Shell Low Carbon Solutions: Unlocking the value that secures progress

If last century was defined by how well the world explored, expanded, and enjoyed the benefits of energy, then this century will be remembered for how people reassess their relationship with that same energy. Though, that’s not always a comfortable process.

Today, the desire to retain and grow energy’s benefits must be balanced with the imperative to reduce emissions as part of the energy transition, as we work together towards achieving net-zero by 2050. And given the presumed benefits of the current energy system, this transition must also remain affordable for consumers, while sustaining attractive returns for companies.

Without this, businesses can find themselves conflicted between making cleaner energy choices and meeting their fiduciary duty to shareholders.?As demand for cheaper, traditional fuels persists, companies must carefully balance commercial viability with the urgent need to tackle emissions. Therefore, to maintain progress today and secure progress tomorrow, decarbonisation solutions must create value – for those who invest in using them and for those who invest in providing them.

The economics of progress

Energy transition is about moving from a colossal, established energy system to an all-new, low-carbon ecosystem that is safe, secure, and sustainable, all while powering the global economy. The task is huge and to achieve a balanced transition from old to new, demand and supply must both change.

Take low-carbon energy, such as Sustainable Aviation Fuel (SAF) or low-carbon hydrogen. Demand must expand to support the volume needed to make supply more affordable. Yet, because these solutions must command a premium short-term to become viable, the investment necessary to increase demand to the tipping point where longer-term supply economies can be secured is not forthcoming. In short, everyone wants to get value from whatever it is that they are buying or selling. However, this often prevents proven decarbonisation solutions from being deployed at the pace and scale necessary for society is to meet net-zero emissions targets.

Fortunately, this cycle can be broken, and to greater effect when parties and measures work together:

• Influential companies on the demand side can take a calculated risk that, by moving first on a solution, they will reap long-term benefits such as attracting and retaining talent, attracting customers and, of course investment?
• A supplier can invest in their capacity to kickstart a nascent market into action. For example, Shell’s own decarbonisation commitments were leveraged to underwrite the demand necessary to secure investment in building Europe’s largest electrolyser, ?Holland Hydrogen 1; and finally
• Governments or associations can create more favourable conditions incentivising demand and supply sides to act by de-risking energy system scale, so stimulating long-term investments such as Shell’s HEFA plant in Rotterdam

Why should each part of the chain decide to do this? For one, because it is the right thing to do and is, ultimately, how society will reach a net-zero future. But also because there is a promise of value – whether that’s a customer seeking to differentiate through leadership, a supplier building presence in the market, or a government protecting energy and economic security.

When parties, resources and efforts pull in the same direction, the price premium can be shared more equitably and the value in making greener choices is protected and rewarded. Thankfully, once one domino falls, it can reverberate throughout the entire energy system and cause the full value chain to drive investment in the right solutions.

Reduced carbon meets increased value

The complex, symbiotic nature of energy demand and supply can work in reverse too, to not just stall energy transition, but potentially even increase the carbon intensity of our energy choices. For example, let’s look at the impact of European policymakers’ determination to slash the EU’s Russian gas dependence by two-thirds last year[1].?While there are hopeful signals that this will accelerate transition long-term, the immediate need for energy security poses challenges to decarbonisation efforts. These challenges present as counterforces, such as burning more coal to replace natural gas[2].?Given that a net-zero-emissions energy system would require a supply transition much greater than this, it must be undertaken responsibly and pragmatically. This entails prioritising high-impact areas and avoiding the dismissal of potentially effective emission reduction approaches, such as liquefied natural gas (LNG) replacing coal, in favour of impractical ideals or unavailable alternatives.

Just as Shell built its business, and earned its place as investors‘ top UK Blue Chip stock[3] by meeting demand for the energy that powers progress for commerce and society, now Shell must help customers navigate the most efficient pathways to decarbonise the energy they use while keeping the world moving. To secure and promote social and economic progress, we must strive to create more value with less emissions. Which is why we take a balanced approach to the energy transition – ensuring a secure supply of energy today, while helping to shape the lower-carbon energy system of tomorrow.?

