Shell looks to shed Big Oil moniker
OIL SUPER-MAJOR IS SHIFTING TO GAS AND SOLAR, BUT IT HAS MAJOR COMPETITION IN AN INDUSTRY FULL OF REINVENTION
Europe’s largest oil super-major is not really an oil company, according to the boss of Royal Dutch Shell. This is just as well for the energy giant, which plans to halve its carbon emissions within the coming decades as it bids to bring its offering in line with the global war on climate change.
“If anything we are more a gas and oil company, and on top of it, of course, we are a much broader energy company, as well,” Ben van Beurden insists.
The Anglo-Dutch behemoth now owns a US solar company, and one of the largest challenger brands within the UK household energy supply market, First Utility. These are part of its plan “to keep pace, and catch up with, society’s progress” towards goals of the Paris climate agreement, which requires a global step-change from industries responsible for greenhouse gas emissions.
“If society needs to tackle the dual challenge of climate [concerns] but also accommodating higher demand for energy, we have to reduce the carbon intensity of the energy system as a society to a net zero level. That means by 2050 we need to halve our carbon footprint,” he said. In the wake of the oil market’s deepest and longest rout in decades, the rallying cry to face up to the carbon challenge is reverberating around the industry.
The seismic shifts required to stake a place within a greener world pose tough existential questions for Big Oil as producers stagger back to their feet, but could also prove the perfect time to rebuild for a cleaner, greener future. Lord John Browne, the industry veteran who first proposed a green reinvention at BP, says this is “a great reset after time in the industrial wilderness”.
Browne launched the illfated Beyond Petroleum rebrand of the oil major in a 1997 speech in which the then CEO said BP would cut emissions by 10 per cent by 2010. The plans quickly unravelled before his departure from the company in 2007.
But a little over 20 years later, current chief, Bob Dudley, has set out the company’s new plan to keep emissions in check, even while growing its production, until 2025. It is an ambition that is perhaps less impressive than Shell’s bid to halve emissions in the longer term, but it’s a considered approach from a company once bitten. “However important it is for the world, companies can only do things that they can deliver. BP has always looked at the delivery, and this falls into that category,” Browne said on the sidelines of BP’s sustainability launch.
BP’s plans centre on wringing more efficiency from their fuels and operations, to cut carbon leakage and tighten their grip on costs too. They will also continue to shift their energy portfolio towards gas and clean fuels. Where these steps fall short of its bid to keep carbon in check, BP will compensate for the impact of fossil fuel production on the environment by continuing to work on green “carbon-offsetting” projects.
Tough decade
The brutal oil downturn may even have helped give Big Oil the green light. “We’ve had a tough decade,” BP boss Dudley told the attendees. “Our industry is in much better shape. We’re leaner, fitter and more disciplined having just come through a really brutal downturn. We’re seeing the super-majors pursue lowcarbon in a range of different ways — from batteries to biofuels — and we’re also working together through the Oil and Gas Climate Initiative.”
BP has taken a stake in Europe’s largest solar company and is plotting an expansion of its already sprawling US wind power business. It also backs a UK energy supply challenger brand, an as yet unnamed venture.
Other oil companies are all but unrecognisable as the realities of the clean energy shift sets in. Danish oil giant Dong Energy is now one of the world’s largest windfarm developers under the Orsted moniker. France’s Gaz de France has been remade as Engie, an energy services giant. And in the last week oil major Total deepened its presence in the home energy supply business with a £1 billion deal to buy one of France’s largest energy utilities. The quick succession of corporate changes mirrors the rapid rise of climate consciousness up the political agenda.
“Society is talking with one voice about low-carbon,” says Dudley. “Governments came together in Paris with a broad policy objective. Technology is opening up new possibilities everywhere — not just in renewables, but with gas as well. “We’re unlocking vast amounts of gas that can replace coal and, I think if we get it right, could be the perfect partner for renewables.”
These are strategies that play well in public debate, but are more contentious between analysts and investors.
In the City there is some cynicism over the press inches devoted to Big Oil’s energy transition, relative to the share of capital spending that is being diverted from usual fossil fuel pursuits.
Shell has promised to spend a billion dollars a year on its “new energies division” by 2020, while BP has a $500 million (Dh1.8 billion, £356 million) annual budget for clean energy. The sums are a fraction of their overall spending plans, which come in at between $25-$30 billion a year for Shell and between $15-$17 billion a year at BP. Still, any acknowledgement of the carbon dilemma is major progress.
Jefferies says a review of Big Oil analyst presentations prior to the oil market crash in 2014 shows no mention to “carbon” at all.
Biraj Borkhataria, an analyst with RBC Capital, says carbon emissions are as much a concern for those valuing Big Oil as management themselves.
“When we think about resilience within the energy industry, we tend to talk about financial break-evens for future projects. However, we believe a second element of resilience is likely to become more prevalent over time, and that is around carbon pricing,” he says.
If society needs to tackle the dual challenge of climate [concerns] but also accommodating higher demand for energy, we have to reduce the carbon intensity of the energy system.”
Ben van Beurden | CEO of Royal Dutch Shell