Shell Shareholders Question Vision as New CEO Confirms LNG Focus

Friday, 06 October 2023

CEO Wael Sawan faced a wave of criticism from environmental advocates during Shell’s first capital market days under his leadership, for maintaining oil output levels, rather than letting them taper off. ?

Shell’s growing affinity for another carbon-based fuel - liquefied natural gas (LNG) was also brought into?the spotlight.?

Executives were crystal clear about escalating LNG production, labelling it a "top priority" with?plans to funnel $4 billion annually into LNG ventures until 2025. ?

Gas has become Shell's biggest revenue driver. ?

Over the last five years, its integrated gas segment, chiefly driven by LNG, emerged as a major profit engine, contributing substantially to the group's earnings.?

This question arises though,?if this direction conflicts with Sawan’s predecessor’s net zero strategy. ?

Former CEO Ben van Beurden had created and introduced a plan to achieve net zero emissions by emissions by 2050, via an increase in?clean energy investments. ?

‘’They are moving further and further away from me being comfortable that they genuinely have a compelling view for what this business should look like in 25 years' time’’, commented a top-tier shareholder. ?

The shareholder acknowledged that increasing LNG volumes in the current playing field makes sense, with the ramp up on decarbonisation, and Europe moving away from its reliance on Russian gas, along with Asia trying to phase out coal. ?

But in terms of a long-term vision, they believe the LNG focus could be risk, stating ‘’We would like to see Shell doing a lot more around developing and articulating and then committing to a genuinely compelling energy transition strategy.’’ ?

On the other hand, some US investors are supportive of Shell’s dedication to LNG, which has been a lucrative domain for them. ?

According to analyst Oswald Clint (Bernstein), they see a longstanding demand for LNG, and given Shell’s formidable presence in the market, amplifying its LNG portfolio makes business sense.?

Shell's engagement with LNG isn't a newfound venture. The company pioneered the commercial LNG voyage from Algeria to the UK back in 1964 and played a key role in nurturing the Asian LNG market later that decade. ?

Fast forward to today;?Shell’s LNG portfolio has seen exponential market growth from 100 million tonnes per annum in 2000, to nearly 400 million tonnes in 2022, ballooning the market value to $450 billion. ?

This was further fortified by its $54 billion acquisition of gas specialist BG Group in 2016, which significantly amped up its LNG production and trading capacities.?

Shell commands a diverse and expansive LNG portfolio spanning continents, from Australia and Nigeria to Trinidad and Tobago, handling 66 million tonnes of LNG last year (a whopping 16.5% of the global share, standing second only to QatarEnergy). ?

The LNG sector not only represents a significant chunk of Shell’s operational cash flow but also aligns with Sawan’s belief in the robust returns from LNG as compared to renewables.?

This narrative has led to notably mixed stances in Shell’s camp. ?

Although LNG emits less carbon than coal and oil, the environmental implications are still significant. ?

As Shell gears up to revise its energy transition blueprint in March, some shareholders are skeptical of whether the ambitious LNG roadmap will still be compatible with its net zero emission aspirations. ?

Shell maintains that LNG will be a crucial tool in the energy transition. ?

Former BP geologist and current head of oil, gas and mining at Carbon Tracker believes Shell should be moving away from fossil fuels completely. ?

On the flipside, major players like Equinor, ExxonMobil and Chevron are following Shell’s lead, signing new LNG offtake agreements with producers. ?

“For some of the buyers, whether you’re European or Asian, doing a deal with somebody like Shell is pretty appealing... When it’s running a portfolio of this size, pretty much within reason it can give you what you want” said Frank Harris (Head of global LNG consulting firm). ?

Shell's extensive portfolio means it can?cater to diverse customer demands, making their strategy undeniably influential in shaping the future energy landscape.?