Oct 06, 2021
Shell plans to keep investing in oil, gas and liquefied natural gas as the “cash engines” for the energy transition and expects its giant LNG Canada project, targeted at Asian markets, will operate well into the second half of the century, CEO Ben van Beurden said Oct. 6.
Speaking at the online Energy Intelligence Forum, Van Beurden dismissed notions of winding down the upstream oil and gas business as “silly” and said there was “nothing illegitimate” about producing oil and gas. In the global energy system, “to just believe that you can switch 100% from coal to 100% renewables…is a little bit of a silly notion,” he said.
Van Beurden reiterated the company would diversify away from oil and gas into power provision, biofuels, hydrogen and mitigation projects such as carbon capture and storage, and will focus on serving consumers as much as the original production process.
But the alternatives to oil, gas and LNG remain relatively small as a proportion of company spending and their development will have to be underpinned by earnings from fossil fuels, which would remain “incredibly relevant,” he said.
As an example, the LNG Canada project, in which Shell is the largest partner with first production due by the mid-2020s, would be operating into the 2050s and beyond, Van Beurden said.
Shell’s diversification into areas such as power, renewables and biofuels “are quite often still small positions, so if you want to really grow them into very large material positions, you’re going to be free cash flow-negative for a long time to come,” he said.
“Upstream, integrated gas, and the mature businesses like marketing and chemicals, they have to provide the cash for the future. Investing in these businesses is going to be needed to keep them the strong cash engines that they currently are — upstream needs to be a strong cash engine into, and probably through, the 2030s, and we need to invest to keep it there.”
“LNG and certainly chemicals and products are going to be relevant for a long time to come — LNG, think of it as a stayer in our portfolio,” he said, adding Shell had been “proven right” in its expectation of 4% annual demand growth for LNG.
“In the long run — think second half of this century — many of our LNG positions will still be in play. Building LNG Canada at the moment, I don’t expect that to be wound down in the ’40s, I expect it to still exist in the ’50s and later,” Van Beurden said.
“Whatever we build, we’d better make sure it’s carbon competitive, it’s first quartile, it can be decarbonized, and therefore it’s still relevant in a world that hopefully by then is a net-zero world.”
On hydrogen, Van Beurden described the emergent clean fuel as a “cute baby” that would require a number of decades to become a “significant business.”
He said Shell’s priority in hydrogen would be on meeting heavy duty road transport demand, with the current focus being an expansion of its new 10 MW electrolyzer at the Rheinland refinery near Cologne, plans for a 200 MW electrolyzer in Rotterdam, as well as a third elsewhere in Northern Europe, alongside further plans for facilities in California and China, the latter potentially a 150 MW facility.
Van Beurden also addressed the upcoming COP26 climate talks taking place in Glasgow in November and said national carbon-reduction targets would be insufficient for meeting long-term emissions reduction goals, with some “hard to abate” sectors such as aviation requiring international sectoral commitments.