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Shell has seen the future – and it’s several shades of green

Ben Van Beurden, chief executive officer of Royal Dutch Shell, sees a future dominated by gas and renewables, with gas the clear winner. Photo: Bloomberg

By Ben Marlow: 

If there is one subject that divides energy producers it’s the question of when oil demand will peak.

Indeed, it is such a controversial topic that some senior figures like Saudi Arabia’s Energy Minister, Khalid al-Falih, prefer not to discuss it at all.

He claims talk of peak demand is dangerous. It threatens to reduce vital investment, “compromising” energy security, al-Falih said earlier this year.

John Watson, boss of American oil giant Chevron, recently dismissed the idea of peak demand as “wishful thinking”.

Still, like it or not, the question of when consumption begins to decline is casting an increasingly giant shadow over the industry.

For decades, explorers obsessed about when supply would run out. Now, thanks to the electric car revolution, climate change, and China’s growth slowdown, concern is very much centred on when the world’s once limitless thirst for crude starts to wane.

Shell boss Ben van Beurden has adopted a very different approach, one that puts him at odds with those whose faith in hydrocarbons is unshakeable.

With some of his rivals refusing to face up to the challenge, the Dutchman is tackling it head on, almost with relish it sometimes seems, recently boasting that his next car would be an electric one.

Last week’s takeover of NewMotion, one of Europe’s largest electric vehicle charging providers, was another clear signal that van Beurden is alive to the scale of the threat such radical shifts in the global energy mix represent.

Indeed van Beurden is so convinced that the industry is massively underestimating the speed at which consumption will begin to fall, that he is stepping up plans for a radical transformation of Shell from one of the world’s largest producers of fossil fuels into the first global power company.

It is impossible to overstate the scale of the task facing him, yet sitting still and doing nothing would be far more dangerous.

It’s not that van Beurden thinks oil is going to be eradicated. Indeed, he believes the energy transition debate is overhyped. The number of cars on the road and kilometres flown in planes is projected to nearly double by 2040.

Meanwhile, electric car growth will be confined to the developed world where the mammoth investment in infrastructure required can be met. In Africa, Latin America and large parts of Asia, the old-fashioned combustion engine will reign for many decades to come.

However, the need to adapt is irrefutable. The war on coal has been won convincingly and now the energy industry is terrified that the financial system will become “weaponised” against oil majors too, as campaigners step up pressure on banks to halt their financing of all new fossil fuel projects, not just coal production.

In line with what society is demanding, Shell is being urged to do more and van Beurden is embracing the challenge.

He sees a future dominated by gas and renewables, with gas the clear winner.

If he’s right, then the £50 billion takeover of BG last year will prove inspired. The deal fast-tracked Shell’s switch to natural gas.

Meanwhile, Shell is already the biggest provider of renewable energy in the US through its wind farms.

Van Beurden is planning to invest $US1 billion ($1.27 billion) a year in green technologies, and carbon capture and storage. That is just a fraction of the company’s $US25 billion to $US30 billion annual capital expenditure but the proportion is set to be ramped up.

Investors are demanding greater urgency. Having been told as recently as last year to “stick to your knitting”, there has been a fundamental shift in thinking in the City. Shareholders have woken up to the seismic shifts taking place.

Pulling out of Alaska, as well as Canada’s oil sands, has helped to drastically reduce Shell’s exposure to the political risk of climate change.

Now it wants to beef up its presence in north-west Europe in offshore wind and gas. Australia’s solar and gas markets will become even more important, as will emerging market giants like Brazil, India and China.

The company is also looking to become a serious player in energy trading, which could mean one day owning power stations. In the future, you could even get your electricity bill from Shell. This push could ultimately transform it into the world’s first global power company.

Van Beurden’s assertion is simple but compelling: war is being waged on fossil fuels but there is no war on energy. The whole world needs it.

The Sunday Telegraph, London

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