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Shell Has ‘No Choice’ About Investing in New Fossil Projects, CEO Claims

Colossal fossil Royal Dutch Shell has “no choice” but to invest in new, long-lasting fossil projects, a defiant CEO Ben van Beurden told Reuters this week, in an interview in which he decried the “demonization” of oil and gas and “unjustified” worries that the company’s business model is unsustainable.

“Despite what a lot of activists say, it is entirely legitimate to invest in oil and gas because the world demands it,” van Beurden declared. “We can sustain an upstream (oil and gas) portfolio all the way into the 2030s if there is an economic rationale for doing that and a societal rationale for doing that,” he added. And “fortunately enough, we have more of those than we have money to spend on them.”

Reuters says Shell, which supplies about 3% of the world’s energy, “has become more selective in its investments as the outlook for oil prices and demand remains unclear. It targets new projects that can be profitable at oil prices of US$20 to $30 a barrel and which emit relatively low greenhouse emissions.”

In 2017, the company laid out a plan to cut its greenhouse gas emissions intensity in half by mid-century. But intensity is a measure of greenhouse gas emissions per unit of fossil energy a company produces. And Reuters cites an investor presentation in June that listed more than 35 new oil and gas projects that Shell plans to initiate by 2025.

Between 2017 and 2018, the news agency adds, the company’s emissions rose 2.5%.

But that’s not where van Beurden sees the problem. “One of the bigger risks is not so much that we will become dinosaurs because we are still investing in oil and gas when there is no need for it anymore,” he said. “A bigger risk is prematurely turning your back on oil and gas.”

While oil and gas “account for the entirety of Shell’s free cash flow today, it foresees a gradual diversification over the next two decades,” Reuters states. “Oil and gas are each still expected to provide a third of free cash flow, however, with the rest coming from power and chemicals.” Moreover, the gas processing plants, deepwater exploration platforms, and chemical plants at the heart of the company’s plans “take billions of dollars to develop and operate for decades.”

In recent years, Shell has had some success spinning itself as an environmentally friendly fossil. But while it claims a long-term goal of becoming the world’s biggest electricity company, analysis earlier this year showed that it only devotes 5% of its investment to new energy sources.

In the Reuters interview, van Beurden acknowledged that some investors might “prematurely” abandon his company, adding that “societal risk” is already driving down the value of Shell stock. “I am afraid of that, to be honest,” he said. “But I don’t think they will flee for the justified concern of stranded assets…(It is) the continued pressure on our sector, in some cases to the point of demonization, that scares asset managers.”

While “it is not at a scale that the alarm bells are ringing,” he added, “it is an unhealthy trend.”