Royal Dutch Shell is a publicly listed fully integrated oil and gas company headquartered in the Netherlands. In 2020, it had USD 180.54 billion in revenue and a reported 80,000 employees*. Shell has an influential and widespread presence in the oil and gas sector. The European major has increased its climate ambition, but its current actions and lack of detailed planning undermine its net-zero strategy.
Along with the aim of achieving net-zero emissions across its scope 1, 2 and 3 emissions by 2050, Shell has set intermediate targets to reduce these emissions by 4-6% by 2022, 7-8% by 2023, 20% by 2030 and 45% by 2035. However, these targets include an undisclosed level of carbon offsets and could therefore not be assessed. The use of offsets reduces emphasis on direct action to reduce emissions. What is more concerning, however, is Shell’s statement: “If society is not on the path to net zero for 2050, it is unlikely that Shell will meet its [2035 and after] emissions targets.”
Given Shell’s key influence within the sector it should take responsibility to drive the necessary change by setting targets aligned with a 1.5°C scenario, with the intention to meet these targets unconditionally through direct action. As per the order of the Dutch Court, Shell is to increase its targeted emissions reduction to 45% by 2030. The company requires more climate leadership if it is to comply with this ruling and signal a resolve to move beyond ambition towards tangible action at the scale and pace required.
Shell aims to be a net-zero energy company by 2050. To achieve this, it is diversifying into low-carbon energy and fuels, carbon capture and storage (CCS) technologies, natural carbon sinks as well as implementing business-as-usual actions like increasing natural gas and operational efficiency. Shell has set 2030 milestones for these areas, like increasing the share of low-carbon fuels to 10% of transport sales. However, the company provides no detail on how the targeted change will be delivered between now and 2030, and the net-zero planning post 2030 is unclear. Shell should provide a clear, achievable road map, which transitions away from oil and gas activities, to add credibility to its net-zero strategy.
The share of gas in Shell’s sold product mix increased from ~8% in 2014 to ~11% in 2019, with oil making up the rest. As gas has a lower in-use combustion intensity, this put Shell’s scope 1, 2 and 3 emissions intensity on a slight downward trend. However, Shell’s rate of emissions intensity reduction is still far below the rate of reduction required by its 1.5°C pathway, which expects an 18% decrease by 2024. The company’s overall sales volumes of refined products and gas increased between 2014 and 2019, meaning that despite the slight decrease in emissions intensity, the amount of greenhouse gases emitted to the atmosphere through the combustion of Shell’s products grew during this period. Shell will need to ramp up its emissions reduction rate to get on track with its 1.5°C pathway.
In 2020, 5% of Shell’s total capital expenditure (CapEx) went towards its ‘Renewables and Energy Solutions’ business, and an additional 0.4% went towards its CCS technologies. The company plans to increase investment in ‘Renewables and Energy Solutions’ to a share of nearly 8% of planned CapEx in the near term, but does not disclose a plan for future CapEx in CCS technologies. Despite this, Shell falls far below the sectoral expectation for oil and gas companies to dedicate 77% of their CapEx to low-carbon technologies and 5% to CCS to align with a 1.5°C scenario.
Shell is diversifying its business model to include low-carbon business activities. The company is involved in renewable electricity generation, electric vehicle charging, biofuels, hydrogen and CCUS projects. Examples include electric vehicle charging at home through ‘Shell Recharge’ and the company’s involvement in the Norwegian State’s Northern Light Project, which is a demonstration of a CO2 handling chain. Although these new business activities have growth potential, sufficient detail regarding profitability, size and deployment schedules is lacking. Shell needs to provide clear information on the planned scale-up of these low-carbon business activities to demonstrate its commitment to a strategic repositioning.
Shell is actively involved in cross-sector collaboration to help business clients reduce their emissions. In the aviation sector, Shell is collaborating with World Energy to supply a sustainable aviation fuel to Amazon Air and to Lufthansa Group at San Francisco Airport. The company also works on decarbonisation solutions for the maritime industry. It provides biofuels to maritime clients and is partaking in innovation on fuel cells for deep sea vessels and hydrogen fuel production. Shell can improve its client engagement by promoting its low-carbon products through purchase incentives and expanding the scope of engagement to cover the majority of its clients.
Shell receives a trend score of =. If the company were reassessed in the near future, its score would likely stay the same. Shell’s fuel and product mixes are not changing at the rate required to deliver emissions reductions aligned with its 1.5°C pathway. However, the recent announcement of its net-zero strategy and its increased activity in renewable electricity, biofuels and hydrogen production through acquisitions and partnerships, suggests that Shell will at least stay on track with its current trajectory, even though it is insufficient to align with a 1.5°C scenario.
By 2050, Shell aims to be a net-zero energy company. This means achieving 100% emissions reduction across its scope 1, 2 and 3 emissions. The company has set intermediate targets of 20% emissions reduction by 2030 and 45% by 2035.
Shell is diversifying its portfolio to include renewable power, hydrogen and biofuels, with the aim of building a low-carbon business model of significant scale by the early 2030s. Investments in these areas will be funded by returns from oil and gas production over the rest of this decade.
The largest share of Shell’s investments are in upstream oil and gas. Although the company is investing in low-carbon technologies, its financial commitment is still far below what is required to achieve a low-carbon transition aligned with its 1.5°C pathway. Shell has been ordered by a Dutch court to increase its mid-term emissions reduction target to achieving a 45% reduction in scope 1, 2 and 3 emissions by 2030 as opposed to its targeted 20%.
Between 2014 to 2019, Shell made some reductions to its scope 1 and 2 and scope 1, 2 and 3 emissions intensities through regional shifts in oil extraction, changes in refining technology and an increasing share of gas it is sold product mix. However, the company’s total fossil fuel sold product volumes increased, meaning Shell was still responsible for an increasing amount of greenhouse gas emissions entering the atmosphere through the combustion of its products.
Shell’s net-zero strategy has a long-term focus but lacks adequate short-term planning. It includes the condition that society needs to be ‘on track’ to achieve a net-zero transition in order for the company to be able to achieve its targets. This provides space for the company to delay the ambitious action required for a low-carbon transition, while continuing its oil and gas activities. Shell can demonstrate commitment to its strategy by taking immediate, short-term action to drive change.