Shell Hits Its Own Peak Oil, Plans to Reduce Output -- Update
By Sarah McFarlane
LONDON -- Royal Dutch Shell PLC said it would start reducing oil
production, calling an end to a decades-old strategy centered on
pumping more hydrocarbons as it and other energy giants seek to
capitalize on a shift to low-carbon power.
Shell said Thursday its oil production had already peaked and it
expects output to decline 1-2% a year, including from asset sales,
reducing its exposure to commodity prices over the longer term. At
the same time, the company said it would double the amount of
electricity it sells and roll out thousands of new electric-vehicle
The strategy follows similar plans from rivals BP PLC and Total
SE to reduce their dependence on fossil fuels while expanding in
renewable power such as wind and solar, partly in response to
growth in regulatory and investor pressure.
BP plans to reduce its oil-and-gas output by 40% in the coming
decade. Over the same period, Total wants to reduce its sales of
oil products such as gasoline and diesel by 30%, while increasing
sales of natural gas, electricity and biofuels.
However, the pivot is seen by analysts as challenging because it
requires investments in areas where major oil companies don't
necessarily have a competitive advantage and that have lower
returns. Renewables projects typically generate returns of around
10%, compared with the traditional 15% targeted on oil-and-gas
As such, major oil companies' green ambitions have so far failed
to ignite enthusiasm among investors. The share prices of Europe's
three largest oil companies have fallen dramatically since Covid-19
sapped demand and sent oil prices lower, with Shell down 35% over
the past year, BP 45% lower and Total down 24%. Shell shares traded
2% lower Thursday.
Shell sought to allay any concerns about its new strategy
Thursday, saying fossil-fuel production would remain a material
source of revenue into the 2030s, while reiterating its policy to
increase its dividend by 4% each year.
"By accessing the enormous opportunities that the future of
energy holds we will create the conditions for future share price
appreciation," said Chief Executive Ben van Beurden. "We expect to
radically transform Shell over the next 30 years."
Shell confirmed it would allocate around 25% of its spending, or
$5 billion to $6 billion, to renewable energy and marketing --
which includes its gas stations and lubricants business -- up from
The company aims to sell 560 terawatt hours of electricity a
year by 2030, double its current sales, but stopped short of
setting targets for power generation. Shell sells much more power
than it produces. This is similar to its oil-and-gas business,
where Shell sells around three times as much of the fuels as it
In recent years, Shell has expanded outside of oil and gas with
acquisitions of businesses including U.K. power supplier First
Utility, electric-vehicle charging company Ubitricity and battery
At the same time, it will invest $8 billion a year on
oil-and-gas production and an additional $4 billion a year on its
so called integrated-gas business, which includes liquefied-natural
gas. The company will add seven million metric tons of LNG
production capacity by the mid-2020s, including from projects
already sanctioned in Canada and Nigeria.
European energy companies' plans to invest more in low-carbon
power come at a time when they are still trying to reduce debt.
Shell wants to cut its debt to $65 billion from $75.4 billion at
the end of last year and targets annual asset sales of $4 billion
to help meet its goal.
Write to Sarah McFarlane at email@example.com
(END) Dow Jones Newswires
February 11, 2021 06:44 ET (11:44 GMT)
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