Shell Hits Its Own Peak Oil, Plans to Reduce Output -- 2nd 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.
The move marks a historic shift for the company, which after
starting out importing seashells began selling kerosene in the 19th
century and had sought to grow its oil business ever since. Until
recent years, it pursued expensive, environmentally challenging
projects in Canadian oil sands and Alaska, driven by fears the
world could run out of oil. Now, it sees demand faltering long
before oil runs out.
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. The
company plans to cut its production of traditional fuels such as
diesel and gasoline by 55% in the next decade. At the same time,
the company said it would double the amount of electricity it sells
and roll out thousands of new electric-vehicle charging points.
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. By contrast, U.S.
companies Exxon Mobil Corp. and Chevron Corp. don't plan to invest
substantially in electricity and both say the world will need vast
amounts of fossil fuels for decades to come. Exxon does, though,
plan to invest in technology to reduce carbon emissions.
However, the pivot to low-carbon energy 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 projects.
As such, major oil companies' green ambitions have so far failed
to ignite enthusiasm among investors, at a time when the energy
industry is grappling with the fallout from the pandemic, which
prompted BP and Shell to cut their dividends.
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."
Unlike BP and Total, Shell didn't give targets for adding
renewable energy production capacity. The company said it didn't
necessarily need to own generation capacity to sell more power, and
that it thought it could make more money focusing on areas like
trading and selling the electricity.
Shell confirmed that from now 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 11% previously.
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 plans to invest $8 billion a year on
oil-and-gas production, seeking particularly high-value projects,
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
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 firstname.lastname@example.org
(END) Dow Jones Newswires
February 11, 2021 09:47 ET (14:47 GMT)
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