Almost a year ago, Shell offered ‘Farewell’ to the Netherlands as the oil giant simplified its complicated dual share structure, moved its headquarters from The Hague to London and chose post-Brexit Britain as its real home.
Understandably, the British government was great at moving, the Dutch not so much. That the snub was controlled by one of their own, chief executive Ben van Beurden, made it particularly hard to swallow.
It will be interesting to see if the 64-year-old is welcomed to his ancestral home as he joins a stream of FTSE bosses heading for the exit, although Van Beurden has saved more than £80million since he took the took charge, it is unlikely that Van Beurden will have many. sleepless nights.
Of far greater importance is what his departure, after a decade at the helm, means for one of the world’s largest energy producers. The appointment of Wael Sawan, head of renewables as his successor, has understandably raised hopes that Shell is on the cusp of putting the turbo boosters under the adoption of green technologies.
A two-time Lebanese-Canadian citizen born in Beirut, Sawan takes the reins at a pivotal time for both Shell and the fossil fuel industry in general. With soaring gas prices delivering a truly magnificent bounty to the company and its major rivals, while millions struggle with increasingly unpayable bills, scrutiny has never been more intense.
Meanwhile, Shell must figure out how it can play a role in strengthening Britain’s energy security while meeting the demand to embrace clean energy more heartily.
It is not that Van Beurden has not mapped out a path to net zero. On the contrary, Shell stated last year that oil production had peaked and that it would stop drilling for fossil fuels in new markets after 2025, a key milestone on the journey.
It has also pledged to halve emissions from its own operations by 2030 and reach zero by mid-century, and recently pledged to reduce CO2 emissions when customers burn its fuel – known as Scope 3 emissions.
Van Beurden has rejected the suggestion that Europe’s struggle for alternative energy supplies for Russian hydrocarbons will reverse those commitments. Instead, Shell is likely to act “faster,” he told the Financial Times earlier this year.
Yet he has also been criticized, not unreasonably, for not taking more drastic measures. Last year, a Dutch court ordered the oil company to accelerate the pace of change and be more ambitious with its carbon reduction targets.
However, there will be a clear temptation to go the other way and plow billions of pounds into new oil fields in the North Sea, amid calls for Britain to achieve greater energy independence. The government is expected to announce dozens of new licenses for oil and gas exploration in UK waters in the coming weeks, in a bid to boost domestic production.
Sawan must resist this urge and not be caught off guard by ministerial reflexive responses to the energy shortage. That’s not to say that oil, gas and even coal can’t provide a short-term bridge for society to transition seamlessly from reliance on fossil fuels to renewables, or that the UK hasn’t been overly dependent on overseas supplies.
But the idea that salvation lies in the North Sea is a red herring. Ditto that fracking is the magic solution. Ministers allow nostalgia and nationalism to prevail.
Since it usually takes five to ten years for a new field to go into production, a new North Sea licensing round will not provide any relief from crippling energy bills in the short term. Domestic production is sold in international markets anyway and the North Sea is essentially a sunset industry.
Of course there could be an uptick in activity as Britain makes efforts to reduce its exposure to gas imports, but an upturn is likely to be short-lived. Thereafter, it will be a well-known tale of decline once the world has adapted to Vladimir Putin’s energy blackmail, turning its attention away from short-sighted supply-side initiatives such as the government’s price freeze.
The demand side of the equation will eventually need to be addressed as well, with pressure on consumers to turn down the thermostat and better insulate their homes, but not without proper government support to shoulder the bulk of the cost.
However, the omens are not great. By opting for a continuity candidate, Shell clearly does not want to rock the boat.
While Sawan oversaw the clean energy division, he also oversaw the gas business, which was responsible for the bulk of Shell’s huge profits in 2022. More than 80 percent of Shell’s record $9.1 billion profit. in the first three months of the year came from oil and gas.
The idea that Shell’s transformation of old energy is going too fast, as some have suggested, is downright absurd. It made just £344 million in renewables in its last financial quarter, which is less than 4 percent of its total revenue.
The courageous thing would be to acknowledge the reality, accept that it has lost the battle for fossil fuels and take the lead in going green, or else it risks being left behind.
With wind and solar energy costing only a fraction of fossil fuels, there has never been a better time to invest in renewable energy sources. The average tenure of an oil and gas manager is around ten years, so Sawan may be Shell’s last chance to really understand the nettle.