Shell publishes new report on strategy for energy transition
Apr 12, 2018
Royal Dutch Shell plc (Shell) today published a report outlining how its strategy should enable it to thrive as the world transitions to lower-carbon energy. The Shell Energy Transition Report describes its understanding of the transition and what it means for the company. It also explains how Shell has designed its strategy not only to be a world-class investment case, and to sustain its societal licence to operate, but also to manage climate change-related risks and maximise opportunities through the transition.
The report provides examples of how Shell is already active in many of the growth areas that will drive its continued success and resilience. Shell CEO Ben van Beurden says: “Understanding what climate change means for our company is one of the biggest strategic questions on my mind today. In answering that question, we are determined to work with society and our customers. We will help and inform and encourage progress towards the aims of the Paris Agreement. And we intend to continue to provide strong returns for shareholders well into the future.”
The report contains Shell’s principal response to the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures and demonstrates the company’s near- and mid-term financial and portfolio resilience, even against its recently-published and most rapid energy transition scenario, known as Sky. It also explains how Shell’s capacity to adapt to the transition should allow it to thrive in the longer term by supplying the types of energy customers will need over the coming decades. For Shell, this means that the company will still sell the oil and gas that society needs, while preparing its portfolio to move into lower-carbon energy, when this makes commercial sense.
Shell’s strategy, global portfolio and strong financial framework provide the ability to thrive through potential changes in the energy system to 2030. Every year the company assesses its portfolio under different scenarios, including prolonged low oil prices. In addition, Shell ranks the break-even prices of its assets in the Upstream and Integrated Gas businesses to assess their resilience against low oil and gas prices. These assessments indicate a low risk of stranded assets in the current portfolio. As of 31 December 2017, Shell estimates that around 80% of its current proved oil and gas reserves will be produced by 2030, and only 20% after that time.
In the medium term Shell will grow its business in areas it expects to be important in the energy transition, while reducing costs and improving its CO2-intensity performance. The company is expanding in the power market as it expects the energy system to increasingly electrify, and it is adjusting its businesses to meet changing demand in different countries. This includes investments in areas such as wind generation in the Netherlands, supplying power to retail customers in the UK and offering hydrogen refuelling and electric-car charging.
Longer term there is great uncertainty in how the energy transition will unfold, but Shell believes its strategic flexibility will allow it to adapt in step with society. Shell has previously announced its ambition to reduce the Net Carbon Footprint of the energy products the company sells by around half by the middle of the century in alignment with society as it moves towards implementing the Paris goals. Critically, this plan covers the full energy life cycle of the company’s products, making it unique in the energy industry. It includes not only emissions from the production of energy products, but also those from the consumption of Shell’s products by its customers, where around 85% of the emissions associated with the company’s energy products occur. Progress will be reviewed every five years to ensure it is in-step with society’s progress towards the Paris goal of limiting global warming.
To read the full report, go to www.shell.com/energytransitionreport
Notes to Editors:
- This report is a follow up to the “Shell: Energy Transitions and Portfolio Resilience” report (2016).
- Shell plans to reduce the Net Carbon Footprint of its energy products in step with society’s progress. As such, the company’s Net Carbon Footprint ambition covers not just emissions from its own operations but also those produced by its customers when they use the energy products purchased from Shell. Shell has applied its own unique Net Carbon Footprint methodology, using its Sky scenario analysis and the IEAs Energy Technology Perspectives 2017 as inputs. Based on this analysis, Shell believes society will have to achieve net zero additional CO2 equivalent emissions from the energy system, of approximately half by 2050. Shell intends to meet the Net Carbon Footprint of the global energy system in that time frame. The company plans to reduce its Net Carbon Footprint by around 20% by 2035 as an interim measure. Shell will review its progress every five years. See the full report for more.
- The Net Carbon Footprint methodology was developed inhouse at Shell and it was designed to reflect the activities that Shell is directly involved in and the carbon content of the energy products the company sells.
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This press release contains data and analysis from Shell’s new Sky Scenario. Unlike Shell’s previously published Mountains and Oceans exploratory scenarios, the Sky Scenario is targeted through the assumption that society reaches the Paris Agreement’s goal of holding global average temperatures to well below 2°C. Unlike Shell’s Mountains and Oceans scenarios which unfolded in an open-ended way based upon plausible assumptions and quantifications, the Sky Scenario was specifically designed to reach the Paris Agreement’s goal in a technically possible manner. These scenarios are a part of an ongoing process used in Shell for over 40 years to challenge executives’ perspectives on the future business environment. They are designed to stretch management to consider even events that may only be remotely possible. Scenarios, therefore, are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities.
Additionally, it is important to note that Shell’s existing portfolio has been decades in development. While we believe our portfolio is resilient under a wide range of outlooks, including the IEA’s 450 scenario (World Energy Outlook 2016), it includes assets across a spectrum of energy intensities including some with above-average intensity. While we seek to enhance our operations’ average energy intensity through both the development of new projects and divestments, we have no immediate plans to move to a net-zero emissions portfolio over our investment horizon of 10-20 years. Although, we have no immediate plans to move to a net-zero emissions portfolio, in November of 2017, we announced our ambition to reduce our net carbon footprint in accordance with society’s implementation of the Paris Agreement’s goal of holding global average temperature to well below 2°C above pre‑industrial levels. Accordingly, assuming society aligns itself with the Paris Agreement’s goals, we aim to reduce our net carbon footprint, which includes not only our direct and indirect carbon emissions, associated with producing the energy products which we sell, but also our customers’ emissions from their use of the energy products that we sell, by 20% in 2035 and by 50% in 2050.
Also, in this press release we may refer to “Shell’s net carbon footprint”, which includes Shell’s carbon emissions from the production of our energy products, our suppliers’ carbon emissions in supplying energy for that production and our customers’ carbon emissions associated with their use of the energy products we sell. Shell only controls its own emissions but, to support society in achieving the Paris Agreement goals, we aim to help and influence such suppliers and consumers to likewise lower their emissions. The use of the terminology “Shell’s net carbon footprint” is for convenience only and not intended to suggest these emissions are those of Shell or its subsidiaries.
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