Fossil fuel giant believes it will produce 80 per cent of its oil and gas reserves before 2030, as it seeks to navigate low carbon transition
Shell has unveiled a plan to navigate its business through the shift towards a low carbon economy over the next 15 years, concluding that it foresees a "low risk" of being left with stranded assets in its fossil fuel portfolio.
The firm's new Energy Transition Report reveals that it expects to produce around 80 per cent of its proved oil and gas reserves by 2030, and only around 20 per cent after that time. The projections suggest the company is confident it can find a market for its products in the medium term and is therefore insulated against the longer term risk that the emergence of clean technologies will lead to a precipitous decline in global demand for fossil fuels.
Shell said that every year it tested the resilience of its fossil fuel business against low oil and gas prices, which as of the end of last year "indicate that the risk of stranded assets in the current portfolio is low".
However, the assessment immediately sparked fierce criticism from green groups, who argue Shell's approach to the energy transition remains "complacent" and warn the world requires a much swifter shift away from fossil fuels to avoid the most catastrophic impacts of climate change.
But Shell claims its business model will be resilient in the face of potential changes to the energy system, including prolonged low oil prices. It reiterates its long-standing argument that it will continue to sell oil and gas "that society needs", while also preparing its portfolio to move into low carbon energy "when this makes commercial sense".
The new strategy is designed to show that Shell is not only a "world-class investment case", the firm said, but also that it can "sustain its societal license to operate" and "manage climate change-related risks and maximise opportunities through the transition".
In a bid to address climate change risk, Shell also reaffirmed its support for the work and objectives of the Taskforce on Climate-related Financial Disclosures (TCFD), with the report's appendix mapping the company's 2018 disclosures against the TCFD recommended categories.
The paper represents Shell's principle response to the TCFDs, it said, demonstrating its "near and mid-term financial and portfolio resilience", including against its recently-published Sky transition scenario, which set out a "technologically, industrially and economically possible" pathway for meeting the goals of the Paris Agreement.
The strategy comes ahead of Shell's Annual General Meeting in the Netherlands on May 22, where a group of investors will table a resolution calling on the oil giant to set and publish climate targets that are in line with the Paris Agreement's 'well below' 2C ambition. A similar proposal was rejected at last year's AGM, with Shell CEO Ben van Beurden insisting it was an "unreasonable ask".
Still, commenting today, Shell CEO Ben van Beurden said understanding what climate change means for the company was "one of the biggest strategic questions on my mind today".
"In answering that question, we are determined to work with society and our customers," he said. "We will help and inform and encourage progress towards the aims of the Paris Agreement. And we intend to continue to provide strong returns for shareholders well into the future."
As such, Shell said it planned to grow its low carbon businesses while reducing costs and "improving its CO2-intensity performance" as power markets increasingly electrify over the coming years. In particular, Shell said it planned to adjust Shell's business in different countries, highlighting its investment in wind power, retail electricity services, and hydrogen and electric mobility.
"Longer term there is great uncertainty in how the energy transition will unfold, but Shell believes its strategic flexibility will allow it to adapt in step with society," the report states.
As pressure continues to grow on Shell - as well as the wider oil and gas sector - to take more concerted action to address climate change, the firm has over the past year made a number of high profile moves which suggest it is paying greater mind to the potential impacts of the energy transition on its business.
Late last year Shell announced its ambition to halve the net carbon footprint of the energy it sells by 2050 and to boost its annual low carbon spend to $2bn. The firm has also made a number of high profile acquisitions, snapping up electric vehicle chargepoint firm NewMotion and UK energy supplier First Utility.
Yet, just this week it emerged that both direct and indirect emissions from Shell's business grew again in 2017, hitting their highest level in three years.
Tom Burke, chairman and founding director of environmental think tank E3G, said the oil major's latest strategy today forecasts "a much more leisurely energy transition than is likely to take place", which could put the firm's business at considerable risk in the coming years.
"Shell's approach to 'thriving' in a two degree world is far too complacent to be credible to the central bankers and giant asset managers who are increasingly concerned about the risks climate change poses to global economic stability," Burke said.
He added that the oil giant was still failing to understand the speed of the low carbon transition that was already well under way, with the growing digital economy and vulnerabilities in the oil and gas markets presenting major threats to Shell's business model
"It is the burning of fossil fuels that is the problem, not their use," said Burke. "Shell might be far better off investing in developing new non-combustion uses of their resource than trying to enter markets, like electricity, in which they have no experience and no obvious competitive advantage."
As a fossil fuel major that plans to continuing to sell oil and gas long into the future, Shell leaves itself open to considerable criticism from not just green groups but also climate-concerned investors who are noting the rapid shift towards low carbon business models. Nevertheless, today's strategy demonstrates how Shell is opening up to scrutiny of its business model like never before, suggesting pressure from markets, investors and campaigners on climate change issues is starting to have a tangible impact on the oil industry's outlook.
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