Shell to ‘tur­bocharge’ its clean en­ergy drive

Evo­lu­tion will be far from purely al­tru­is­tic – and don’t call us an oil com­pany, boss tells Jil­lian Am­brose

The Sunday Telegraph - Money & Business - - Front page - By Jil­lian Am­brose

ROYAL Dutch Shell is pre­par­ing to “tur­bocharge” its bid to be­come a global leader in clean en­ergy in the com­ing years as it seeks to over­come the “ex­is­ten­tial” chal­lenge posed by cli­mate change, boss Ben van Beur­den has told The Sun­day Tele­graph.

Mr van Beur­den said that the FTSE 100 gi­ant should be able to gauge by the early 2020s whether its re­cent moves into the clean elec­tric­ity mar­ket will be stepped up. The en­ergy gi­ant has so far pledged to spend be­tween $1bn and $2bn of its $25bn (£19bn) a year spend­ing bud­get on tech­nolo­gies in­clud­ing elec­tric car charg­ing and re­new­able en­ergy.

“It is a highly charis­matic part of our busi­ness, but it’s also very small,” Mr Van Beur­den said. “I wouldn’t say that we have a dead­line, be­cause much of it will de­pend on how so­ci­ety wants to change, but I would imag­ine that the way things are go­ing by the early 2020s we will know whether the hy­poth­e­sis holds, and whether we there­fore want to tur­bocharge this busi­ness.

“The big­gest call­ing card we have is scale. We can scale much faster than any­one else,” he added.

Mr Van Beur­den said Shell’s re­cent pledge to cut its car­bon emis­sions by a fifth is “about the longevity of the com­pany, and is there­fore an ex­is­ten­tial is­sue. This is not about be­ing al­tru­is­tic.”

‘We’re not an oil com­pany,” says Ben van Beur­den from across the ta­ble. It is an af­fa­ble, but pointed in­ter­ven­tion typ­i­cal of the man lead­ing the FTSE 100’s high­est­val­ued busi­ness.

“I don’t want to be face­tious or pedan­tic,” he con­tin­ues good­na­turedly. “But we are a much broader and more so­phis­ti­cated com­pany than one that pro­duces oil. We pro­duce much more gas than we do oil, for a start.”

For the boss of Royal Dutch Shell, the dis­tinc­tion is one that rings at the heart of a per­sonal mis­sion to trans­form a com­pany which for over a hun­dred years has fu­elled the de­vel­op­ment of the mod­ern world.

It is just days since the UN’S In­ter­gov­ern­men­tal Panel on Cli­mate Change warned the world that even greater am­bi­tion is needed to guard the planet against global tem­per­a­ture rises which threaten an en­vi­ron­men­tal catas­tro­phe.

It is also a year since van Beur­den an­nounced Shell’s plan to cut half of its car­bon emis­sions by 2050, and 20pc by 2035.

He is, of course, cor­rect. Shell’s pres­ence in the mod­ern world is easy to over­look but im­pos­si­ble to avoid. Far be­yond the fos­sil fu­els which power the mod­ern world – from pas­sen­ger ve­hi­cles to the grind of in­dus­trial ma­chin­ery – Shell pro­duces the as­phalt which paves roads and the chem­i­cal build­ing blocks used in plas­tics, paints and the sun­screen on your skin.

“As long as we tol­er­ate be­ing char­ac­terised as ‘just an oil com­pany’, with all the neg­a­tive con­no­ta­tions that comes with that, then we’ve al­ready lost,” he says. “We are a com­pany which is in­te­gral to the qual­ity of life, the pros­per­ity, the longevity that we all en­joy on this planet.

“There has never been an in­dus­try that has done so much for the qual­ity of life as we know it than our in­dus­try, and we need to main­tain that rel­e­vance and evolve in line with so­ci­ety’s ex­pec­ta­tions,” he ex­plains, his words rich with grav­i­tas but de­liv­ered with the ease of some­one who has spent his en­tire ca­reer in one in­dus­try and can see the di­rec­tion in which it is sud­denly head­ing.

Van Beur­den joined the en­ergy gi­ant in 1983 as a young chem­i­cal engi­neer, and by 2013 had climbed the ranks to the ex­ec­u­tive com­mit­tee.

