“If we believe that somehow the market is going to take care of this, that you put a price on carbon and everything will sort itself out, or that we can shame companies into doing it, then I think we’re kidding ourselves. This needs a very significant interventionist approach and all industries have to be part of the intervention.”
– Ben van Beurden, CEO, Royal Dutch Shell. Quoted in Akshat Rathi and Laura Hurst, “Look Who’s Talking About Zero Emissions.” (Bloomberg: June 9, 2020)
Enron’s Ken Lay. BP’s John Browne. Duke Energy’s James E. Rogers. T. Boone Pickens. GE’s Jeff Immelt. And now Shell’s Ben van Beurden.
Welcome to the swamp of political correctness when industry leaders morph into apologists for mineral energies and endorse open-ended government intervention for forced energy transformation from dense, reliable energies to dilute, intermittent ones.
So much for the consumer. So much for taxpayer. So much for the free market. And so much for educating consumers, investors, and the public about human progress.
Recently, two Bloomberg reporters interviewed a pitiful, apologetic industry leader. I only wish Ayn Rand could provide the analysis instead of middling me. But the Q&A speaks for itself.
Some excerpts follow:
Bloomberg Green: Royal Dutch Shell Plc had been turning out about 2.7 million barrels of oil each day until the novel coronavirus took hold of the world. Demand for oil, the company’s core product, dropped almost a third in April, and the price of West Texas Intermediate briefly dipped into negative numbers for the first time….
This precarious moment for oil makes van Beurden’s push to establish a post-fossil fuel identity for the 113-year-old company more essential—and difficult. He’s not even sure he wants to be known as someone who runs one of the largest oil producers in the world. “The very fact that, in this interview, you referred to us as an oil company is symptomatic of the problems that we are facing,” he told Bloomberg Green.
Q. How do you face your children’s questions about climate change?
A. My children span the ages of 10 to 25. On the 25 end of things, we have deep philosophical discussions. My son understands what we’re doing. He may be critical, but I have convinced him on my fundamental understanding. With the 10-year-old, of course, you can’t. What you can do with a 10-year-old is to say, “Do you trust Papa to do the right thing for you?” And she will say, “Yes, I trust you. I know you love me. I know you will do the right thing for me, and therefore I believe in you.”
That’s the nice thing about a 10-year-old. We can’t have that attitude with society. If I asked society, “Do you trust me to do the right thing?” I think I know what the answer is. So we have to work harder to reestablish trust where we have lost it and to strengthen it where we haven’t.
Q. What are you doing to gain back that trust?
A. It bothers me to no end that we’re being seen—not by our customers, by the way, but by segments of society—as almost an unwelcome player in the energy scene or in society as a whole. Forgive my bias, but I don’t think that it’s deserving fundamentally, and I don’t think it does us justice. It doesn’t do justice to the people in Shell. It doesn’t do justice to the things that we are doing at the moment.
I fundamentally believe we have a core role to play in the energy transition: the capabilities that we have, the scale that we bring, the insights, and everything else. The very fact that, in this interview, you referred to us as an oil company is symptomatic of the problems that we are facing. We’re a much more sophisticated and integrated energy player, and we’re trying to grow our nonoil part much faster than the oil part.
Q. Your climate plan relies on working with other industries in developing technology, helping your customers put net-zero emissions plans in place, or buying offsets for them. Has anything ever been done on this scale before?
A. The Montreal protocol to deal with the ozone layer problem and ozone-depleting gases was a clear effort that required massive orchestration initiated by industry. That’s a simpler proposition, because that was just the suppliers of this material that came together with a number of governments. The energy transition is massively complex. It will require orchestration on a scale that the world has never seen. If you don’t start with it soon, it’s going to be highly disruptive at the end or it’s not going to happen. And both are unpalatable conclusions.
Q. Wouldn’t customers just choose a different supplier of energy who doesn’t impose such strict climate conditions?
A. You can say it’s a bit of a leap of faith. But then I would also say that it’s a leap of faith for society to say we’re going to get to net zero by 2050. If as a society we need to get to that point of net zero, I would hope and suggest there aren’t going to be too many businesses left who say, Well listen, you know we’re not going to be a part of this net-zero approach.
