Shell Oil Company recently released a revised version of climate-related goals entitled "Shell Energy Transition Strategy 2024". This is Shell's first strategy revision since 2021. The company made several minor revisions to its net carbon intensity targets which measure total carbon emitted divided by total energy sales. The target for 2030, which had been a 20% reduction, was lowered to 15-20% and the corporate carbon intensity target for 2035 was "retired." Some commenters noted that Shell appeared to be backing away from its previous environmental commitments. However, after reading "Energy Transition Strategy 2024", we came away with a different view.
The Energy Transition report is actually a full-throated defense of the fossil fuel industry and a guidepost to its likely expanding role in the future. The report incorporates management's "four core beliefs" about the industry and they're worth enumerating. First, management is bullish on LNG production believing it will play a critical role in industrial applications and as a replacement for coal in power generation. Second, they foresee a continued significant role for oil production in the transportation sector but with growth in demand slowing over time due to EVs.
The last two core beliefs address the energy transition more directly. Third, low carbon molecules and renewables "will underpin the future energy system." This sounds like an expectation for more green hydrogen since management already reduced spending on renewables. And fourth, new carbon abatement and removal technologies "will be needed for the world to achieve net zero." In other words compliance with our carbon remediation targets will require technologies or operating efficiencies that presently do not exist. Related: Who Is Behind Iran-Backed Houthi Threats To Attack Saudi Arabia?
With respect to the power sector, Shell continues to see a big role for natural gas as it increasingly displaces coal as a boiler fuel. The company also touts the flexibility of gas resources as a complement to the growth of renewables. It notes that the electricity sector is rapidly decarbonizing and that current low carbon energy production (renewables plus nuclear) already approaches 40%. Shell believes this trend will continue as final energy usage is increasingly electrified with continued adoption of EVs and heat pumps, for example.
In the Energy Transition document, Shell states that its environmental goal is to be a "net zero emission energy business by 2050." Although the fourth point in these core beliefs suggests it will take a minor technological miracle (or two) for this to actually occur. But more importantly, we believe 2024 is the year energy corporations begin to distinguish themselves in terms of environmental goals. Some like Shell will acknowledge that first and foremost they're in the oil and gas business and that expanding that business and creating value for shareholders takes precedence over environmental constraints. In a way, Shell's managers are suggesting what a future looks like with more electrification but without decarbonization. Interestingly this is a view they probably share with many current utility CEOs-just swap out coal for natural gas as boiler fuel-and leave us alone.
Lastly, this brings us to our final observation regarding the phrase "net zero by 2050".
That date is still 26 years from now. No corporate manager can realistically make a promise with respect to capital allocation that far in the future. But this Easter holiday weekend we have begun to take a different view. Many religious services will conclude with a priestly benediction. When it comes to corporate efforts at CO2 attenuation, we think it helps to imagine a priest intoning to his congregation, "And may all your carbon emissions be net zero by 2050". And the corporate parishioners answer with a hearty, "Amen."
By Leonard Hyman and William Tilles for Oilprice.com
Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and… More
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Comments
They have come to the conclusion that oil and gas are their raison d'etre and that they have a responsibility towards their stakeholders and also the global economy, Moreover, they have come to the conclusion that oil and gas are here to stay and therefore they have a responsibility to satisfy the global demand for them.
And while Shell and other supermajors aren't going to declare that the notions of global energy transition and net-zero emissions are illusions that will never see the light of day in 2050 or 2100 or ever, they virtually came close enough to admitting it when Shell said on heir behalf that it will take a minor technological miracle (or two) for this to actually occur.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert