Shell’s ‘Low-Carbon’ Future: Extract Fossil Reserves Before They Become Stranded Assets
Royal Dutch Shell doesn’t expect any of its copious oil and gas reserves to become stranded assets as the world decarbonizes because it plans to extract four-fifths of them by 2030, the colossal fossil stated last week.
“Shell has one of the lowest reserves life ratio among its peers, and last year it saw reserves plunging to new lows after divesting a large number of assets,” Reuters reports. The company “now sits on 12.2 billion barrels of oil equivalent, down from 13.2 billion at the end of 2016, and enough to sustain the current annual production of 1.383 billion barrels for less than nine years.”
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That’s somewhat unique among the world’s largest oil and gas companies, since “reserves life has long been one of the key metrics monitored by investors to assess oil firms’ future resilience,” the news agency notes.
But now, investors’ thinking is shifting toward a theory of “peak demand” for oil and gas, “suggesting oil consumption will plateau and start declining soon due to electric vehicles, while large quantities of oil will not be produced and remain stranded under the ground. In such circumstances, having a short reserve life arguably makes more strategic sense, as it allows companies to adjust faster to quickly changing consumption patterns.”
While Shell touts its “strategic flexibility” in moving into wind energy, hydrogen refueling, and electric vehicle charging, CEO Ben van Beurden is also asking investors to take his word for it that his team can deliver on a hotly-contested long-term energy scenario that relies heavily on carbon capture and storage (CCS) technologies that are not yet ready for prime time.
“Understanding what climate change means is one of the most important strategic questions on our mind today,” he told reporters media. “We are testing the boundaries of our thinking.” For Shell, that means relying more heavily on natural gas and biofuel sales, and seeing 10,000 new CCS plants installed around the world by 2070.
In a 40-minute call with reporters earlier this week, Van Beurden was responding to a shareholder lawsuit from Follow This, a Dutch environmental group attempting for the third year in a row to get the Netherlands- and UK-based company to set specific greenhouse gas reduction targets that align with the Paris agreement. Van Beurden “made the case that Shell’s existing energy transition plan is more progressive than what Follow This is proposing,” Bloomberg reports. “Binding the company to a target would make it hard to shift course in the event that government policy or other changes affect the profitability of different technologies.”
“Do you want to follow a company that’s really internalized” the climate issue, he asked. “Or do you want to have the more narrow and rigid views of an activist?”
Oil Change International Research Director Greg Muttitt drew a decidedly different conclusion when Shell released its long-term energy strategy. “Shell’s new report does not provide a stress test, because it describes a future with so much oil and gas that the company faces no stress,” he wrote at the time. “The lesson is simple: If you want to know how to fix climate change, don’t ask a company that wants to sell you more oil and gas.”
Last November, Shell released a plan to halve greenhouse gas emissions from its operations and fuel sales by 2050. “I don’t think a 50% reduction of CO2 emissions footprint in 2050 meets the Paris climate agreement,” responded Follow This founder Mark van Baal. “Shell uses these ambitions to do business as usual in the next decades.”