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Shell Aims to Become World’s Biggest Electricity Company, But Devotes Just 5% of Investment to New Energy

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Royal Dutch Shell is setting out to remake itself as the world’s leading electric power company by the early 2030s, earmarking US$2 billion per year for a new energy division it says will ease its transition into a sector that generally confounds its financial backers with the relatively low returns on investment it offers.

Bloomberg interprets the move as evidence that Shell “sees climate change as a bigger threat to its business than electricity’s historically weak returns,” even though the investment involved is still just a small fraction of what the company is pouring into its oil and gas activities.

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“We are not interested in the power business because we like what we saw in the last 20 years,” said Maarten Wetselaar, Shell’s director of integrated gas and new energies. “We are interested because we think we like what we see in the next 20 years.”

Investors “are putting pressure on companies to protect their business from a shift to lower-carbon fuels, driven by new laws and consumer choices,” Bloomberg notes. While colossal fossils like Shell, BP, and Total got a pass earlier this month when Norway announced [2] a partial fossil divestment for its $1-trillion sovereign wealth fund, that was largely on the strength of their promises to boost their investments in renewable energy.

But so far, Bloomberg says Shell’s electricity business “is still in an experimental phase,” with new energies VP Mark Gainsborough declining to say when it’ll achieve higher returns. He said the company “will introduce new combinations of power products that are more profitable than those from a traditional utility,” the news agency notes.

“Being smarter with its molecules across the value chain is important,” said Christyan Malek, head of European, Middle East and African oil and gas research at JPMorgan Chase & Co. “But generating a return as good as its oil and gas business will be the key challenge.”

Despite all the language about a “major overhaul” of Shell’s investment priorities, the company is still devoting about half of its new investment to its upstream oil and gas activities, compared to about 5% for new energies. “We want to prove to ourselves that the hypothesis works before we scale it beyond our current commitments,” Wetselaar said.

The company is being rather less cautious about doubling CEO Ben van Beurden’s salary to more than €20 million, even though a raise to about €9 million set off a shareholder revolt in 2017. “The raise comes as the company increased its annual profits by almost US$10 billion and is largely down to long-term incentives kicking in,” BBC reports [3]. Shell’s Remuneration Committee said van Beurden’s pay is “consistent” with the top 30 public companies in London, even though it’s 143 times the average for the company’s UK work force.

Shell believes in salaries “that are externally competitive and internally proportionate, meaning the chief executive is the employee with the highest proportion of variable pay as he has the highest level of responsibility,” the committee said.

In the United States, meanwhile, Shell is calling on the Trump White House to strengthen the country’s control on climate-busting methane emissions from oil and gas operations, rather than weakening them, Reuters reports [4]. “It is a big part of the climate problem and frankly we can do more,” said U.S. Country Chair Gretchen Watkins, on the sidelines of last week’s CERAWeek oil and gas conference in Houston. “We don’t usually tell governments how to do their job [Really [5]??—Ed.], but we’re ready to break with that and say, ‘Actually, we want to tell you how to do your job.’”

Reuters says Watkins urged the U.S. Environmental Protection Agency “to put in a regulatory framework that will both regulate existing methane emissions by also future methane emissions.” The colossal fossil “has internally set targets to maintain its methane emissions by 2025 to below 0.2% of production, far exceeding current EPA regulations,” the news agency notes.