Our progress in the energy transition
Apr 26, 2022
Director of Strategy, Sustainability and Corporate Relations Ed Daniels outlines the progress made by Shell in one year on its overall net-zero emissions strategy
As we meet today, the war continues in Ukraine – and my heart goes out to everyone affected by the atrocities taking place. Shell is working hard to ensure the safety of our staff and contractors, to support relief efforts and take action when we need to do so.
We have announced our intention to withdraw from Russian oil and gas. At the same time, we are doing our utmost to keep retail sites operating in Ukraine, supplies moving and all our teams in the region secure.
As well as being a human tragedy, the war has led to rising energy prices and deep uncertainty about supplies. This disruption in global energy markets has shown that affordable, secure and reliable energy cannot be taken for granted. It must be protected and managed through international co-operation. This means business, governments and wider society working together.
But if these are enormous challenges that we must all act on today… the world also faces the huge… and longer-term challenge… of climate change. We must also take action on this today.
For Shell, this means we are continuing to accelerate our strategy to become a net-zero emissions energy business by 2050. Our strategy focuses on supplying the energy the world needs right now… while we also help to build the energy system of the future.
In a time of great uncertainty it is vital that our long-term energy transition strategy remains on track. And as shareholders, we want your support for the progress we have made on this so far.
In February last year, we set out our strategy.
In May last year, at the Annual General Meeting, we asked you to vote on the strategy and said we would update you yearly on our progress.
Last week, we did just that when we published our first Energy Transition Progress Report, ready for your advisory vote next month ahead of the 2022 Annual General Meeting.
'For this to happen at the speed and scale we want it to, we must match up our role as the supplier of energy… with the role of others as the consumers of energy. Supply and demand both have to change'
This report sets out how far we have come over the past year. During that time, COP26, the UN Climate Summit, took place in Glasgow and the UN’s International Panel on Climate Change released its latest report. Both were stark reminders of the speed and scale at which the world has to act if it is to meet the goals of the UN Paris climate agreement.
For our part, Shell has set climate targets that we believe are aligned with the more ambitious goal of the Paris agreement, which is to limit the increase in the average global temperature to 1.5°C above pre-industrial levels.
We have met our initial targets.
By the end of 2021, we reduced absolute emissions from our operations… and the energy we use to run them (Scopes 1 and 2)… by 18%, compared to 2016 on a net basis. This means we are well on our way to achieving our target of 50%, by 2030, compared to 2016. We also achieved our net carbon intensity target… but I will talk more about that in a little while.
Overall, Shell is making significant changes.
We have taken critical investment decisions in the production of low-carbon fuels, solar and wind power and hydrogen. At the beginning of this year, for example, we won a bid to develop 5 gigawatts of floating wind power in the UK with our partners.
This is enough energy to power 6 million homes... which is more than double the number of homes in Scotland. We now have 38GW of generation capacity from renewables to come from future projects.
We are transforming our portfolios in Upstream and refining. We have reshaped the organisation. And, with your overwhelming support, we have simplified the company and its share structure.
We have also formed partnerships with some of the world’s biggest businesses in sectors from aviation to road transport and technology.
The changes we are making – and the targets we have met – show you how we are implementing our strategy. And every year, we will build on what we have achieved. The momentum of change will increase. And Shell’s transformation will grow more apparent.
But for this to happen at the speed and scale we want it to, we must match up our role as the supplier of energy… with the role of others as the consumers of energy. Supply and demand both have to change. Demand is fundamental.
This is why we have made working with our customers an essential part of Shell’s strategy. We are helping customers to identify and adopt low- and zero-carbon alternatives to the energy products they have used for many decades.
To give you a list, this means renewable electricity and hydrogen to power homes, cars, trucks, businesses and industry. Advanced biofuels for cars, trucks and planes. LNG for power, trucks and ships. And for the emissions that cannot be avoided nor reduced, we will capture and store them or offset them through schemes to preserve nature and biodiversity. And, by 2050, we will no longer serve customers who have unmitigated carbon emissions.
This is what we are doing as an energy supplier.
Earlier, I mentioned our absolute targets. These relate to Shell as an energy user. As an energy supplier, our targets relate to the intensity of emissions because although we can work to change our product mix, we cannot commit to changing the demand of our customers unilaterally on absolute terms.
Alone, we cannot make customers change the type of energy they use. That is the choice of customers, and the role of governments to encourage them – with policies and mandates, incentives and taxes.
Our role is to work with customers to make change possible. We have formed more than 50 collaborations with other companies at the forefront of making change. And by the end of 2021, we achieved our short-term target to reduce the net carbon intensity of the energy products we sell by 2-3%, compared with 2016.
We use our own methodology to measure this. The net carbon intensity refers to the grams of carbon dioxide emitted per unit of energy we sell.
So, we are pressing ahead. Now, we are working towards a 9-12% reduction in net carbon intensity by 2024, compared with 2016. We are delivering on our agreed strategy… meeting our targets… and being transparent as we do so.
My final example is a very practical one. It involves pay. We have linked pay to our progress on our strategy, and last year, we included a measure of our progress in the energy transition when calculating the bonuses of almost all Shell’s employees. This year, we decided to widen this specifically to factor in selling lower-carbon products and working with our customers to cut emissions. We are making progress – and that is not only felt by our customers and suppliers and partners, but in a very real way across Shell.
Last year, we achieved 89% support for our Energy Transition strategy from our shareholders, at the AGM. We want to increase the support from shareholders when they vote on the progress we have made in the past 12 months.
In 2021, our cash capital spend was $20 billion and our operating spend was $36 billion – that is $56 billion in total. In 2025, we expect around 50% of our total spend – so 50% of our opex and capex together – to be on low- and zero-carbon products and services, across all our businesses.
This includes energy products and services such as biofuels and hydrogen... power, nature-based solutions, carbon capture and storage... it also includes convenience retail, and within that, charging for electric vehicles.
The remainder is on our chemicals and lubricants businesses, which do not produce energy products and do not create carbon emissions when used by our customers.
So that is half of our spend low- and zero-carbon products and services by 2025... But how are we doing today? Well, for 2022... it is expected to represent a third of our spend.
Our strong financial performance in 2021, is what helps to power the transformation of Shell today.
We are making progress on our strategy. We are supplying the secure energy the world needs. And we are investing in the future energy system.
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Ed Daniels, Strategy, Sustainability, Corporate Relations Director hosted a presentation and Q&A session on the Shell Energy Transition Progress Report offered for advisory vote at the 2022 Annual General meeting.