Royal Dutch Shell says it will no longer produce as much oil as it did before the global pandemic, heralding a change to the company’s century-old business model as concerns grow about climate change.
The Hague-based oil major on Thursday said its oil production peaked in 2019 and laid out a plan to transform its fossil fuels business into a clean-energy provider to meet its goal of achieving net-zero emissions by 2050. Shell, one of the world’s largest oil companies with 8,000 employees in the Houston area, said it will invest as much as $6 billion a year in renewable energy projects while selling off its stakes in oil exploration and production projects to the tune of $4 billion a year over 10 years.
“We must give our customers the products and services they want and need - products that have the lowest environmental impact,” CEO Ben van Beurden said in a statement. “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’s shift from oil is another sign of the European industry’s accelerating transition from fossil fuels to avoid the worst consequences of a warming planet. It’s also a historic move for the company, which began in 1833 as a seashell exporter but moved into oil and gas around the turn of the last century.
But after a brutal year marked by the worst oil bust in decades, the company and its European rivals — unlike the large U.S. oil companies — have moved aggressively to prepare for a lower carbon future. BP, Shell and Total have set net-zero emissions targets and are plowing money into solar and wind projects amid pressure from investors, government regulators and the public to address global warming.
Paris-based Total recently said it planned to develop 16 U.S. solar projects, including four in the Houston area, as it creates a portfolio with renewables and electricity producing up to 40 percent of sales by 2050. London-based BP last year sold its petrochemicals business and is investing in U.S. wind farms while also hoping to cut oil production by 40 percent over the next decade.
Yet neither has been as clear as Shell about the implication of net-zero policies for the fossil fuels business. Experts have long debated the timing of peak oil, when oil production reaches a maximum and then will continually decline. Shell on Thursday said its oil production will fall by as much as 2 percent a year until 2030, when its output of petroleum-based fuels will be nearly half of current levels.
“Oil companies used to fear peak oil supply and focused on their growth prospects,” said said Mark Finley, an energy economist with Rice University’s Baker Institute for Public Policy. “Now, these companies are bragging about their own peak oil supply.”
The largest European oil companies acknowledge they will have to reduce crude production over the coming decades to meet their net-zero ambitions. They also are trading higher returns for a clean-energy business that isn’t beholden to geopolitical strife or as susceptible to a volatile commodities market.
Across the Atlantic, U.S. oil majors such as Exxon Mobil and Chevron have been slower to jump on the energy transition, betting that the world’s growing population will continue to fuel oil and gas demand as it has for the past century. Instead of diving into alternative energy sources, the U.S. oil giants are focusing on adapting oil and gas operations to capture carbon emissions and to make it commercially viable.
Although Shell will eventually relinquish its oil business, it plans to continue investing in natural gas, which is considered to be cleaner than coal and crude. The company said it hopes to use its oil and gas business to generate the capital to build a low-carbon business of “significant scale” by the early 2030s.
In the near term, the company said it will spend around $8 billion a year on oil and gas exploration while spending up to $9 billion a year on its natural gas and petrochemicals business. Meanwhile, it is investing in carbon capture technology to reduce the environmental effects of its oil and gas operations. The company has three carbon capture projects in the works with a total capacity of about 4.5 million tonnes.
Shell also plans to grow its global electric vehicle charging network to about 500,000 outlets by 2025, up from more than its existing 60,000 charge points, to support the expected rise of electric vehicles.
Ultimately, Shell said its transition efforts will cut its greenhouse gas emissions by 20 percent by 2030, 45 percent by 2035 and 100 percent by 2050, compared with levels in 2016. The company said its carbon emissions likely peaked in 2018.
David Rabley, a managing director of consulting firm Accenture, said that while renewables and alternative energy sources have yet to achieve economic viability on a large scale, oil companies focused on the energy transition and reducing emissions will be better able to straddle the energy transition than those that don’t.
“It’s not the case that good environmental performance has to come at the cost of good financial performance,” Rabley said. “Those with the better carbon emissions rates have better financial resiliency as well.”
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In a historic move, Shell admits its oil production is now on the decline - Houston Chronicle
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