Business & Investment

Shell targets electricity trading and hydrogen in Reuters climate change drives

© Reuters.File photo: Shell logo can be seen at a gas station in Buenos Aires

Ron Busso

London (Reuters)-Royal Dutch Shell (LON :) has expertise in electricity trading and the rapid growth of the hydrogen and biofuel markets as it shifts away from oil rather than joining its rivals in the battle for renewable energy assets. The company sources said they were betting on. ..

Shell and its European rivals are a new business model to appeal to investors concerned about the long-term outlook for the industry under intense pressure to reduce their reliance on fossil fuels and reduce greenhouse gas emissions. I’m looking for.

Shell announced its strategy on February 11th, and unlike Total and BP (NYSE :), the company mediates between clean electricity producers and customers rather than investing billions of dollars in renewable projects. The focus is on becoming a person, sources said. plans.

Shell announced in October that it would increase spending on low-carbon energy to 25% of total capital spending by 2025, increasing from the current $ 1.5 billion to $ 2 billion annually, according to sources. Equivalent to more than a dollar.

Sources told Reuters that Anglo-Saxon will keep overall oil and gas production nearly stable for the next decade to fund the energy transition.

A Shell spokeswoman declined to comment on details of the company’s new strategy prior to its February announcement. Meanwhile, BP plans to reduce oil production by 40% by 2030, clearing core oil and gas exploration teams to focus on renewable energy, and spending on low-carbon energy going forward. It will increase from 10 times to $ 5 billion. Decade.

While all of Europe’s largest oil companies are developing strategies to survive in a low-carbon world, investors and analysts are transforming centuries-old business models to win the already crowded electricity markets. I’m skeptical of the ability to store.

(Graphics: Increased Low Carbon Spending-https: //graphics.reuters.com/SHELL-STRATEGY/xklpylookvg/chart.png)

Power trading

At the heart of Shell’s plans is a vast retail network with experience trading all types of energy, from oil to electricity, and more stores than either of the world’s two largest food chains, Subway and McDonald’s (NYSE :). ..

Shell is already the world’s leading energy trader and an activity called “marketing”. It uses one of the largest fleets of tankers to trade about 13 million barrels of oil per day, or 13% of global pre-pandemic demand.

A top trader in liquefied natural gas (LNG), buying and selling electricity, biofuels, chemicals and carbon credits, and using pole positions to seize most of the current fast-growing low-carbon electricity market. I am aiming for.

“The future of energy is particularly bright for the already growing marketing and customer service businesses, so we will accelerate our already ongoing growth plans,” said Ben Van Baden, CEO, in October. “.

Trade has been important to oil majors for decades, allowing global operations to take advantage of changes in supply and demand. Shell’s trading helped avoid quarterly losses for the first time in the second quarter of 2020, despite a sharp drop in consumption due to the coronavirus epidemic.

Nonetheless, analysts say Shell’s trading sector faces challenges as it currently relies heavily on the sale of refined fossil fuel products, which account for the majority of carbon emissions.

“Shell faces difficult choices on how to balance trading cash flow to leverage petroleum products while continuing to be a carbon-intensive business,” said Christian Marek, an analyst at JP Morgan. Stated. “But thanks to size, customer base and distribution, we have a lot more flexibility.”

Hydrogen hub

At the same time, Shell plans to expand its consumer base by expanding its network of residential power supply businesses and electric vehicle charging points and signing long-term corporate power purchase agreements (PPAs). ..

Shell already has 45,000 retail stores worldwide, far ahead of its European rivals. We plan to add another 10,000 retailers by 2025.

As a major biofuel producer, Shell wants to increase the production of fuels made from plants and waste as an alternative energy source for transportation.

Shells is also betting on the future growth of hydrogen, sources said. Although still a niche market, hydrogen has been of great interest in recent months as a clean alternative to natural gas for heavy industry and transportation.

Shell has already invested, but hydrogen, and so-called green hydrogen, which is produced solely on renewable energy, presents high cost and infrastructure challenges.

Its promotion was initially focused on Europe, which is developing hydrogen hubs in Hamburg, Germany, and is one of several companies developing hubs in Rotterdam, the Netherlands. We also aim to expand into the United States and Asia.

For example, the state of California in the United States is pushing for the deployment of hydrogen fuel cell vehicles to help achieve climate goals, while countries such as South Korea and Japan are betting heavily on hydrogen as an alternative fuel.

Sources did not give a goal to increase shell hydrogen or biofuel production.

Like Shell, rivals such as BP, Total, Italy’s Eni, and Spain’s Repsol (OTC :) are expanding in the hydrogen and biofuel markets and adding charging points for electric vehicles to generate new revenue from oil. I am planning to produce.

Competitiveness?

However, Shell will not pursue the same ambitious goal of some European rivals adding wind and solar capacity, but instead prioritize trading and selling electricity, sources said. Stated.

Shell is a renewable project that is not particularly competitive with other oil companies and utilities such as Iberdrola (OTC :) in Spain and Ørsted (OTC :) in Denmark, which are already becoming important green energy producers. We are wary of making large investments in.

Shell expands its renewable energy capacity, especially at offshore wind farms that it believes to be advantageous after operating offshore oil fields for years, but its business is focused on profitability rather than scale. To do.

“The shell has some quantitative goals, but it’s not the focus,” he told Reuters. “Focusing on the capacity of renewable energy is dangerous and can lead to some bad deals.”

BP wants to increase its renewable energy generation capacity by 20 times by 2030, while Total aims to have a total renewable energy generation capacity of 100 gigawatts (GW) by 2030.

However, investors are concerned that investing in costly renewable projects, which are usually less profitable than oil, can make it difficult to achieve profit forecasts.

On October 29, Shell detailed new strategies, including plans to narrow oil and gas production to nine hubs, reduce the number of refineries from 14 to 6, and expand the marketing business.

The company also announced plans to reduce up to 9,000 employees, or about 10%, by August this year as part of an extensive cost-cutting review known as Project Reshape.



Shell targets electricity trading and hydrogen in Reuters climate change drives

https://www.investing.com/news/stock-market-news/shell-targets-power-trading-and-hydrogen-in-climate-drive-2404596 Shell targets electricity trading and hydrogen in Reuters climate change drives

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