Shell invests in solar, but still plowing money into oil

A unit of Houston’s Shell Oil will purchase almost half of Silicon Ranch Corp., a Nashville company that operates solar projects around the United States, for up to $217 million, the company’s biggest investment in utility-scale solar energy yet, the company said on Monday. Shell Oil is the U.S. subsidiary of Royal Dutch Shell, the Anglo-Dutch oil major. 

The transaction is Shell’s answer to growing demand it sees for renewable energy options in the United States, said Marc van Gerven, vice president of solar for Shell New Energies, a business unit that focuses on alternative energy. Like its big oil rivals in Europe and the U.S., Shell is angling for a position in a rapidly growing sector that analysts say could provide a steady stream of profits in coming years as renewable energy technologies advance and oil demand falters.

“It doesn’t matter when peak oil demand occurs,” said Praveen Kumar, a finance professor at the University of Houston. “Once they figure out how to make renewable energy profitable, a lot of these oil companies are going to start to look very different. These technologies are improving very fast.”

But make no mistake: Royal Dutch Shell is still very much in the oil business. The company on Monday also announced it plans to commission a major oil-production vessel in the North Sea off the coast of the United Kingdom, in an effort to redevelop an oil and gas field that has languished for several years.

It will build its first floating production, storage and offloading vessel in the United Kingdom’s North Sea in almost three decades, pumping some 45,000 barrels of oil equivalent a day from the U.K.’s Penguins field at its peak.

It’s the biggest investment decision the oil industry has made since mid-2015, and seems to mark an end of an era of cautious investing that has been the oil industry’s modus operandi since crude prices cratered in 2014, energy research firm Wood Mackenzie said.

The oil industry approved 33 new major projects last year from Norway and Newfoundland to the Gulf of Mexico and Guyana, three times more than in 2016, the worst year of the recent oil bust. Globally, drillers spent some $76 billion on major oil and gas projects in 2016; in 2017, $90 billion.

“What we’re seeing around the world is a move toward growth,” said Julie Wilson, an analyst at Wood Mackenzie.

Shell’s investment in the U.K. oil field comes as crude prices reach the highest levels seen in years. U.S. oil prices rose 50 cents on Friday to settle at $64.30 a barrel, the highest settlement since December 5, 2014.

Despite increased investment in renewables by companies like Shell, spending on wind and solar remains tiny compared to what the world’s biggest energy companies spend on developing oil fields. In 2015, Shell spent $600 million and employed 1,500 people in Texas and Louisiana to build parts for its so-called Appomattox platform, expected to be the company’s largest offshore platform in the Gulf of Mexico, part of a multibillion-dollar project expected to start pumping oil by the end of the decade.

Still, analysts, government agencies and even European oil companies have predicted for years that the global oil demand will stop growing and start to decline sometime in the next few decades.

Both Shell and Norway’s Statoil have published forecasts for peak oil demand hitting by 2030; others, like Total, predict 2040. Their American counterparts, like California-based Chevron and Texas-based Exxon Mobil, don’t foresee oil demand peaking anytime soon.

“The Europeans are well ahead of U.S. energy companies in alternative energy,” said Brian Youngberg, an analyst at Edward Jones in St. Louis. “They’re diversifying the company into renewable energy to eventually drive growth for the company.”

The shift to renewable energy seems inexorable. Last year, Wood Mackenzie told the Houston Chronicle that it believes major oil companies will shift $1 for every $5 they spend on drilling today into solar panels and wind turbines.

In recent years, as the fossil fuel industry has faced increasing regulations and public pressure aimed at slowing climate change, major European oil companies such as Shell have made investments in Texas and around the world to prepare for a low carbon future. For instance, the British oil giant BP operates four wind farms in Texas. Late last year, Total signed an agreement with the French merchant power company Engie to acquire its portfolio of liquefied natural gas – the cleanest burning fossil fuel – for $1.49 billion.

In September, Shell acquired MP2 Energy, a Woodlands-based power generator and retail electric company that has partnered with California-based SolarCity to offer rooftop solar panels for lease or to buy.

For Shell, which already has interest in six wind farms and trades renewable energy, the Silicon Ranch transaction adds to a growing renewable business.

If regulators determine that the deal does not violate anti-trust laws, Shell will acquire a 43.83 share in Silicon Ranch, with an option to expand its shares by 2021, the company said. Shell’s stake in the company will include around 800 megawatts of solar projects currently operating or under contract. One megawatt is enough to power 200 homes on a hot Texas day.

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