# Royal Dutch Shell: The road to net-zero emission

- Link: https://www.directorstalkinterviews.com/royal-dutch-shell-the-road-to-net-zero-emission/412960465
- Published: 2021-02-11T07:28:54+00:00
- Author: Amilia Stone

**Royal Dutch [Shell plc](https://www.directorstalkinterviews.com/ftse-company/shell/shel.l)**(
LON:RDSA) has set out its strategy to accelerate its transformation into a provider
of net-zero emissions energy products and services, powered by growth in its customer-
facing businesses. A disciplined cash allocation framework and rigorous approach
to driving down carbon emissions will deliver value for shareholders, customers 
and wider society. Shell also confirmed its expectation that total carbon emissions
for the company peaked in 2018, and oil production peaked in 2019.

From today, Shell is integrating its strategy, portfolio, environmental and social
ambitions under the goals of Powering Progress: generating shareholder value, achieving
net-zero emissions, powering lives and respecting nature. Shell’s reshaped organisation
will deliver on these goals through the three business pillars of Growth, Transition
and Upstream.

**FINANCIAL RESILIENCE AND PROFITABLE GROWTH THROUGH DISCIPLINED CAPITAL ALLOCATION**

Shell reiterated its cash priorities to deliver value for shareholders today while
growing value for tomorrow, including:

 * Maintain the progressive dividend policy, increasing dividend per share by around
   4% per year, subject to Board approval.
 * Retain near-term annual Cash capital expenditure of $19-22 billion.
 * Reduce net debt to $65 billion.
 * On reducing net debt to $65 billion, target total shareholder distributions of
   20-30% of cash flow from operations; increased shareholder distributions achieved
   through a combination of Shell’s progressive dividends and share buybacks.
 * Disciplined and measured capital expenditure growth balanced with additional 
   shareholder distributions and further strengthening of our balance sheet.

In the near term we expect to maintain underlying operating expenses of no higher
than $35 billion, and pursue divestments averaging $4 billion a year. Over time 
the balance of capital spending will shift towards the businesses in the Growth 
pillar, attracting around half of the additional capital spend. Cash flow will follow
the same trend and in the long term will become less exposed to oil and gas prices,
with a stronger link to broader economic growth.

**THE ROAD TO NET-ZERO EMISSIONS: A COMPREHENSIVE CARBON MANAGEMENT APPROACH**

Shell set out details of how it will achieve its target to be a net-zero emissions
energy business by 2050, in step with society’s progress towards achieving net zero.
This target covers the emissions from our operations and the emissions from the 
use of all the energy products we sell. And crucially, it includes emissions from
the oil and gas that others produce and Shell then sells as products to customers,
making the target comprehensive. 

Powering Progress supports the most ambitious goal of the Paris Agreement on climate
change to limit the global temperature rise to 1.5° Celsius. To achieve net zero,
Shell:

 * will continue with short-term targets that will drive down carbon emissions as
   we make progress towards our 2050 target, linked to the remuneration of more 
   than 16,500 staff. This includes a new set of targets to reduce our net carbon
   intensity: 6-8% by 2023, 20% by 2030, 45% by 2035 and 100% by 2050, using a baseline
   of 2016;
 * expects that its total carbon emissions peaked in 2018 at 1.7 gigatonnes per 
   annum;
 * confirms that its total oil production peaked in 2019;
 * will seek to have access to an additional 25 million tonnes a year of carbon,
   capture and storage (CCS) capacity by 2035. Currently, three key CCS projects
   of which Shell is a part, Quest in Canada (in operation), Northern Lights in 
   Norway (sanctioned) and Porthos in The Netherlands (planned), will total around
   4.5 million tonnes of capacity;
 * aims to use nature-based solutions (NBS), in line with the philosophy of avoid,
   reduce and only then mitigate, to offset emissions of around 120 million tonnes
   a year by 2030, with those we use being of the highest independently verified
   quality;
 * will work with the Science Based Targets Initiative, Transition Pathway Initiative
   and others to develop standards for the industry and align with those standards;
 * starting at the 2021 AGM, submit an Energy Transition Plan for an advisory vote
   to shareholders, the first in the sector to do so. We will update that plan every
   three years and seek an advisory vote on the progress made each year. 

