Shell (NYSE: RDS.A) outlined on Thursday its strategy for the coming ‘energy transition’ decades, saying that it will still sell the oil and gas the society needs, while adapting its portfolio to lower-carbon energy, “when this makes commercial sense.”
In its Energy Transition Report published today, the supermajor said that there is a low risk of its oil and gas assets being left stranded, expecting around 80 percent of its current proved oil and gas reserves to be produced by 2030, and only 20 percent after that time.
“We conclude there is a low risk of Shell having stranded assets, or reserves that we cannot produce economically, in the medium term,” the oil and gas giant said.
Shell has three scenarios about the possible paths the world will take on the energy transition road. The three scenarios—Mountains, Oceans, and Sky—assume various levels of government support and collaboration toward a lower-carbon future. Mountains and Oceans scenarios fall short of the temperature goal of the Paris Agreement, while the latest scenario, Sky, “builds on this earlier work and assumes that society takes actions so as to meet the Paris goal,” Shell said.
Sky is the scenario assuming the most rapid transition which is “a challenging but technically possible and economically plausible pathway for the world to achieve the temperature goal of the Paris Agreement.”
In the Sky scenario, Shell sees oil demand growing 1 percent per year between 2020 and 2025. In this scenario, oil demand “peaks around the middle of the decade and then falls by about 1% per year until about 2040,” said Shell, but also noted:
“In all three scenarios, investment in new oil and gas production will be essential to meet ongoing demand. That’s because demand for oil and gas shrinks more slowly than the natural decline in production from existing oil and gas fields under any credible scenario.”
In the short term, between 2018 and 2020, Shell plans capital investment of US$25-30 billion per year, “with the option to go below the lower end of the range but with the communicated commitment to not go above the higher end.”
Of those annual investments, the highest amount is earmarked for deepwater—US$5-6 billion annually, followed by oil products, conventional oil and gas, and integrated gas, each with US$4-5 billion of yearly investment. Shell will invest US$2-3 billion annually in shale until 2020, as it is also looking for projects with shorter payback periods, such as its shale investments in the U.S., Canada, and Argentina. A total of US$1-2 billion is earmarked for investment in Shell’s New Energies division until 2020.
The supermajor’s report comes a week after Friends of the Earth Netherlands vowed to take Shell to court if it doesn’t act on demands to align its corporate strategy with the global climate objectives.
By Tsvetana Paraskova for Oilprice.com
