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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By Irina Slav for Oilprice.com
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