Breaking cost barriers by unlocking value

To galvanise our Powering Progress strategy, Shell will purposefully target customers and sectors where our track record, adjacencies or investment conditions align to optimise performance and unlock value - mitigating the financial challenges to decarbonisation. And, with more than three quarters of energy and industry executives pointing to limited returns on investment as the greatest obstacle to progress[4], we will unapologetically focus for impact.

Society’s hardest-to-abate sectors are the test case here. These industries are the foundations and heavy lifters of global economies, such as iron and concrete and goods transported by sea, air and road. They account for around 70% of global energy demand and around 55% of emissions, if they can be decarbonised, the world can go a long way to reaching net-zero emissions[5]. If we can help these price-sensitive sectors identify and unlock the value in decarbonisation, we can create the demand necessary to develop and deploy more low-carbon solutions.

Hence why we work with customers to recognise the right pathways for individual business, geographical or sectoral needs. Typically, as hard-to-abate sectors cannot be electrified, they need lower-carbon molecular solutions, these might be LNG, biofuels and low carbon hydrogen for transport or Carbon Capture and Storage (CCS) for industry, with solutions working together and evolving over time depending on the most efficient decarbonisation pathway for the customer. Whatever the specific solution at each point in their journey, we support customers in leveraging favourable policies; engaging the full value chain; and overcoming cost barriers.

By helping our customers decarbonise, we grow our own business, create value for our shareholders and, in turn, can keep investing in the energy system of the future. Ultimately, the more we perfect this cycle, the more we can contribute to the energy transition – as our work with the Port of Rotterdam and others to create Europe’s largest renewable hydrogen plant shows. A project that allows us to continue meeting customer demand while decarbonising our own operations – giving key customers the confidence to work with us in accelerating their own transitions.

Easy-to-access solutions for hard-to-abate sectors

To target and unlock the value that drives impact, Shell must leverage our intimate knowledge of industrial and transport customers and their sectors to define their challenges and identify the most efficient solutions to solve them. The better the solution, the greater the value …for all.?Hence Shell’s decision to integrate our Sectors & Decarbonisation and Emerging Energy Solutions teams into one - Shell Low Carbon Solutions.

Low Carbon Solutions is a business that targets customers with the greatest energy and decarbonisation challenges, helping them more easily access solutions to reduce and manage the carbon emissions of the energy they use. Low Carbon Solutions connects supply and demand to deliver what customers need to decarbonise profitably, before working with them to deploy the most efficient solutions.

With a focus on performance, we will have greater impact and can light the way in sustainably decarbonising the global energy system today, while building a bridge to tomorrow’s lower-carbon energy ecosystem. By delivering more value with less emissions, we can stimulate the demand necessary to make the world’s energy cleaner and so secure the progress it powers.

If you’re interested in exploring how we might do this together, please get in touch.

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[1] “The EU Plan to Reduce Russian Gas Imports by Two-Thirds by the End of 2022: Practical Realities and Implications.”?Oxford Institute for Energy Studies. 03/2022

[2] Varvitsioti, Eleni, and Andy Bounds. “EU Accepts It Will Burn More Coal in Move Away from Russian Gas.” Financial Times, May 18, 2022.

[3] Top 10 Blue-Chip Stocks to Watch in the UK | IG UK | IG International

[4] Grant Dougans, Neelam Phadke, Alasdair Robbie and Joe Scalies. “State of the Transition 2023: Global Energy and Natural Resource Executive Perspectives.” Bain & Company. May 23, 2023.

[5] Shell internal analysis of the IPCC Sixth Assessment Report C2 scenarios database hosted by IIASA and IEA World Energy Investment 2022 Report. Taken from Wael Sawan CMD speech: https://www.youtube.com/watch?v=Nq7AkAzrW-g&t=396s @ 6:20