Q. All that will need a very heavy-handed government. Do you support that?
A. If we believe that somehow the market is going to take care of this, that you put a price on carbon and everything will sort itself out, or that we can shame companies into doing it by having ESG frameworks that will tell them what is right and what is wrong, then I think we’re kidding ourselves. This needs a very significant interventionist approach, and all industries have to be part of the intervention.
One way to shape government intervention is through lobbying. For example, Shell is a member of the American Petroleum Institute and the Western States Petroleum Association, whose climate policies don’t align with Shell’s. When will you resign your membership in the groups that don’t align with your climate plans?
Many of these institutions aren’t just lobbying groups. They’re very good institutions to help set standards to make sure that we run responsibly our operations, etc. They do take positions, as well, and we want to make sure that the positions mirror the positions that we stand for. Where that’s not the case, we’ll try to influence and moderate and modify and everything else. And if we feel there’s no progress anymore, then we’re better off to say, “I’m sorry, we have an irreconcilable difference of opinion,” and we step out of it.
Q. Assuming you don’t get government support to advance research in hydrogen production and carbon capture and storage, what will you have to do to make those viable?
A. Stay with the program a little bit longer. That’s exactly what we’re doing. You could take a negative view and say we knew that hydrogen was a good thing and we knew that CCS [carbon capture and storage] was needed, but it hasn’t happened. I’m not signing up for that approach. We need a lot of hydrogen in the mix. We need significant CCS. My prediction is that in the next few years you will see CCS projects come off the ground. You will see very large-scale hydrogen projects come off the ground as well. And I hope we will be associated and involved in each and every one of them.
Q. How do you see Shell’s role in developing next-generation energy technologies such as small nuclear power plants or cheaper solar or floating wind turbines?
A. We tried that, and it didn’t work. Others could spend much more money on it with much lower return expectations. But we should actually work with the underlying commodity and the attributes of electrons and hydrogen molecules that are being produced by it. Because that’s where our core capability is, and there’s nobody placed as well as we are to do that type of system integration.
Q. Is what’s happening now a disorderly energy transition, which you’ve said is one of your biggest fears?
A. What’s happening now is disorderly, but it’s not a transition. We’re seeing that if you want to somehow cut out 25% energy use or hydrocarbon-based energy use, you need draconian measures to get to that reduction. You need to lock down people. You need to shut down the economy. It shows the magnitude of the challenge, how complicated it is, and what the consequences would be if you really wanted to have a very simplistic approach to getting rid of oil and gas.
Q. Does the pandemic change when the world reaches peak demand for oil?
A. I do think we will come out of this as a different society, maybe a radically different society. Attitudes will be different. Demand patterns may be different. We may see lower-for-longer demand. On the other hand, all the techno-economic challenges of the energy transition are still there. We still have to figure out how we’re going to use so much more electricity compared to today. Things will be different.
Q. The 2015 acquisition of BG happened when the outlook for liquefied natural gas was very bullish. It’s not so bullish now. How do you see the future playing out?
A. We still very much believe that with the current supply-demand outlook, this is a fundamentally strong sector that will grow at a rate close to 4% per year. It’s the fastest-growing sector in the hydrocarbon space. And we’re the ones best positioned to take advantage. We will obviously flex our investment program to be aligned with where we believe the sector will go, but the profitability of the business and the outlook of this business is going to be as good as what you saw before the pandemic.
Q. With a drastic cut in dividends, aren’t you risking alienating investors?
A. I would imagine the companies or investors who look at us merely as a dividend machine will consider us now less valuable. But then there’s another group that looks at the underlying intrinsic value of the company. There will be some investors who decide they don’t need to go elsewhere and some who will find it very interesting.
Q. Is the dividend cut resetting expectations of lower returns in a green transition?
A. That is obviously not the reason why you would do that. We had to reduce the shareholder returns because we didn’t have the money to make these returns under the current circumstances. That doesn’t mean we can now invest in lower-return businesses. This energy transition requires a different type of investment and a different type of company. It’s not going to happen if there are no returns to be made.
