Shell Under Fire For Doubling Down On Oil And Gas
Some institutional investors are now reviewing their investments in Shell as they see the new strategy as running counter to their goals.
Shell’s CEO, echoing the voice of many others in the oil industry, emphasized that oil and gas will be around for a long time to come.
Institutional investors in Europe are disappointed with Shell’s new strategy to continue investing in oil and gas production and selectively pour capital into renewable energy solutions, to the point of some investors considering removing it from their portfolios.
Earlier this week, Shell laid out plans to raise its dividend by 15%, effective from the second quarter 2023 interim dividend, as the UK-based supermajor pledged to grow its gas business and extend its position in the upstream.
“It is critical that the world avoids dismantling the current energy system faster than we are able to build the clean energy system of the future. Oil and gas WILL continue to play a crucial role in the energy system for a long time to come with demand reducing only gradually over time,” Shell’s chief executive Wael Sawan said on Shell’s Capital Markets Day on Wednesday.
“Continued investment in oil and gas is critical to ensure a balanced energy transition,” Sawan added in the pivot to ensure today’s energy needs, similar to what BP announced earlier this year.
Shell will continue to be committed to oil and gas, with a focus on LNG growth, where it is the world’s leading trader, the company’s top executives said, but also reiterated the commitment to net-zero emissions by 2050.
But fund and pension managers in Europe are unhappy with Shell’s new strategy. The UK’s largest fund manager, Legal & General Investment Management (LGIM), will ask Shell to detail how it plans to reach net zero by 2050 if it grows its upstream and LNG businesses.
“There is a sense that oil and gas companies want to keep their options open in case the world misses the net zero by 2050 deadline,” Stephen Beer, senior manager for sustainability and responsible investment at LGIM, told Bloomberg in an interview.
“In our engagements with Shell, following its recent announcements, we will be assessing how it matches with our expectations.”
Another institutional shareholder, the Church of England Pensions Board, is now “reviewing our remaining investments in the company,” Laura Hillis, director for climate and environment at the Church of England Pensions Board, told Bloomberg.
“The new CEO has set a path that will increase Shell’s absolute emissions and goes against the previous path the company was pursuing,” Hillis added.
Oil And Gas Is Too Profitable For Shell To Ignore
- Shell is reportedly planning to cancel its annual oil output reduction target of between 1% and 2%, with new CEO Wael Sawan expected to announce plans for increased spending on oil and gas.
- Shell and other major oil companies have found that transitioning to alternative energies such as wind, solar, and hydrogen hasn't yielded the expected returns, while oil and gas continue to be more profitable than anticipated.
- Amidst mounting pressure from activists, Shell's shift in strategy signals a return to its core business, underscoring the belief that oil and gas will continue to play a key role in the energy mix.
One of the world’s largest oil and gas companies—and a favorite target of climate activists and activist investors—is making something of a U-turn on its plans for the future.
Shell, which was sued into cutting its oil output, is going back to oil and gas in a big way, and talking openly about its bottom-line change of heart.
Several days ago, Reuters reported that Shell was going to scrap its oil output reduction plans. Not only had it already hit its reduction targets through asset sales, the report said, but it was enjoying the returns its oil business was making.
Citing unnamed sources close to the company, Reuters reported that the new chief executive of the company, Wael Sawan, was this week going to announce a cancellation of an annual oil output reduction target of between 1 and 2%. Some expect him to also announce plans for more spending on oil and gas, according to a Wall Street Journal report.
Sawan, who took office early this year, had said earlier that the transition should not advance at the expense of oil and gas profits. In fact, it has become pretty obvious that the transition cannot advance at all without oil and gas used to power the equipment used to mine critical minerals and metals, process them around the world, and produce the panels, turbines, and infrastructure necessary for a shift to low-carbon energy.
Yet the transition has failed to live to the promise Big Oil executives assumed was a safe one. First BP and now Shell are either downsizing—BP—or scrapping some of their wind, solar, hydrogen and biofuels—Shell—plans. Because they are not making the returns that were expected of them. But oil and gas are making more than probably expected.
Gas appears to be particularly attractive, according to a recent Bloomberg report. Citing more unnamed sources, Shell has been urging its LNG teams to boost business in India and China, motivating them with the promise of higher bonuses for successful deals in both these and also other countries.
“We have always known that gas is crucial for the energy transition, but our new strategy is built around a new belief — that gas will continue to play a key role in the energy mix,” Shell executive VP for LNG told Bloomberg.
This is quite a departure from the mostly deafening silence coming from European Big Oil majors in the past couple of years as activist pressure doubled and tripled, prompting them to start talking about emission reduction plans, tracking and recording, and output cuts.
Apparently, judging by how activists’ climate resolutions fared at this year’s AGMs of the European supermajors, most shareholders did not want Shell, BP, and TotalEnergies to focus on emissions and output reduction. They wanted them to focus on returns—and if these returns are fatter from the core oil and gas business then that must be expanded.
On Wednesday, CEO Wael Sawan will present the new strategy of Shell at the New York Stock Exchange. Per the WSJ, there are expectations that he will announce a return to a focus on oil and gas production on the grounds that the transition will leave whole nations behind unless the world goes easy on the reduction of oil and gas consumption.
If the presentation indeed does that, chances are it will get activists angry—angry enough to sue again, perhaps. This makes Sawan’s defense of Shell’s core business all the more meaningful: it is a reality check that was long overdue, not only for Shell but for all the European supermajors. It’s oil and gas that makes the money, not wind and hydrogen.
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