Shell confirms that its oil production and emissions have peaked as it plots net-zero pathway
Shell has published an updated business strategy in light of the Covid-19 pandemic and its pledge to reach net-zero emissions, which confirms that 2019 will be its peak in terms of oil production.
Like many fossil fuel majors, Shell has significantly changed business plans in the wake of the IPCC’s landmark report and, latterly, Covid-19
Shell first announced its ambition to become a net-zero business by 2050 in April 2020, outlining long-term and intermediary targets covering emissions from all scopes that it claims are aligned with a 1.5C trajectory.
The firm has now built on these top-level commitments with an updated business strategy, designed to “accelerate [Shell’s] transformation into a provider of net-zero emissions energy products and services, powered by growth in its customer-facing businesses”.
Unlike many other energy majors, Shell has time-bound, numerical targets to reduce Scope 3 (indirect) emissions from the end-use of energy products by customers. Shell is targeting a 65% reduction in emissions across those products by 2050, with an interim target of 30% set for 2035.
With this in mind, the strategy confirms plans for Shell to “build material low-carbon businesses of significant scale by the early 2030s”. It details a commitment to spend $2-3bn on renewables annually and to increase spending on chemicals and upstream energy efficiency measures while decreasing spending on new oil.
The strategy is also headlined by an assertion that Shell’s total annual emissions will never be higher than they were in 2018 and that its total oil production will never be higher than 2019 levels. All in all, it is hoping to reduce the production of what it calls “traditional fuels” by 55% by 2030. Oil production will decline by around 1-2% each year.
Aside from renewable electricity, Shell is planning to scale up investments in biofuels, carbon capture and storage (CCS), electric vehicle (EV) charging infrastructure and hydrogen. On the former, Shell is involved in a joint bioethanol venture called Raizen in Brazil and is aiming to increase production by 50% by 2030.
Shell’s CCS commitment, meanwhile, builds on big announcements this week from ExxonMobil, LafargeHolcim and Elon Musk. The company will aim to host CCS arrays capable of capturing 25 million tonnes of CO2e every year by 2035. The capacity of its current pipeline totals 4.5 million tonnes annually. For context, Shell initially earmarked less than $300m for CCS for the period covering 2019-2022.
Flexible approach
These commitments to new technologies are sizeable but still account for a minority of Shell’s overall spending plans. Notably, the firm is still betting big on gas, with plans to spend $4bn annually on integrated gas.
However, Shell’s new plans do come with built-in flexibility. The company has maintained that it will reach net-zero across Scope 1 and 2 emissions sources sooner than 2050 if possible and reiterated that spending intentions are not yet firm. It is planning to submit an energy transition plan for an advisory vote to shareholders at the 2021 AGM and to update the plan every three years. Even in years without a plan update, an advisory vote will be held, to gauge whether shareholders believe the plan balances the urgency of the low-carbon transition with financial sustainability.
To keep staff engaged with the plans, Shell has linked the remuneration packages of some 16,000 staff to its net carbon intensity targets, following success in applying this approach to 150 executives.
Shell’s plans for reaching net-zero while still producing fossil fuels are centred around nature-based solutions alongside CCS. It has said it will adopt a philosophy of “avoid, reduce and only then mitigate”, but still expects 120 million tonnes of residual emissions in 2030. To that end, it will invest in verified nature-based conservation and restoration projects.
The energy giant’s chief executive Den van Beurden said: “We must give our customers the products and services they want and need – products that have the lowest environmental impact. At the same time, we will use our established strengths to build on our competitive portfolio as we make the transition to be a net-zero emissions business in step with society.”
Sarah George
