Energy giant Royal Dutch Shell aims to incrementally reduce production from oil and gas reservoirs at a rate of around 5% per year across the oil and gas industry as part of its 2021 energy transition strategy, the company announced on Thursday.
The announcement reflects the company’s long-term goal to become a net-zero emissions energy business by 2050, in step with society’s progress towards the Paris Agreement goal of limiting the increase in the average global temperature to 1.5°C.
"More than 90% of our emissions come from the use of the fuels and other energy products we sell, so we must also work with our customers to reduce their emissions when that energy is used. That means offering them the low-carbon products and services they need such as renewable electricity, biofuels, hydrogen, carbon capture and storage and nature-based offsets," Shell said in the report.
In line with this purpose, Shell plans to limit its investments in the upstream sector and expects a gradual decline of about 1-2% a year in oil production investments through to 2030, including divestments. Instead, the company plans to maintain its investments in its transition businesses.
To reach this aim, the company plans to reduce annual spending on exploration from around $2.2 billion in 2015 to around $1.5 billion between 2021 and 2025.
After benefitting from what the company described as "attractive exploration opportunities" in the first half of this decade, it said it would halt entries into new frontier exploration positions after 2025.
It also expects to keep the share of gas in its hydrocarbon production at 55% by 2030.
-Structural change required achieving zero-carbon energy
Shell said decarbonizing the energy system requires a structural change in the end-use of energy, as well as changes to the supply of energy products. It requires energy users to improve, update or replace equipment so that they can use carbon-based energy more efficiently, or switch to low- and zero-carbon energy.
"For example, in the transport sector, decarbonization includes replacing internal combustion engine vehicles with electric and hydrogen vehicles. In industry, replacing oil- and coal-fired furnaces with electrical furnaces would be one solution, carbon capture and storage is another. And in buildings, replacing gas heating systems with electric heating systems would also contribute to decarbonization," the company said.
Among the six levers the company has set to decarbonize energy in the short, medium and long term are; pursuing operational efficiency in its assets, shifting to natural gas, growing a low-carbon power business, providing low-carbon fuels such as biofuels and hydrogen, developing carbon capture and storage, and using natural sinks.
It said in line with these aims, it is installing eight new cracker furnaces at its Moerdijk petrochemicals complex in the Netherlands, in replacement of 16 older units. This is expected to reduce the site’s energy consumption, and to lower greenhouse gas emissions by around 10% compared with 2019.
In the US, it is building a 250-megawatt cogeneration plant at its Pennsylvania chemicals facility that will also supply electricity to local homes. The chemicals plant has been designed with an energy-efficient gas cracker that will also use hydrogen as a fuel source.
-Investing in low-carbon energy not ‘too far ahead of society’
The company said the transition to low-carbon energy also needs to be in line with the demand of end-users without moving "too far ahead of society."
"For example, if we invested in producing sustainable aviation fuel, and made it available on commercial terms at all the airports Shell serves today, the investment would not significantly lower our or society’s carbon emissions. Most aircraft are not yet certified to fly on 100% sustainable aviation fuel and the cost of the fuel is considerably more than traditional jet fuel, making it an uncompetitive choice for the airlines," the report said.
The company aims to increase low-carbon investments in collaboration with its partners – including aircraft manufacturers, airlines, airports, major airline users and governments – to stimulate and accelerate demand for sustainable aviation fuel.
"For example, in the road freight sector, we are working with transport companies, truck manufacturers and policymakers to identify pathways to decarbonization. In the near term, we will continue to increase production of low-carbon biofuels. And we will offer biogas and LNG for trucks to customers in Europe, China and the USA. In the longer term, we intend to increase our sales of hydrogen for transport," it explained.
By Sibel Morrow