**DELIVERING WITH A PORTFOLIO FOR THE ENERGY TRANSITION**

Shell is a customer-focused organisation, serving more than 1 million commercial
and industrial customers, and 30 million customers at 46,000 retail service stations
daily. Shell uses its world-leading brand, global reach and expertise to be a one-
stop shop for both consumer and business customers. A presence across the entire
energy system means we can optimise, scale up, and trade products in a way that 
develops markets, drives down costs, and will help accelerate the energy transition.

Shell’s aim is to build material low-carbon businesses of significant scale by the
early 2030s. Upstream will continue to deliver vital energy supplies, which will
help to generate the cash and returns needed to fund shareholder distributions while
accelerating investment in the growth businesses to capture new market opportunities.

In the near term, Shell’s strategy will rebalance its portfolio, investing annually
$5-6 billion in its Growth pillar (around $3 billion in Marketing; $2-3 billion 
in Renewables and Energy Solutions), $8-9 billion in its Transition pillar (around
$4 billion Integrated Gas; $4-5 billion Chemicals and Products) and around $8 billion
in Upstream. Plans include:

**Growth:**

**Marketing**

Target to increase Adjusted Earnings to around $6 billion by 2025 (from $4.5 billion
in 2020), achieved by improving the already market-leading position of the lubricants
business, an increase to 40 million customers at 55,000 retail sites (from 30 million
at 46,000 sites today) and growth of global electric vehicle (EV) network from more
than 60,000 charge points today to around 500,000 by 2025.

**Low-carbon fuels** – extend our leading biofuels production and distribution business,
which in 2019 sold more than 10 billion litres of biofuels. Our joint venture Raízen,
which produces low-carbon fuels from sugar cane in Brazil, recently announced the
acquisition of Biosev. This is set to increase Raízen’s bioethanol production capacity
by 50%, to 3.75 billion litres a year, around 3% of global production.

**Renewables and Energy Solutions**

**Integrated Power** – aim to sell some 560 terawatt hours a year by 2030 which 
is twice as much electricity as we sell today. We expect to serve more than 15 million
retail and business customers worldwide. We aim to be a leading provider of clean
Power-as-a-Service. We will make our investments go further by partnering with others
with the emphasis for Shell being on managing clean electrons.

**Nature-based solutions** – expect to invest around $100 million a year in high-
quality, independently verified projects on the ground to build a significant and
profitable business to help customers meet their net-zero emissions targets.

**Hydrogen** – build on Shell’s leading position in hydrogen by developing integrated
hydrogen hubs to serve industry and heavy-duty transport, aim to achieve double-
digit share of global clean hydrogen sales.

**Transition:**

**Integrated Gas**

Extend leadership in liquefied natural gas (LNG) volumes and markets, with selective
investment in competitive LNG assets to deliver more than 7 million tonnes per annum
of new capacity on-stream by middle of the decade. Continue to support customers
with their own net-zero ambitions, with leading offers such as carbon-neutral LNG.

**Chemicals and Products**

Transform our refinery footprint from 13 sites today to six high-value Chemicals
and Energy Parks and reduce production of traditional fuels by 55% by 2030. Intention
to grow volumes of the chemicals portfolio and increase cash generation from Chemicals
by $1-2 billion a year by 2030 compared with the medium term. Will produce chemicals
from recycled waste, known as circular chemicals, and by 2025 aim to annually process
1 million tonnes a year of plastic waste.

**Upstream:**

Focus on value over volume, being simpler and more resilient, continuing to provide
material cash flow into the 2030s.  An expected gradual reduction in oil production
of around 1-2% each year, including divestments and natural decline.

> “Our accelerated strategy will drive down carbon emissions and will deliver value
> for our shareholders, our customers and wider society,” **said Royal Dutch Shell
> Chief Executive Officer, Ben van Beurden.**
> “We must give our customers the products and services they want and need – products
> that have the lowest environmental impact. At the same time, we will use our established
> strengths to build on our competitive portfolio as we make the transition to be
> a net-zero emissions business in step with society.
> “Whether our customers are motorists, households or businesses, we will use our
> global scale and trusted brand to grow in markets where demand for cleaner products
> and services is strongest, delivering more predictable cash flows and generating
> higher returns.”

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