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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Shell To Shift From Oil ‘When This Makes Commercial Sense’

Shell truck

Shell outlined on Thursday its strategy for the coming ‘energy transition’ decades, saying that it will still sell the oil and gas the society needs, while adapting its portfolio to lower-carbon energy, “when this makes commercial sense.”

In its Energy Transition Report published today, the supermajor said that there is a low risk of its oil and gas assets being left stranded, expecting around 80 percent of its current proved oil and gas reserves to be produced by 2030, and only 20 percent after that time.

“We conclude there is a low risk of Shell having stranded assets, or reserves that we cannot produce economically, in the medium term,” the oil and gas giant said.

Shell has three scenarios about the possible paths the world will take on the energy transition road. The three scenarios—Mountains, Oceans, and Sky—assume various levels of government support and collaboration toward a lower-carbon future. Mountains and Oceans scenarios fall short of the temperature goal of the Paris Agreement, while the latest scenario, Sky, “builds on this earlier work and assumes that society takes actions so as to meet the Paris goal,” Shell said.

Sky is the scenario assuming the most rapid transition which is “a challenging but technically possible and economically plausible pathway for the world to achieve the temperature goal of the Paris Agreement.”

In the Sky scenario, Shell sees oil demand growing 1 percent per year between 2020 and 2025. In this scenario, oil demand “peaks around the middle of the decade and then falls by about 1% per year until about 2040,” said Shell, but also noted:

“In all three scenarios, investment in new oil and gas production will be essential to meet ongoing demand. That’s because demand for oil and gas shrinks more slowly than the natural decline in production from existing oil and gas fields under any credible scenario.” Related: Strong Demand, Not OPEC, Is Pushing Oil Prices Higher

In the short term, between 2018 and 2020, Shell plans capital investment of US$25-30 billion per year, “with the option to go below the lower end of the range but with the communicated commitment to not go above the higher end.”

Of those annual investments, the highest amount is earmarked for deepwater—US$5-6 billion annually, followed by oil products, conventional oil and gas, and integrated gas, each with US$4-5 billion of yearly investment. Shell will invest US$2-3 billion annually in shale until 2020, as it is also looking for projects with shorter payback periods, such as its shale investments in the U.S., Canada, and Argentina. A total of US$1-2 billion is earmarked for investment in Shell’s New Energies division until 2020.

The supermajor’s report comes a week after Friends of the Earth Netherlands vowed to take Shell to court if it doesn’t act on demands to align its corporate strategy with the global climate objectives.

By Tsvetana Paraskova for Oilprice.com

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  • Frank Garrett on April 12 2018 said:
    Makes sense. We need a transition over time, but leave it up to the radical ecologists and they would rather see the economy collapse than have a rational discussion over the future of energy.
  • Lee James on April 12 2018 said:
    European big oil is moving in the right direction. U.S. big oil can learn from Europe.

    Shell says it is willing to transition away from oil where it makes commercial sense. The trend is for oil becoming increasingly harder to extract and transport, and therefore increasingly expensive. This trend will slowly cause us to look for alternatives to oil.

    A faster transition away from oil will happen if we price into the marketplace all the costs of burning fossil fuel. Not much will change if we pay for pollution later (not we -- but someone else, down the road). Paying for pollution later means that we won't do much about it, today.

    What should we be teaching our children about how to use energy, all things considered?
  • David Jones on April 15 2018 said:
    This is a rather nondescript and empty statement and anyone can spin plenty of tales to convince others that it does not yet make sense. What they are essentially saying is that someone else should do the job for them and once these other entities have worked to make it all happen, Shell and others like them will want to come in and purchase the technologies and bask in the profits. A truly weak statement indeed. We don't need profiteering oil companies, we need energy innovation companies and big oil should tackle this challenge head on or they will go down in history as the dinosaurs of the old world that were not able to adapt quickly enough to the new one. After all, they have enjoyed enormous cost reductions due to the fact that substantial external costs aren't factored into their product price and the average person around the world has absorbed/subsidized this cost for them. The message to Big Oil is simple, change before it's too late because time is not on your side.

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