To­day, he stands where an im­pres­sive cor­po­rate past meets an in­creas­ingly un­cer­tain fu­ture.

It is an ex­is­ten­tial chal­lenge which falls to him to ad­dress, and it runs far deeper than care­fully cho­sen dic­tion.

In the same way that Shell is more than an oil com­pany, van Beur­den’s vi­sion is more than a play to the so­cial con­cerns of the day. The am­bi­tions of this en­ergy gi­ant are shot through with cli­mate con­cerns but at its core his am­bi­tion is un­apolo­get­i­cally fi­nan­cial. In only a few short years van Beur­den has steered the en­ergy go­liath through the oil mar­ket’s most bru­tal down­turn, emerg­ing as the leader of ar­guably the most suc­cess­ful of the world’s six so-called “su­per­ma­jors”.

He stepped into the top job at the An­glo-dutch group in early 2014, just months be­fore the global oil price be­gan a pre­cip­i­tous fall from more than $100 a bar­rel to less than $30. But he cred­its the oil crash for Shell’s re­turn to the lead­er­ship of the sec­tor. The 18-month mar­ket rout drove it to a record loss, strip­ping bil­lions from the com­pany’s mar­ket value and cost­ing more than 10,000 jobs.

But, in ret­ro­spect, it was van Beur­den’s “big­gest friend” for two clear rea­sons, he says. It al­lowed the group to suc­ceed in mak­ing a play for BG Group, the largest player in the global mar­ket for liq­ue­fied nat­u­ral gas (LNG) shipped on gi­ant su­per-cooled tankers. The 2016 deal se­cured Shell’s place in what is ex­pected to be the fastest-grow­ing en­ergy mar­ket of the next decade.

The deal to­gether with the de­pressed oil mar­ket aided van Beur­den’s am­bi­tion for a com­plete fi­nan­cial over­haul of the busi­ness, which like many in the in­dus­try was left bloated and undis­ci­plined af­ter years of bumper oil prices.

“I came into the job with the ex­pec­ta­tions, and prom­ise, that we would sig­nif­i­cantly im­prove the fi­nan­cial per­for­mance and pre­dictabil­ity of the com­pany. Noth­ing fo­cuses the mind as much as a real af­ford­abil­ity cri­sis,” he says.

“If I look back on it, all the achieve­ments that we’ve had so far, which to my mind have trans­formed the fi­nan­cial for­tunes of the com­pany, have been helped or cre­ated by the oil price down­turn,” he smiles.

The bet on BG Group is al­ready pay­ing off af­ter Shell un­veiled in­vest­ment in LNG Canada, a deal which will see low-cost nat­u­ral gas shipped from the east cost of North Amer­ica to en­ergy-hun­gry buy­ers in Asia. For the next 40 years this project will af­ford Shell a foothold in the shift from high-car­bon coal to gas.

This is just the start. If van Beur­den’s plans suc­ceed, the multi­bil­lion-dol­lar turn­around will be eclipsed by what may prove to be the most dra­matic trans­for­ma­tion in cor­po­rate his­tory.

“We want to look back on this pe­riod as one where we started to make the right calls that will al­low us to thrive in the en­ergy tran­si­tion over the decades to come.

“The jury will be out on that for some time, but the things that we are do­ing in terms of trans­form­ing our port­fo­lio, [which] will shape the com­pany in a way that will make it an en­dur­ing and suc­cess­ful com­pany, will be traced back to to­day,” he says.

These in­clude Shell’s re­turn to the so­lar power sec­tor, a drive into elec­tric ve­hi­cle charg­ing and the high-pro­file ac­qui­si­tion of the UK’S largest in­de­pen­dent home en­ergy sup­plier, First Util­ity.

He is quick to deny any sug­ges­tion that the “right” de­ci­sion to shift to­wards lower-car­bon en­ergy is driven by a de­sire to “green­wash” Shell’s im­age.

“In the end this is about the longevity of the com­pany, and is there­fore an ex­is­ten­tial is­sue,” he says.

“It’s very sim­ple. What so­ci­ety will need to do to have a good qual­ity of life, with a healthy planet, is go through a trans­for­ma­tion of the en­ergy sys­tem which will be so cap­i­tal-in­ten­sive, and so dis­rup­tive of ev­ery­thing we know to­day – it can only be done if there is profit. Oth­er­wise, it will not hap­pen. We can­not sub­sidise our way to a 1.5C out­come. We will get through with the might of busi­ness mak­ing these things hap­pen. That’s our role. It is not just be­cause we are a mem­ber of so­ci­ety but also be­cause there is a mas­sive busi­ness op­por­tu­nity,” he says.

