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David Messler

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Shell Takes Major Steps Toward Energy Diversification


Shell has spent the last three years reinventing itself for the energy future it sees in the coming decades. A few years back, Shell was a company struggling to find its footing. Exploration success was declining, as was daily liquids production. From the graph below you can see that the lack of success in exploration was starting to equate to reduced production. An oil company’s life can be measured in production, and they were not replacing the oil being produced.

(Click to enlarge)

Source: Shell Website, chart by author

As can be seen at the right side of the chart that in 2016 something critical changed to reverse the downward trend. A reversal that continues through to present day, even after an intensive non-core asset divesture program where it has shed over twenty-billion dollars in producing assets.

What changed in 2016 was the acquisition of natural gas rich, and global LNG competitor British Gas-BG. Widely panned at the time as being too expensive, and out of sync with the general decline in the oil market, it actually turned out to be the first step in a corporate transformation. A transformation that led it to rethink what its role as an energy provider would be going forward.

The new Shell has several key pillars upon which its future is being built.

• Integrated Gas

• New Energies

• Global Deepwater Plays

Integrated Gas is a play on the need for emerging markets, like China and India, to transition their energy generation away from coal, and toward fuels like LNG. Their economies have depended traditionally on secure access to cheap fuel, but they also recognize the need to improve the air quality experienced by their citizens.

(Click to enlarge)

Source: https://www.shell.com/inside-energy/murex-a-voyage-through-history.html

The new Shell has emerged as the dominant player in this dynamic market and has inked a number of contracts reflecting this status. Key among these perhaps was December’s announcement of a nearly three-decade deal with PetroChina. Here Shell will supply from their Queensland Curtis LNG plant, trillions of cubic feet of gas to supply the growing Chinese market.

Integrated Gas has also cemented its position in the key Indian market by doubling the size of its Hazira LNG regasification plant, and siting a major LNG research center in Bangalore.

Shell-Integrated Gas currently possesses the world’s largest fleet of dedicated LNG vessels, some 70 in number, and a global facility footprint unmatched by any other company.

Shell has embraced a low-carbon future in which fuel sources other than hydrocarbons will play an increasingly important role in power generation and distribution. New Energies is Shell’s approach to everything else that is energy. From biofuels, to wind, to retailing electricity directly to consumers, Shell is expanding its energy footprint far beyond its traditional base of hydrocarbons extraction. Recent developments include the acquisition of First Utility in Britain. Moving from pure upstream energy producer to last mile electricity distributor, First Utility gives Shell an entree to over 800,000 homes in the U.K.

Shell has a significant real estate footprint across the U.K and Western Europe through its branded fueling stations. Here it is rolling out fast EV charging through its acquisition of New Motion in 2017. It also entered a JV with European EV charging company, Ionity to expand this service more broadly.

Related: Russian Hackers Target U.S. Energy Infrastructure

Leaving no stone unturned Shell is installing LNG fuel pumps in several global markets, Europe, the U.S.A, and Canada among them. Direct photovoltaic and wind energy projects round out this new business structure of Shell’s.

Finally, recognizing the role traditional hydrocarbon sources will play in the energy mix for decades to come, Shell has doubled down on Deepwater. Beginning in 2015 with the sanctioning of its GoM Appomattox megaproject, due to come on line in 2019-20, Shell has shown that Deepwater resources will continue to play a critical role in providing a secure energy future.

Recent successes include another major find in the Deepwater GoM. Called Whale, Shell’s CEO, Ben Van Beurden termed it in the recent Conference Call as,

“One of the largest U.S. Gulf of Mexico exploration finds in the past decade.”

Other notable Shell successes in Deepwater include the award of nine of nineteen available blocks in Mexico’s recent Deepwater auction. The Northern Mexican GoM is close to existing Shell infrastructure which may help to facilitate early recovery of oil in the event of discoveries. Five of the nine blocks awarded are in the Perdido fold belt, where Shell has had previous discoveries in the last decade. This experience will supply leverage to Shell as it evaluates prospects going forward.

Finally, another major area for investment in Deepwater is Brazil. Shell has been active there for almost thirty years, and currently operates its Parques das Conchas Deepwater development in the Santos basin. A string of successes with partner Petrobras include, the giant Lula field, now delivering about 150,000 barrels of crude net to Shell. Others include the sanctioning of the giant Libra field, with development plans now underway. There are also exploration opportunities down the road with the blocks recently awarded production sharing contracts with acreage close to existing Shell finds, Gato do Mato (Wildcat), and Alto Cabo do Frio West.

By David Messler for Oilprice.com

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  • Lee James on March 05 2018 said:
    Very interesting analysis of where Shell sits today. Reserve replacement is critical. Also important is for major oil companies to transition to become energy companies that provide alternatives to burning fuel. Shell Energies is a welcome step.

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