Shell continues to invest heavily in oil, gas and chemicals
Shell is going to invest around 30 billion dollars a year in oil, gas and chemical projects. The company will spend 2 to 3 billion dollars a year on renewable energy. Shell announced this on an investor’s day in London.
The slight investment increase in traditional fossil fuels after 2020 may not be well received by investors who hoped that Shell would make the big green leap forward in the coming years. The energy giant is, however, making a lot of much money with oil, gas, and chemicals. Between 2021 and 2025, it expects to be able to return 125 billion dollars to shareholders.
Confidence in gas
One of the reasons why Shell is doing well is because the company in 2015 acquired BG Group, with its profitable deep-sea oil projects in Brazil and elsewhere. As a result, it suddenly became one of the world’s largest gas multinationals. The gamble on gas paid off: worldwide demand is increasing, among other things as a replacement for coal.
Shell also initiated a multi-year cost reduction program and disposed of approximately 30 billion dollars in assets. As a result, Shell is now able to make a profit even at lower oil prices. New oil and gas projects launched since 2014 alone now provide Shell with 10 billion dollars in additional cash flow each year.
First fossil fuels
This free cash flow means that the dividend and investments can also be increased, says CEO Ben van Beurden. Between 2012 and 2025, Shell intends to invest an average of 30 billion dollars (26,7 billion euro) a year, with a maximum of 32 billion dollars (28,5 billion euro) a year. The vast majority of these expenses go to oil, gas, and chemicals. Shell ‘only’ spends 2 to 3 billion dollars annually on renewable energy projects, such as wind and solar power.
Investments in electricity
CEO Ben van Beurden emphasizes that Shell is ‘extremely well positioned’ for the transition to a climate-neutral energy system. Wherever possible, it intends to adepts its gas and oil production to the climate-related changes in the energy markets. Shell also sees ‘enormous potential’ in the electricity generation market and does not rule out acquisitions. Together with pension investor PGGM, for example, it wants to buy the energy company Eneco.
According to Van Beurden, Shell will continue to invest billions in oil as long as the world asks for this raw material. He also states that the responsibility for complying with the Paris climate agreement also lies with the end users. “As long as diesel cars are sold, we cannot run them on renewable energy.”
Profit only in 2025
In recent years, the company itself has formulated climate targets that should lead to a halving of the company’s CO2 footprint. It also invests in clean forms of energy but says it has to do so in an ‘extremely disciplined’ manner. “We must first be able to show the revenue model before we can scale up”, says Van Beurden. Shell does not expect a positive contribution from the electric power activities by 2025, but rather a negative cash flow of 1 billion to 2 billion dollars.
Step by step transition
Nevertheless, Shell has already indicated that it will focus more on electricity. It sees it as the strongest growing sector in the energy market. The transition will take place step by step, via a so-called asset-light strategy. This means that Shell does want to have its own wind and solar parks and biodiesel production, but also wants to sell electricity that other parties generate.
Business as usual
The Dutch branch of Friend of the Earth, which has legal action against Shell because it has not changed its business model to comply with the Paris climate agreement, is not enthusiastic about Shell’s plans. “Shell is going to invest even more in oil and gas and thus knowingly increase the climate crisis”, says a spokesperson. He points out that Shell wants to invest up to 5 billion dollars a year in conventional oil and gas production in the coming years and a maximum of 4 billion dollars a year in shale projects.
The activist green investors’ club Follow This is also dissatisfied. “These investments prove that Shell’s targets are not yet in line with the Paris climate targets and that Shell believes that its emissions can continue to grow.”