Shell first made ten­ta­tive ad­vances into the em­bry­onic re­new­able en­ergy sec­tor al­most 20 years ago. They were steps which were ul­ti­mately re­traced years later. In 2006, Shell paid So­lar­world to take over its en­tire so­lar busi­ness and in 2008, the com­pany with­drew from the Lon­don Ar­ray project in the Thames Es­tu­ary which has be­come the world’s largest off­shore wind farm.

Un­der van Beur­den Shell will take big­ger steps.

“It was late 2012, maybe 2013,” he re­calls. “We had a deep dis­cus­sion in the board in which we asked whether we want to again grow a sig­nif­i­cant new en­er­gies di­vi­sion within the busi­ness. The board felt very strongly that this is what we need to do if we want to be an eco­nom­i­cally sus­tain­able and rel­e­vant com­pany.”

At the time oil had never been more lu­cra­tive. The global price hov­ered near all-time highs of $140 a bar­rel and po­lit­i­cal con­sen­sus around the need to act against cli­mate still foundered. The Paris cli­mate ac­cord would emerge only years later, but van Beur­den says the need to act was al­ready “in­evitable”.

“We knew that this would not be a case of try­ing to be a bet­ter so­lar panel man­u­fac­turer than the Chi­nese, or in­vent a su­pe­rior wind tur­bine. It would also not be as sim­ple as in­vest­ing in power gen­er­a­tion ca­pac­ity ei­ther,” he says.

“But if we could be an in­te­grated

‘We are a com­pany which is in­te­gral to the qual­ity of life, the pros­per­ity, the longevity that we all en­joy on this planet’

elec­tric­ity player – bring­ing some of the skills that we have from ad­ja­cent busi­nesses to it – we could come up with a hy­poth­e­sis for a dou­ble-digit re­turn busi­ness,” he says.

“Now, there is no com­pany in the world that does that at this time. This is lit­er­ally a hy­poth­e­sis that we need to prove,” he ex­plains.

Share­hold­ers and in­vestors will need to be sure that a re­turn to low-car­bon en­ergy is one which will pay off. The five years ahead will be cru­cial in prov­ing the case that clean elec­tric­ity is an area prof­itable enough to match van Beur­den’s fi­nan­cial am­bi­tions for the com­pany. The group is ded­i­cat­ing be­tween $1bn to $2bn of in­vest­ment a year to test its the­ory, a frac­tion of its $25bn-a-year bud­get but still a pow­er­ful pledge for the grow­ing sec­tor.

“I wouldn’t say that we have a dead­line on this, be­cause much of it will de­pend on how so­ci­ety wants to change,” he says, “But I would imag­ine that the way things are go­ing by the early 2020s we will know whether the hy­poth­e­sis holds and whether we there­fore want to turbo-charge this busi­ness.”

The moves into the new en­ergy fu­ture will need to demon­strate re­turns which win over Shell’s most hard-nosed share­hold­ers and in­vestors. In the mean­time, Shell’s vast fos­sil-fuel em­pire will de­mand far more at­ten­tion to keep spin­ning off cash to fuel the ex­per­i­ment. From the out­side it may ap­pear that van Beur­den is walk­ing a tightrope be­tween Shell’s fos­sil-fuel past and a cleaner, greener fu­ture. He dis­agrees, but with un­ruf­fled cheer.

“My job is not to see to what ex­tent I can please every­one in equal mea­sure at the same time. My job is to in­te­grate all these in­puts into a propo­si­tion that is unique and that works for us. But that, ac­tu­ally isn’t that dif­fi­cult,” he grins.

“The dif­fi­cult part is op­er­a­tional. To see the risks, to make the de­ci­sions, and make them re­silient; that’s the real job, and that’s ev­ery sin­gle day. In the end, in this in­dus­try, it all comes down to very strong con­vic­tions which you need to hold. And a very strong de­sire to win.”

Royal Dutch Shell’s Ben van Beur­den says a move into clean elec­tric­ity is the way for­ward

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