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Oil supermajors’ trajectory towards renewables needs to scale up and speed up

July 01, 2020
Clark Butler
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Key Findings

Neither Shell nor Total is on track to meet their decarbonisation targets.

While Shell and Total are shifting towards renewables, around 90% of their capital continues to be spent on fossil fuels

It is difficult to see how either company will achieve the massive transformation in carbon intensity they aim for without a fundamental shift away from oil and gas investment, by significant capital investment reductions and/or divestment of currently core business assets.

Executive Summary

Neither Shell nor Total is on track to meet their decarbonisation targets.

While Shell and Total are shifting towards renewables, around 90% of their capital continues to be spent on fossil fuels. Total’s announcement last week of US$15 billion of debt financing dwarves its investment this year in zero carbon energy. An analysis of the capital spending and asset portfolios of the two oil and gas supermajors shows that they are likely to fall short on their near-term renewables and carbon reduction targets and will need a major shift in strategies and capital spending plans to achieve their ambitious longer-term climate goals. At the very least Total and Shell need to direct more than half of their capital investment each year to zero carbon investment if they are to reduce their carbon intensity in line with their own stated targets.

Among the supermajors, Shell, Total and BP have new ambitious goals to be net zero carbon emitters by 2050. This report analyses Shell’s and Total’s strategies, their recent progress, and reviews the credibility of their newly elevated plans. We will review BP in a follow-on briefing note.

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Percentage Invested in Renewables by Shell and Total

Shell and Total are both investing significant amounts of capital in a range of zeroand low-carbon activities.

Total, in particular, is rapidly becoming a major player in the renewable energy sector, with plans for over 10 gigawatts (GW) of solar and wind assets by 2023.

Shell has made a large number of investments in a broad range of technologies from acquiring residential battery supplier Sonnen to electric vehicle (EV) charging networks. However, compared with its continuing investment in upstream and downstream oil and gas assets, this investment is small.

It is difficult to see how either company will achieve the massive transformation in carbon intensity they aim for without a fundamental shift away from oil and gas investment, by significant capital investment reductions and/or divestment of currently core business assets.

With scope 3 emissions larger than a mid-sized developed country (Shell’s emissions exceed Australia’s), net zero cannot be achieved without materially reducing investment in oil and gas and growing zero or low-carbon products faster in absolute terms than fossil fuels. Liquefied natural gas (LNG) will not solve their problems, though green hydrogen should help. The companies continue to stress the importance of carbon capture and storage (CCS) and natural carbon sinks even though these strategies offer marginal assistance at best.

To make the kind of business change required to deliver on their admirable net zero objectives, Shell and Total will need expertise and momentum they currently do not have. Restructuring their businesses to report renewables separately (as Shell has indicated it will do) and including in their board and executive ranks people with renewable energy and transformation experience is a critical first step. Total and Shell are on the right path, but they must make a step change in their capability and speed of delivery if they are to succeed and avoid yet more asset write-downs.

Press release: Despite the talk, Shell and Total are still investing much more in fossil fuels than renewables

Please view full report PDF for references and sources.

Clark Butler

Clark Butler is an IEEFA guest contributor, and a corporate adviser with a background in the technology and finance sectors. In additional to being a director of and investor in technology and data companies, he is exploring technology and financing solutions to encourage investment in renewable energy solutions.

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