Home Energy system Shell van Beurden boss: “Supply must adapt but to less demand”

Shell van Beurden boss: “Supply must adapt but to less demand”

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For the first time in nearly a decade at the helm of Europe’s biggest oil and gas company, Shell CEO Ben van Beurden feels he is being listened to.

The commodity shock triggered by the war in Ukraine has pushed European officials to better understand the global energy system and secure new sources of supply. Some of them ended up on Shell’s doorstep.

“On issues of energy security, energy balance sheets, investment levels, I’ve never had such good discussions with governments as we have today,” van Beurden told the Financial Times.

In the UK, Shell is being asked to produce more gas in the North Sea. In Germany, it is in talks to help operate and supply one of the country’s largest refineries should it be cut off from Russian oil.

Renewed engagement with previously shunned supermajors represents a major shift from last year, when Shell was ordered by a Dutch court to cut emissions, and oil and gas companies were barred from the climate meeting COP26 in Glasgow.

Shell has appealed the court’s decision, sparking heavy criticism from environmental groups who say it should have recognized the impact of fossil fuels much earlier and is doing far too little to change course. At its annual meeting in London in May, protesters interrupted proceedings for three hours.

In an interview at Shell’s London headquarters, van Beurden argued that governments had too often set emissions targets without a plan for how to achieve them and pushed for cuts in oil and gas production without taking measures to curb consumer demand.

“As long as society believes that by starving [fossil fuel] supply, you’re kind of forcing demand down as well, that’s not a sustainable way to approach the energy transition,” the 64-year-old said. “The supply must adjust, but it must adapt to less demand.”

Since van Beurden succeeded Peter Voser as chief executive in January 2014, oil prices have crashed twice, world leaders have passed the historic Paris climate accord and more than 1,500 institutions are committed to selling fossil fuel stocks.

In response, Shell said last year that its oil production had peaked and that it would halt oil and gas exploration in new markets after 2025. It pledged to reduce emissions from its own operations by 50% by 2030 and to net zero by 2050, while reducing, albeit less rapidly, the carbon emitted when burning the fuel it sells.

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Will European demand for alternatives to Russian fossil fuels prompt a reversal of these commitments? “Absolutely not,” van Beurden said. Instead, he believes governments’ renewed focus on energy policy and energy security will help Shell move “faster”.

Rather than being seen as an oil and gas major, van Beurden now favors an “energy transition company” but, like its peers, Shell is struggling to convince investors it can deliver the transformation.

The company’s share price is up 25% this year, but is still down about 6% since van Beurden took the top job. BP is down 21% over the same period.

While BP has pledged to cut oil production by 40% by 2030 and develop 50 gigawatts of renewable energy, Shell’s so-called Powering Progress strategy is less prescriptive and instead focuses on how it will help customers to decarbonize. Rather than build a collection of wind farms or solar power plants and hope to sell the electricity generated, van Beurden said Shell’s approach would be to start with each customer and provide the low-carbon solutions that he needs.

For now, clean energy is part of Shell’s business. Its integrated upstream oil and gas divisions generated more than 80% of Shell’s record $9.1 billion adjusted profit in the first three months of the year. Renewables and energy solutions accounted for $344 million, or less than 4%.

Shell says it has recruited nearly 1,000 people into this part of the business. But it has also had high-profile departures and, unlike BP, still does not have anyone with renewables experience on the executive committee.

Elisabeth Brinton, head of the renewable energy and energy solutions division, left Shell in February after three years with the company. Senior green energy appointments from investment bank Macquarie and solar group Lightsource BP have also come and gone over the past two years.

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A former executive said overhauling Shell’s 82,000 employees to deliver the energy transition would be its biggest challenge. “Business can make the transition, but people can’t,” the executive said.

Van Beurden said he has no concerns about staff turnover in the renewable energy division. The appointment of a renewable energy specialist to the executive committee would have seemed like a “symbolic change” at a time when the business generated only a small fraction of the group’s profits, he added.

Having spent his entire 39-year career at Shell, van Beurden’s focus since 2014 has been on improving performance, he said. “What I’ve always felt is this company…always a little below its potential.

Four months into his job, he proposed that Shell, then the world’s largest liquefied natural gas trader, acquire the second-largest BG Group. The $52 billion acquisition – the biggest in Shell’s history – has left Shell with around 15% of the global LNG market as demand for the fuel soars. It also provided van Beurden with an excuse to streamline other parts of the business. “It’s very difficult to shrink to grow, but to grow and then to improve is much easier,” he said.

Seashell under Ben van Beurden

$22-27 billion

Annual capex – down from $50 billion in 2014 (BG and Shell combined)

One way to boost Shell’s energy transition strategy today would be to do the same thing again, but this time – using money from soaring oil and gas prices – acquire a major renewable energy company .

But a deal the size and impact of the BG takeover would be difficult, he said. “I deliberately refrained from doing big things in this space to make sure we know how their business works first.”

Bankers like to suggest that Shell could buy Danish power company Orsted or Germany’s renewables-focused RWE. Although van Beurden said no deal was likely, he added that Orsted in particular would not fit in with Shell’s customer-focused plans. “I would be more inclined to think of an RWE with a clientele than an Orsted with a collection of wind farms.”

Shell’s preference has been to acquire mid-sized power companies around the $1 billion mark, he said. In April, it bought Indian renewable energy group Sprng Energy from Actis for $1.55 billion.

Going forward, Shell will sell more of its oil assets and use the proceeds to fund other energy transition deals. Oil prices have been above a seven-year high all year, but it’s getting harder to judge when to divest to get the best value, he said. “It’s a bit like trying to catch a knife that falls at that moment.”

In the absence of a major acquisition, billions of dollars will continue to be returned to shareholders. Shell has already made $8.5 billion in share buybacks this year. “If you can extrapolate a little bit what may come next, we can buy out a very significant part of the business,” he said.

Although Shell insists van Beurden is not expected to step down, few Big Oil CEOs have served much longer than 10 years and, according to people familiar with the details, the board has started discussions with potential internal candidates last summer.

When he finally leaves, he wants to have added value for shareholders but also to have done “the right thing” as a citizen, he said, insisting he was still comfortable with Shell’s much-criticized decision to challenge the Dutch court ruling. “For me personally, this has absolutely been a leitmotif: the things I need to stand up to scrutiny in the future.”