Shell must accept it has lost the battle on fossil fuels

·5 min read
Shell faces activist pressure to go green, but oil's days are also numbered - AP Photo/Peter Dejong
Shell faces activist pressure to go green, but oil's days are also numbered - AP Photo/Peter Dejong

Almost a year ago Shell bid “Vaarwel” to the Netherlands as the oil giant simplified its convoluted dual share structure, shifted its headquarters from the Hague to London, and chose post-Brexit Britain as its true home.

The UK government was understandably cock-a-hoop at the move, the Dutch not so much. That the snub was overseen by one of their own, chief executive Ben van Beurden, made it particularly hard to swallow.

It will be interesting to see if the 64 year-old is welcomed back to his ancestral home as he joins a stream of FTSE bosses heading for the exit, though having banked more than £80m since taking charge, van Beurden is unlikely to have many sleepless nights.

Of much greater importance is what his departure, after a decade at the helm, means for one of the world’s largest energy producers. The appointment of renewables chief Wael Sawan as his successor has understandably raised hopes that Shell is about to put the turbo-boosters under its adoption of green technologies.

Sawan, a dual Lebanese-Canadian national born in Beirut, takes the reins at a pivotal moment both for Shell and the fossil fuel industry more widely. With soaring gas prices delivering a truly magnificent bounty for the company and its big rivals while millions wrestle with increasingly unaffordable bills, scrutiny has never been more intense.

Meanwhile, Shell must work out how to play a part in bolstering Britain's energy security at the same time as facing demands to embrace clean energy more whole-heartedly.

It's not that van Beurden hasn’t laid out a path to net zero. On the contrary, Shell declared last year that oil production had peaked and that it would stop drilling for fossil fuels in new markets after 2025, an important milestone on the journey.

It has also pledged to halve emissions from its own operations by 2030 and to hit net zero by the middle of the century, and recently committed to reducing the carbon expelled when customers burn its fuel - known as Scope 3 emissions.

Van Beurden has rejected the suggestion that Europe’s scramble for alternative energy supplies to Russian hydrocarbons will prompt a u-turn on those commitments. Instead, Shell is likely to move “faster”, he told the Financial Times earlier this year.

Yet, he has also, not unreasonably, been criticised for not taking more drastic action. Last year, a Dutch court ordered the oil company to accelerate the pace of change and be more ambitious with its CO2 reduction targets.

Outgoing Shell CEO Ben van Beurden - Chris Ratcliffe /Bloomberg
Outgoing Shell CEO Ben van Beurden - Chris Ratcliffe /Bloomberg

There will be an obvious temptation however, to head in the other direction and plough billions of pounds into new North Sea oil fields amid a clamour for Britain to attain greater energy independence. The Government is expected to announce dozens of new oil and gas exploration licences in UK waters in the coming weeks, in an effort to boost domestic production.

Sawan must resist this urge, and not allow himself to be brow-beaten by ministerial knee-jerk responses to the energy supply crunch. That’s not to say oil, gas, and even coal can’t provide a short-term bridge so that society can move more seamlessly from fossil fuel dependency to renewables, or that the UK hasn’t been overly reliant on overseas supplies.

But the idea that salvation lies in the North Sea is a red herring. Ditto that fracking is the magic solution. Ministers are allowing nostalgia and nationalism to get the better of them.

Given that it typically takes between five to 10 years for a new field to start production, a new North Sea licensing round will offer no short-term relief for crippling energy bills. Domestic production is sold on the international markets anyway and the North Sea is essentially a sunset industry.

Sure there may be an uptick in activity as Britain races to reduce its exposure to gas imports, but any revival is likely to be short-lived. After that it will be a familiar story of decline once the world has adjusted to Vladimir Putin’s energy blackmail, and attention turns away from short-sighted supply-side initiatives such as the Government’s price freeze.

The demand side of the equation will ultimately have to be addressed too, through pressure on consumers to turn down the thermostat and better insulate their homes, though not without proper Government support to shoulder the bulk of the costs.

However, the omens aren’t great. In opting for a continuity candidate, Shell clearly doesn’t want to rock the boat.

While Sawan oversaw the clean energy arm, he was also in charge of gas operations, which have been responsible for the bulk of Shell’s massive profits in 2022. More than 80pc of the record $9.1bn earnings Shell posted in the first three months of the year came from oil and gas.

The idea that Shell’s transformation away from old energy is happening too quickly, as some have suggested, is plainly absurd. It made just £344m from renewables in the last financial quarter, equivalent to less than 4pc of total earnings.

The courageous thing to do would be to acknowledge the reality, accept it has lost the battle on fossil fuels and lead the charge on going green, or it risks being left behind.

With wind and solar costing just a fraction of fossil fuels, there has never been a better time to invest in renewables. The average tenure of an oil and gas executive is around the ten-year mark, so Sawan may be Shell’s last chance to truly grasp the nettle.