Royal Dutch Shell made the boldest statement among its peers on Thursday about the decline of the oil age, saying its production peaked in 2019 and is now expected to gradually decline.
Shell’s “total oil production peaked in 2019” and will now decrease by 1 to 2 percent annually, the company said in a statement.
The announcement, part of the fine print of a presentation on future clean energy goals, marks a turning point for one of the world’s leading oil companies in the 19th century. And it underscores a point that the company’s CEO Ben van Beurden has made for years: To stay in business, Shell needs to be seen as part of the solution, not the cause of climate change.
As Europe’s largest oil and gas producer, Shell was skeptical about how willing or able it would be to break away from its roots. Indeed, like other oil chiefs, Mr van Beurden is trying to draw the fine line between promoting green commitments and continuing to promote the oil and gas units that produce most of Shell’s money.
“Even if the world is decarbonised, it will still need oil and gas for decades,” said van Beurden on Thursday at a presentation of the company’s new strategy. Oil and gas, he said, “will help fund Shell’s transformation.”
The momentum for change is increasing significantly. In Europe in particular, the pandemic is proving to be a catalyst for more action by energy companies and others.
Demand for oil has picked up somewhat since the collapse last spring, and oil futures returned to pre-pandemic levels on Monday. However, Shell and other companies clearly understand that oil is no longer the mainstay they can count on and are therefore investing more in renewable energy sources such as wind, solar and hydrogen.
European oil companies are all moving in roughly the same direction with regard to fossil fuel production, with some different approaches. BP said last year that it would likely cut oil and gas production by 40 percent by 2030. Last year the company’s production declined 10 percent, largely due to the sale of oil fields.
Shell said Thursday that its carbon emissions would likely have peaked in 2018 and that it would step up its previously announced efforts to reach zero net carbon emissions by 2050 with tougher intermediate targets.
The company also stressed that its emissions reduction targets would include those of the products it sold to customers. That said, in attempting to reduce net carbon emissions to zero, Shell will consider not only the emissions generated in its business, but also the gases emitted from the exhaust pipes of cars using fuels marketed by Shell. Burning and other uses of fuels that Shell sells Make up 90 percent of the company’s emissions.
The announcement received praise from activist investors but disappointed some environmentalists who want a faster transformation.
Adam Matthews, director of ethics and engagement for the Church of England Pensions Board, said Shell’s plans to meet its 2050 goals are the “most comprehensive” in the industry. “There’s no room for maneuver,” said Matthews, who encouraged Shell to cut emissions on behalf of a group of institutional investors called Climate Action 100+.
Shell takes a slightly different approach than its Paris-based rivals BP and Total, who recently looked into renewable energy projects like wind and solar at prices that are sometimes viewed as high.
Instead, Shell wants to help customers cope with the complexities of reducing their own carbon emissions. In retail, this could be because they plug their electric vehicles into Shell’s growing network of 60,000 charging stations, or they fill vehicles with hydrogen, a clean fuel that Shell has been promoting for years and is becoming increasingly popular.
Shell also wants to leverage its large energy trading unit and other capabilities to provide businesses with clean electricity and other low-carbon fuels, and to help them with other needs. For example, van Beurden said he could foresee Shell’s growing know-how in capturing emissions and storing gases underground – so-called carbon capture technology – which would become a service that Shell could offer. They’re ready to put money into clean power generation like wind farms, but Shell executives say they don’t think owning renewable assets will necessarily be a big money maker.
“We believe that developing the right products and solutions for customers has more value than just generating green electricity,” said van Beurden when he called reporters on Thursday.
According to analysts, Shell’s relatively cautious approach to renewable investments came as no surprise, as the stock prices of companies that have moved into these areas recently seem not to benefit. Shell said it plans to invest $ 2 to 3 billion a year in renewables like wind and solar, as well as clean power plants, a small portion of the capital investment of up to $ 22 billion.
“Despite the green spin, the substance would suggest a more cautious approach to renewable energy,” said Stuart Joyner, an analyst at Redburn, a market research firm.
Although Shell says oil production has peaked, natural gas flows will keep all fossil fuel production flat. The company views liquefied natural gas, a marine fuel, as a vital business in which it is a global leader and as a transition fuel between petroleum and renewables.
Shell said Thursday that it plans to spend $ 8 billion on oil and gas development and $ 4 billion on its natural gas facility annually in the near future.
The prospect that Europe’s largest oil company will continue to pump fossil fuels for a long time drew fire from some environmentalists.
Greenpeace UK said in a statement that Shell’s strategy could not be successful or “taken seriously” without specific commitments to cut production. Greenpeace also called Shell’s plans to offset emissions through the establishment and protection of forests and wetlands “delusional”.
Mr Matthews of the Church of England said the increasingly detailed plans of European oil companies to reduce emissions were a huge step forward from three years ago, when such discussions were barely going on.
“Things have moved a lot during that time,” he said.