Jean-Jacques Rousseau in conversation with Shell - Africa’s premier report on the oil, gas and energy landscape.

Jean-Jacques Rousseau in conversation with Shell

By Gerard Kreeft

 Shell’s return to the courtroom in the Netherlands to appeal the 2021 decision, which ruled that the UK major must reduce its CO2 emissions 45% by 2030, is raising eyebrows within the oil and gas industry.

Investors and green activists alike are watching with keen interest.

Shell continues to maintain that the court has no jurisdiction within Shell’s boardroom and that this is a private company matter.

Is that so? Perhaps time to go  back to Jean-Jacques Rousseau.  For Rousseau, writing in the mid-18th century, the notion of the common good, achieved through the active and voluntary commitment of citizens, was to be distinguished from the pursuit of an individual’s private will.

As Rousseau explained, the general will is the will of the sovereign, or all the people together, that aims at the common good—what is best for the state as a whole.

The heart of the matter for Shell is that the company has continued to argue that this is private( company) matter, not one involving the the common good.

Yet the 2016 Paris Climate Agreement, which was signed by 195 countries, agreed to try and prevent an average global temperature rise of under the 2 0C and hopefully 1.5 0C, is the clearest example of a common good.

There are, internationally, some 200 court cases against companies involving climate related issues, according to the Columbia Law School. And to go by the swirl of press reports focused on this case,  all eyes are on what the court in the Netherlands will decide on.

 Shell’s vision

The chief obsession of Wael Sewan, Shell’s CEO since January 2023,  is to drive up the company share price.

Despite his robust efforts, the share price has barely moved—it was $65 at the start of April 2019 vs $64 in February 2024.

In Mr. Sewan’s view, Shell must mimic Chevron and ExxonMobil. While the Shell share price has remained virtually unchanged Chevron has seen its share price in the same period  increase 23 percent and ExxonMobil 25 percent.

Shell’s total capex for the period 2023-2025 is between $22Billion-$25Billion per year, of which some 80 percent is earmarked for hydrocarbons. Not unlike Chevron and ExxonMobil.

Sewan is attempting to change Shell’s narrative: that Shell is in the business of producing hydrocarbons, instead of also selling the illusion that its new energy policy matters. Europe’s oil majors, Including Shell, have seen their share prices flounder. Why? Because of their duality of messaging.  The European oil majors in the period April 2019-February 2024(with the exception of  TOTALEnergies and Equinor), have seen their share prices underperforming badly:

BP  down from $44 to $36;

Eni down from $36 to $31;

TotalEnergies was up from $56 to $65 ;

Equinor was up from $22 to $25.

The messaging of Chevron, ExxonMobil and now Shell is that they are oil companies, much in the tradition of John D. Rockefeller. This clarity of messaging is resonating with Chevron and ExxonMobil  shareholders.

 Alignment with the Paris Accord?

According to Mark van Baal, founder of Follow This Shell’s updated strategy has moved the company even further away from Paris Alignment.  According to van Baal “The ball is now in the investors’ court. They have the voting power to enact change.”
Earlier this year, 27 institutional investors with $4.6Trillion in AUM(assets under management) co-filed a climate resolution with Follow This at the oil and gas major.
Other claims have followed:

In February, environmental charity ClientEarth filed a case with the UK High Court, arguing that Shell’s continued investment in fossil fuel projects was a breach of directors’ duties to promote the company’s best interests.

NGO Global Witness filed a case against Shell in the US, alleging that the firm had misled investors by overstating its investments in renewable energy.

Shell has also faced pressure from Norges Bank Investment Management,  following a series of destructive oil spills in the Niger Delta region.

 Mixed bag

Shell’s updated energy transition strategy confirmed progress on Scope 1 and 2 emission reductions, with the company announcing a 31% decrease as of 2023, compared with 2016 levels – over halfway towards its goal of halving those by 2030.

In addition, Shell had reduced its net carbon intensity across Scopes 1 to 3 by 6-8% by 2023 compared to 2016 levels, though it is targeting a 9-12% reduction by 2024 and a 9-13% by 2025.

Many experts have welcomed Shell’s pledge to reduce customer emissions – also known as Scope 3 – from the use of its oil products by 15-20% by 2030, compared to 2021 levels.

Shell’s Scope 3 emissions amounted to 517 million tonnes of CO2 equivalent last year, down from 569 million in 2021.

Despite this progress, Shell has continued to lay much responsibility for Scope 3 emissions at its clients’ door:

“Reducing the net carbon intensity of the products we sell requires action by both Shell and our customers,” the group said in its 2024 strategy. “While we encourage the uptake of low-carbon products and solutions, we cannot control the final choices customers make.

Support from governments and policymakers is essential to create the right conditions for changes in demand.”

Note:

Essentially, Scope 1 are those direct emissions that are owned or controlled by a company, whereas Scopes 2 and 3 are indirect emissions: a consequence of the activities of the company but occur from sources not owned or controlled by it.

Shell has chosen to scrap its 2035 target to reduce the net carbon intensity of its products by 45%, due to “uncertainty in the pace of change in the energy transition”.

Carbon Tracker’s Maeva O’Connor expressed disappointment that Shell’s strategy focused on emissions intensity, rather than absolute emissions reduction: Intensity targets can be met simply by changing the energy mix in an oil and gas producer’s portfolio,” she explains. “If they add renewables into the mix, their energy intensity comes down – even if they are still producing the same volume of oil and gas, and therefore the same amount of emissions as before.”

 Follow the money

While emissions intensity vs absolute emissions reduction are important indicators of how a company is aligned with the Paris Climate Accord, more telling is a company’s  allotment of its capital budget. This indicates where the real money is being spent.

Shell’s total capex for the period 2023-2025 is between $22Billion-$25Billion per year, of which some 80% is earmarked for hydrocarbons. Not unlike Chevron and ExxonMobil. In other words, these three companies are only earmarking 20% of their annual capital budgets on low carbon solutions.

TOTALEnergies’ capital expenditures for the period 2022-2025 is anticipated to be between $14Billion-$18Billion per year: “a third will be in low-carbon energies, about 30% will be dedicated to the development of new oil and gas projects, and the remainder devoted to maintenance of the hydrocarbon portfolio. In other words, the hydrocarbon budget will be approximately $8Billion-$11Billion and the renewable budget will be $5Billion in 2023. By 2050 TOTALEnergies will be on track to have 50% of its energy mix in renewables + 25% in “new molecules”(green fuels). The remaining 25% would be comprised of oil and gas including LNG.

Equinor has indicated that it will be spending more than one-half of its capital spending on low carbon energy by 2030 to become a leader in offshore wind technology.

Conclusion + Final Remarks

It’s painful to watch the ensuing drama knowing full well how it will end. The end game will see Rousseau’s common good prevailing. Perhaps the court will seek some minor compromises to appease Shell—but the message will be that the stick instead of the carrot will be Shell’s outcome—if it does not meet its 2030 goals.

Such a message is also a sobering one to the oil and gas industry shareholders and investment community.

Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Gerard has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report, and contributes to IEEFA(Institute for Energy Economics and Financial Analysis). His book The 10 commandments of the Energy Transition is now on sale at  Bookstorehttps://books.friesenpress.com/store/title/119734000211674846/Gerard-Kreeft-The-10-Commandments-of-the-Energy-Transition

 

Share Article


Sponsored

No comments yet.

Leave a comment

Comment form

All fields marked (*) are required

© 2024 Festac News Press Ltd..