Q. But with oil at such low prices, how will you fund the transition to clean energy?
A. I would like to think that oil and gas prices, chemical and marketing margins will not stay at depressed levels. If they do, then we have a permanently changed world, and you have to then reinvent the company much more structurally than what we’re currently doing. At the moment, we’re taking countermeasures; we’re not reinventing the company. If there are less attractive investments available in oil and gas, then obviously the capital will be allocated elsewhere in favor of sectors that do bring good returns.
Q. Are returns on renewables now becoming comparable to those on oil and gas?
A. By the time you make an investment decision in oil and gas assets, you’ve already spent a lot more money on the development of that asset. If you want to make a comparison between projects in the power sector, or even in the chemical sector and the resource extraction sector, you have to look at the return of the entire portfolio. If you do that, there isn’t that much difference. We expect to make 8% to 12% return in the power sector in which we’re building wind parks and solar parks. And 8% to 12% currently we don’t even make in our upstream business.
Eliminate Petro Cars?
In “Why We need a Plan to Achieve the Ban,” UK Country Chair Sinead Lynch of Shell stated:
I recently participated in a discussion hosted by Climate Action on ‘Rising to the Net-Zero Challenge’. My fellow panellists were John Sauven, Executive Director Greenpeace UK and Shaun Spiers, Executive Director Green Alliance.
Greening the recovery was, of course, a key topic of conversation and led us to discuss the government’s plans to bring the ban on the sale of new petrol and diesel cars forward to 2035.
We believe that the right policy and incentives could allow the UK to achieve this as soon as 2030, to ensure the UK meets the 2050 net zero target.
128,500 of the UK’s 32 million cars are pure-electric and this figure is creeping upwards. However, cost is still holding many people back. 70% of people would consider buying an electric vehicle (EV) but 80% of those said the upfront cost was stopping them, according to a survey we commissioned recently.
The good news is that electric vehicle and battery technologies have shown enormous progress over the past decade, and we can expect this trend to continue driving down the price for consumers.
But there are a few barriers which still need to be overcome.
The Government needs to continue providing incentives to help customers go electric that are sustainable in the longer-term. Norway’s successful example of EV deployment is largely due to the fiscal measures adopted, including a VAT exemption.
Then there is charging. Customers must be reassured they will be able to charge wherever is most convenient for them, while at the same time not disrupting their journeys. Even if most cars will charge at home or at work, electric vehicle drivers will need an increasing number of faster, high-powered options at forecourts and other public locations. Customers need to see faster deployment of a public rapid charging network. And more investment is needed in UK electricity networks so they can handle the extra demands of electric vehicle charging.
Simultaneously, smart charging technologies will be a vital element in the transition to EVs, as they help power companies to better balance demand with the variable supply of electricity. At the same time, they help keep costs down for consumers while limiting the need to reinforce the distribution networks. For example, smart technologies can shift the recharge of EVs to happen overnight when the electricity system has surplus capacity. Throughout the day, they can also help to balance the output from renewable electricity production, from wind or solar.
The market is ready to deliver these solutions – at Shell we are doing our part by increasing numbers of fast chargers on our forecourts and through increasing Shell-owned New Motion’s installation of home and office charge points. NewMotion recently partnered with Aldi to provide EV charge points for customers to use while they do their shopping.
The technology is ready, the infrastructure is growing, but the speed of the transition needs to accelerate over the next decade. The UK needs need a robust framework of enabling policy measures so that business and industry can prepare to reach this target.
Once these pieces are in place, a 2030 ban can be achieved.
Appendix: Shell on Electric Mobility
Unlike traditional vehicles, which usually only refuel at petrol stations, electric vehicles have the potential to be recharged at home, at work or on the go, including in shared locations such as forecourts, car parks or supermarkets.
128,500 of the UK’s 32 million cars are pure-electric and this figure is steadily increasing. For electric vehicle use to grow more rapidly, however, drivers need to feel confident that there are convenient and reliable means of recharging their vehicles.
At Shell we support this ambition, and, in the UK, this includes providing charging options for homes and businesses, as well as the provision of faster, high-powered charging options on forecourts.
Shell also supports the UK Government’s ambition to increase the uptake of electric vehicles and believes the phase out date for sales of new internal combustion engine vehicles could be brought forward to 2030, to make sure the UK meets the 2050 net zero target. However, this could only be delivered through a robust government plan to make the transition fair and deliverable.
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