When Royal Dutch Shell announced the acquisition of a 100 percent equity interests in Inspire Energy Capital LLC (Inspire), a renewable energy residential retailer based in US, it sent its investors the most forceful message yet that their company is no longer treating energy transition as a suggestion.
One of the world’s biggest fossil fuel producers is scaling its renewable and low-carbon businesses with a target to become a net-zero emissions energy business by 2050, in step with society as part of efforts to transform into an energy company.
“Our goal is to become a major provider of renewable and low-carbon energy, and this acquisition moves us a step closer to achieving that,” said Elisabeth Brinton, executive vice president of Renewables and Energy Solutions at Shell.
In February, Shell set out a strategy to accelerate its transformation into a provider of net-zero emissions energy products and services, powered by growth in its customer-facing businesses. The company said its total carbon emissions peaked in 2018, and oil production peaked in 2019 and will now drop 1 or 2 percent annually.
This policy direction has seen its register Shell Energy Nigeria, a unit that could become important as the company moves along with plans to divest from onshore assets in Nigeria.
Shell, the operator of the Nigeria’s onshore oil and gas joint venture SPDC, has struggled for years to contain spills in the Niger Delta caused by pipeline theft, sabotage and its own operational mishaps. These spills have led to costly repairs, invited law suits and questioned the company’s pledge to sustainability.
In May, Ben van Beurden, CEO of Shell, in the company’s annual general meeting, told frustrated shareholders that the company can no longer be exposed to the risk of theft and sabotage.
“We cannot solve community problems in the Niger Delta, that’s for the Nigerian government perhaps to solve. We can do our best, but at some point in time, we also have to conclude that this is an exposure that doesn’t fit with our risk appetite any more,” van Beurden said.
At stake is the company’s onshore assets in the SPDC joint venture where it is operator and has 30 percent participant interest in about 360 producing oil wells, 60 producing gas wells and a network of 4,000 kilometres of oil and gas pipelines and flow lines.
The current share of Shell Nigerian subsidiary production volumes is put at 156,000 barrels per day of oil equivalent in 2020, which translates to over 10 percent of current national crude oil production.
So far, reports say Standard Chartered Bank has been hired to sell the onshore assets of Shell in Nigeria and commercial terms are being discussed. Sources close to the company told BusinessDay that talks are still ongoing and more details regarding sale agreements is expected in September.
Some of the options open to Shell for its divestment include a potential sale to the Nigerian Petroleum Development Company Limited, a unit of the state oil company or other local and foreign independent operations in the country, according to Timipre Sylva, minister of state for petroleum.
Read Also: Shell’s onshore oil divestment will test local operators’ capacity
With their operations challenged by community agitations and sabotage, other international oil companies are also selling off some of their assets, especially those in onshore fields that pose the most risk.
The five IOCs in Nigeria – Chevron, Eni, ExxonMobil, Shell and TotalEnergies are implementing capital expenditure discipline for their Nigerian assets with Total, being the only IOC announcing a new project in a decade.
Collectively, these IOCs have equity participation in over 110 oil mining licences (OMLs) and are responsible for 45 percent of Nigeria’s oil production and 40 percent of sales gas. They also hold 69 percent and 74 percent of the remaining commercial oil and gas reserves, respectively.
Analysts at WoodMackenzie say that IOCs’ average capex per barrel of oil equivalent (boe) in Nigeria compared with that of their global upstream portfolio (excluding Nigeria) from 2010 to 2020 indicates that it is on the decline.
“In both cases, capex per boe decreased following the highs of 2014. In 2020, the average capex per boe across the global portfolios was 51 percent of 2010 levels, whereas the equivalent metric for the Nigeria assets was 7.4 percent. In other words, over the last decade the IOCs’ average capex per boe has fallen seven times more in Nigeria compared to that of the rest of their portfolio,” WoodMackenzie said.
In August last year, Conoil Producing, the Nigerian exploration and production independent owned by Mike Adenuga, won the bid to buy the 40 percent equity held by Chevron Corp. in oil mining leases 86 and 88 located in shallow waters. In December 2020, the company signed an agreement to sell the assets.
Chevron operates and holds a 40 percent interest in eight concessions in the onshore and near-offshore regions of the Niger Delta with varying expiration dates ranging from 2026 to 2034. In line with its ambitions to reduce emissions and the trouble-prone nature of assets in onshore and shallow waters in the Niger Delta, the company could exit them soon.
Italian energy giant ENI said in April it would sell some assets in Nigeria and the Middle East as part of plans to reduce debt from joint venture operations and support low-carbon energy transition activities.
“We have significant credit exposure in Nigeria to state-owned and privately-held local companies, where the overall financial and economic outlook of the country has been made worse by the contraction of petroleum revenues due to the crisis of the oil sector in 2020 caused by the COVID-19 pandemic,” Eni said in its June 2021 report.
Shell, Total and Eni each sold stakes in the OML 17 field, which has production capacity of 27,000 barrels of oil equivalent per day and estimated reserves of 1.2 billion barrels of oil equivalent, Heirs Holding in January. There are indications more of these IOCs will sell off other assets.
While their fossil fuel foot print declines, it is expected that their renewable energy operations will increase.
Shell is integrating its strategy, portfolio, environmental and social ambitions under the goals of Powering Progress: generating shareholder value, achieving net-zero emissions, powering lives and respecting nature.
Shell hopes to achieve its net-zero emissions targets is to rebalance its portfolio, investing annually $5-6 billion in its growth pillar (around $3bn in marketing; $2-3bn in renewables and energy solutions), $8-9 billion in its transition pillar (around $4bn integrated gas; $4-5bn chemicals and products) and around $8 billion in upstream.
Shell is seeking to deepen production of low-carbon fuels, which in 2019 sold more than 10 billion litres of biofuels. Shell also aims to sell some 560 terawatt hours a year by 2030, which is twice as much electricity as it sells today.
Shell’s ambition is to have leading position in hydrogen by developing integrated hydrogen hubs to serve industry and heavy-duty transport, with eyes on achieving double-digit share of global clean hydrogen sales.
Shell Energy Nigeria will consolidate on the success already being recorded by All On, a company funded by Shell to enable the provision of reliable renewable electricity in under-served and off-grid areas, particularly in the Niger Delta.
According to the company’s latest briefing notes, Shell provided $21 million in funding to All On in 2020, with an end goal of creating a more enabling environment for start-ups while also providing them with low-cost financing to expand energy access to about 5 million people.
Already, about 21 Nigerian energy companies such as Auxano, Arnegy, among others, are already benefiting from this Shell’s initiative either through the creation of off-grid energy jobs or the supply of 21,000 new off-grid connections for homes and small businesses in many communities.
During the COVID-19 pandemic, All On announced a $470,000 Solar Relief Fund for renewable energy companies to provide solar power for emergency health centres to help them fight the pandemic.
