Shell considers $5bn annual expenditure on Energy Transition Initiative

A major decision that will see oil major, Shell shift emphasis from oil would result in about $5 billion annual capital spend in its anticipated new business models.

Shell is betting on its expertise in power trading and rapid growth in hydrogen and biofuels markets as it shifts away from oil, rather than joining rivals in a scramble for renewable power assets, Reuters quotes company sources as saying.

Shell is into joint venture partnership with the Nigerian National Petroleum Corporations (NNPC) which produces Nigeria’s fossil fuel. Currently, Nigerian’s national assembly is debating the Petroleum Industry Bill (PIB) which expert described as archaic and out of tune with the what is trending the industry, which is the development of clean energy.

Shell and its European rivals are seeking new business models to reduce their dependency on fossil fuels and appeal to investors concerned about the long-term outlook for an industry under intense pressure to slash greenhouse gas emissions.

Shell will present its strategy on February 11 and unlike Total and BP the company will focus more on becoming an intermediary between clean power producers and customers than investing billions in renewable projects, the sources said, giving previously unreported details of the plan.

Shell announced in October it would increase its spending on low-carbon energy to 25 per cent of overall capital expenditure by 2025 and the sources said that would translate into more than $5 billion a year, up from $1.5 billion to $2 billion now.

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The Anglo-dutch company will, however, keep its overall oil and gas output largely stable for the next decade to help fund its energy transition, though gas is set to become a bigger part of the mix, the sources told Reuters.

A Shell spokeswoman declined to comment on the details of the company’s new strategy ahead of its February announcements. BP, meanwhile, plans to slash its oil output by 40 per cent by 2030 and has swept aside its core oil and gas exploration team to focus on renewables, with spending on low-carbon energy set to rise 10-fold to $5 billion over the coming decade.

While Europe’s big oil firms are all rolling out strategies to survive in a lowcarbon world, investors and analysts remain sceptical about their ability to transform centuries- old business models and triumph in already crowded power markets.

Central to Shell’s plans are its experience in trading all types of energy from oil to natural gas to electricity and its vast retail network, which has more outlets than either of the world’s two biggest food chains, Subway and Mcdonald’s.

Shell is already the world’s leading energy trader, an activity it calls “marketing”. It trades about 13 million barrels of oil a day, or 13 per cent of global demand before the pandemic, using one of the biggest fleets of tankers.

It is the top trader of liquefied natural gas (LNG), buys and sells power, biofuels, chemicals and carbon credits, and now aims to use its pole position to snare a large chunk of the fast-growing low-carbon power market.

“The future of energy is particularly bright for our marketing and our customerfacing businesses where we already have scale. So we will accelerate a growth plan which is already underway,” Chief Executive Ben van Beurden said in October.

Trading has been key for oil majors for decades, allowing them to use their global operations to quickly take advantage of changes in supply and demand. Shell’s trading helped it avoid its first-ever quarterly loss in the second quarter of 2020 even as consumption plummeted due to the coronavirus epidemic.

Nevertheless, analysts say Shell’s trading division will face a challenge because it is heavily reliant at the moment on sales of refined fossil fuel products, which also account for a large proportion of its carbon emissions.

“Shell faces difficult choices on how to balance its trading cash flow that leverages oil products while still having carbonintensive operations,” JP Morgan analyst Christyan Malek said. “But because of their scale, customer base and distribution, they can be much more flexible.”

At the same time, Shell plans to boost its consumer base by expanding its electricity supply business for homes and its network of electric vehicle charging points, as well as signing long-term corporate power purchase agreements (PPA).

Shell already has 45,000