By Sarah McFarlane
To comply with a Dutch court order to cut carbon emissions,
Royal Dutch Shell PLC may have to overhaul its business and cut its
oil output faster than it had planned, analysts and investors
Potential ways to curb emissions include selling assets,
rethinking exploration spending and halting growth of its
liquefied-natural gas operations, they said.
Shell faces the potential upheaval after the district court in
The Hague on Wednesday ruled that the company is partially
responsible for climate change and must reduce its carbon emissions
by 45% by 2030, compared with 2019 levels.
That target, which was called for by the environmental groups
that brought the case, is in line with United Nations guidance for
member states aimed at preventing global temperatures rising more
than 1.5 degrees Celsius above preindustrial levels.
Shell said it was disappointed and fully expected to appeal the
decision, and that it is already investing billions of dollars in
low-carbon energy, including electric-vehicle charging, biofuels
"We are carefully reviewing the court's written judgment and the
questions it raises," a Shell spokeswoman said.
If Shell pursues an appeal, the case would be referred to a
court of appeal where it can take around one to two years to be
heard, after which it can be further appealed in the Dutch supreme
court. The court on Wednesday said its order would stand
provisionally, despite acknowledging potentially far- reaching
consequences for Shell that may be difficult to undo.
"If Shell are going to hit those 2030 targets that have been
imposed on them, they need to start acting now," said Nick
Stansbury, head of climate solutions at Legal & General
Investment Management, the U.K.'s largest asset manager and a Shell
"The range of things they could do is big," he said, suggesting
options could include selling or spinning off assets.
Mr. Stansbury said that while Shell may be able to successfully
appeal the Dutch ruling, the pressure to reduce emissions would
remain and that he expected there to be other courts considering
the same issue.
The number of climate-change court cases has been climbing,
according to a database project jointly run by the Sabin Center for
Climate Change Law and law firm Arnold & Porter, estimating
filed cases rose over 10% to 1,824 in the past six months. The
majority of these cases are in the U.S.
Oil companies are facing rising scrutiny from activists,
governments and investors to take greater action to mitigate their
impact on the environment.
Elsewhere Wednesday, an activist investor won at least two seats
on Exxon Mobil Corp.'s board, a historic defeat for the oil giant
that will likely require it to alter its fossil-fuel focused
One way for Shell and other big oil companies to substantially
reduce their emissions might be to sell assets, some analysts
"Divesting certain projects in the Middle East, Nigeria,
Malaysia and few other countries would probably be the easiest way
to comply with the court ruling if the company chooses or is forced
to do so," Artem Abramov, an analyst at consulting firm Rystad
Energy, said of the Dutch court's decision against Shell.
But he noted that asset sales might not benefit the climate.
"Even if Shell divests high emission assets, they will just change
hands, not be taken off the global energy map."
To meet the court's order, RBC Capital Markets said Shell could
have to reduce its oil and natural gas production by around 3% a
year, while holding its liquefied-natural gas production flat and
also cutting oil product sales by around 30% from 2020 levels.
"It could force them to look at exploration where they're
spending $1.5 billion per year, and ask whether that number should
be lower," said Biraj Borkhataria, an analyst at RBC.
In its ruling Wednesday, the Dutch court acknowledged that Shell
would need to change its policies, which could curb the company's
potential growth. Still, it said the interest served by the more
stringent emissions reductions outweighed Shell's commercial
interests. The court didn't stipulate how the ordered reductions
should be met, or how it might monitor or enforce its ruling.
Shell in February set out plans to reduce its oil output by
1%-2% a year, while expanding in lower-carbon energy. At that time
it said its carbon emissions likely peaked in 2018, and that it
planned to reduce the carbon intensity of the energy products it
sells by 20% by 2030 and 100% by 2050.
Earlier this month, around 89% of Shell's shareholders supported
the company's transition strategy when it was put to an
A separate resolution calling for Shell to make more ambitious
low-carbon investments and emissions reductions was supported by
about 30% of shareholders.
Analysts said it was hard to quantify the risk posed to Shell
and other energy companies by the Dutch court ruling and the
precedent it potentially sets. Shell's share price closed flat
Wednesday and traded down about 1.5% Thursday.
"I think there's probably a general skepticism as to how
enforceable this is and when the case actually concludes, assuming
Shell appeals," said RBC's Mr. Borkhataria. "These companies are
never going to be able to move fast enough for some people to be
Write to Sarah McFarlane at email@example.com
(END) Dow Jones Newswires
May 27, 2021 12:23 ET (16:23 GMT)
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