Shell Releases Energy Transition Report
Shell published its Energy Transition Report April 12, a follow-up to a similar report in 2016. There are no surprises, as the report aggregates policies and strategies that it has already outlined in recent months, including work towards the aims of the Paris climate change agreement by gradually shifting its portfolio towards lower-carbon energy. Shell says it is growing Integrated Gas and New Energies businesses, as are other producers.
In Europe, Shell says in the report it is “investing in areas such as wind power generation in the Netherlands and the supply of power to retail customers in the UK” to take advantage of its existing gas and power trading capabilities, while building business models. It says it will “grow the number of retail sites in countries such as China, Mexico, India, Indonesia and Russia where we see demand for oil products growing in the next decade” but it may complement this by offering LNG, electric and hydrogen vehicle-refuelling too in some markets. Shell already has a small but expanding LNG bunkering business.
Beyond 2030, it plans to reduce its carbon footprint, selling more natural gas than oil, and selling more biofuels and electricity, plus developing carbon capture and storage (CCS) and even planting forests or restoring wetlands to act as carbon sinks. It also asserts: "Natural gas-fired power plants consume less than 50% of the water needed for coal-fired power generation."
The report does not look at how Asian LNG pricing may shift away from oil-indexation over time. Instead it notes: “Today, around 60% of our Integrated Gas portfolio is linked to oil prices. Based on our view of possible future oil prices, we consider a range of between $6 and $12/mn Btu to 2030 for LNG to be a plausible price for Asian markets, where we sell around 60% of our LNG.”
It finds that a $10/b change in oil prices would be expected to have a roughly $6bn/yr impact on Shell’s cashflow from operations. It also estimates that a $10/ton increase in CO2 prices would result in a roughly $1bn reduction in Shell’s pre-tax cashflow. Shell’s assessed breakeven prices for its Upstream and Integrated Gas businesses against various price scenarios “indicate a low risk of stranded assets in the current portfolio. As of December 31 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.”
The Shell report – which also contains a succinct three-scenario outlook of future global energy supply/demand, compared with BP's recent, stodgier six – is available for download here.