Shell Fast-Tracks Net-Zero Plans: Update

(Adds comment from UK upstream industry group)

Shell plans to rebalance its investments to focus more on achieving net-zero emissions by 2050, and has also announced intermediary targets for reaching the goal. 

Under its Powering Progress strategy, published on February 11, the Anglo-Dutch major will organise its investments into three pillars of Growth, Transition and Upstream. It will invest $5bn-6bn/yr in Growth, consisting of $3bn in marketing and $2bn-3bn in renewables and energy solutions; $8bn-9bn in Transition, covering $4bn in integrated gas and $4bn-5bn in chemicals and products; and $8bn in Upstream.

Shell's share price was down 1.9% at £1.34/share at 09:50 GMT.

"Over time the balance of capital spending will shift towards the businesses in the Growth pillars, attracting around half of the capital spend," Shell said. "Cash flow will follow the same trend and in the long term will become less exposed to oil and gas prices, with a stronger link to broader economic growth."

At the same time, Shell promised shareholders financial resilience and disciplined capital spending. It will increase dividends by around 4%/year, after cutting them by two thirds at the onset of the coronavirus pandemic. It will also work to reduce net debt to $65bn, from $75.4bn at the end of December, and aim to distribute 20-30% of cash flow to shareholders through dividends and buybacks. Operating expenses will be capped at $35bn/yr and Shell will target $4bn/yr in divestments.

"Our accelerated strategy will drive down carbon emissions and will deliver value for our shareholders, our customers and wider society," CEO Ben van Beurden said. "We must give our customers the products and services they want and need – products that have the lowest environmental impact. At the same time, we will use our established strengths to build on our competitive portfolio as we make the transition to be a net-zero emissions business in step with society."

Shell was among a number of European oil companies to pledge last year to produce net-zero carbon emissions by 2050. Under its new strategy, it will seek to reduce its net carbon intensity by 6-8% by 2023, 20% by 2030, 45% by 2035 and 100% by 2050, using emissions in 2016 as a baseline. It believes its emissions peaked in 2018, while its oil production peaked in 2019.

The company is shifting further towards gas, with plans to bring more than 7mn metric tons/year of new LNG capacity on stream by the middle of the decade. Oil output should decline by 1-2% annually, as a result of divestments and natural decline. It also wants to double electricity sales 560 TWh/year by 2030, expand its hydrogen activities and scale back its downstream presence, while producing more biofuels.

The major will seek access to an extra 25mn metric tons/year of carbon capture and storage (CCS) capacity by 2035. It is already involved in the operational Quest CCS project in Canada, the planned Northern Lights in Norway, Porthos in the Netherlands and Acorn in the UK.

Upstream transition deal with UK government 'needed'

Oil & Gas UK (OGUK), whose members represent the upstream sector, said it was "exciting" to watch companies like Shell "demonstrate how our sector is transforming to meet the clean energy challenge, putting their expertise to work, as other companies are also doing, to help achieve our climate goals here in the UK."

OGUK's sustainability director Mike Tholen said February 11 that "everyday we see more examples of how this industry is changing. As we continue to face the challenges brought about by the pandemic, the UK economy should build on its strengths. The North Sea transition deal proposed in the Energy White Paper will be essential to accelerating investment and creating employment opportunities in new technologies while reducing emissions from production.”

The government has been doubling down on its commitments to net zero carbon, and the offshore regulator Oil & Gas Authority is tightening its control over emissions from offshore installations, although they account for only 4% of the nation's emissions.