the ground by re-injecting the emissions or planting trees. The company outlined that they aim to offset 120 million tonnes of emissions from the use of their products by 2030 and that they seek to have access to 25 million tonnes a year of carbon capture and storage (CCS) by 2035. But the company have not provided any information about this or what funds have been budgeted to achieve this.

Is this greenwash?

It is no big surprise that the strategy did not excite green groups. Mel Evans, the head of Greenpeace UK’s oil campaign said: “Without commitments to reduce absolute emissions by making actual oil production cuts, this new strategy can’t succeed nor can it be taken seriously.” 

Climate advocates and activists would be hard-pressed not to see this strategy as greenwash. They would welcome Shell’s commitment that oil production peaked in 2019. But they would argue that questions need to be asked about how serious the company takes the green transition when most of its budget, at least $17 billion dollars, is still reserved for fossil fuels and chemicals, with renewables at its best, receiving half of a pot of $5 billion. In the best Greta Thunberg style, one could easily argue that the company says they want to tackle climate change without actually doing anything. 

No new commitments to increase their already low renewables investments should be taken seriously. Even though they have said that their oil production has peaked, this could easily be offset by investments in gas, chemicals and plastics. Advocates and green-minded investors would also be alarmed about the lack of details on carbon capture or any other carbon offsets such as tree planting. A red flag could also be noted in terms of carbon intensity which is a  fancy-sounding word but do not actually equate to a reduction in emissions.  

The people who were hoping for a follow up to BP’s ambitious strategy will be sorely disappointed.

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