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CERAWeek: Helping customers get to net zero an opportunity: Shell CEO

03 March 2021 Bernadette Lee

Adopting a policy of helping customers get to net zero can help companies derive significant value as the world shifts to a different energy system, Shell chief executive Ben van Beurden told attendees of CERAWeek by IHS Markit.

Speaking on the "New Strategies for the New Era" panel, van Beurden said net zero is both a societal imperative and, arguably, a moral imperative.

For companies, it also presents "amazing" business opportunities, he said. Unless companies adopt a policy of helping their customers get to net zero, "they are basically stuck with the monologue: 'We will provide the commodity, oil and gas, or commodity energy in general,'" he told the virtual audience on 1 March.

"Society is very clear, obviously," about meeting the goals of the Paris Agreement, and it "realizes it has to achieve net-zero by 2050 or 2060. Being a European company operating in a wide range of countries, we have decided that we need to be therefore at net-zero emissions as well. The other thing, of course, is there is a business opportunity here," he said.

Shell's net-zero strategy

Shell recently released a detailed strategy on achieving net-zero carbon emissions, called "Our climate target."

"It's a 100%-reduction in our global carbon footprint, which is 1.7 gigatons, and it needs to come down to zero. Of course, we have interim milestones [such as] a 45% reduction by 2035 and [near-term] milestones like this year, next year, and the year after. These near-term milestones are [linked] to a very significant part of a long-term incentive program," he said.

While it is clear to the company it needs to significantly change its product footprint, the business strategy underpinning the plan is challenging, van Beurden said.

Shell is in the process of laying out all the actions and decisions that the company plans to take in the following three decades. "You cannot get to zero by just taking the carbon out of making hydrocarbons. We are going to very significantly increase demand for low-carbon fuels in the energy mix, and we are going to very significantly increase the amount of electricity we sell," van Beurden said.

"We are going to very significantly play the game in providing electricity for mobility for two-and-a-half million [electric vehicle] charging points by the end of the decade. We are going to be a major player in biofuels and a large player in nature-based solutions, and we are going to be a material player in carbon capture and storage." One message Shell is delivering to its customers is that decarbonization can be profitable for them as well, van Beurden said.

"When I talk about opportunities, there is more money to be made in working with our customers on their problem sets than just generating a new type of commodity which is a green commodity. That's where I think the strength of the company, is by paying close [attention] to customers," he said.

Gas and renewables

Daniel Yergin, vice chairman at IHS Markit, who moderated the session, asked van Beurden whether growing the gas business remains part of Shell's plan and whether it is looking into renewables such as wind and solar. "No, when it comes to renewables, it is broader of course. It is basically electricity […] we really don't mind too much where it comes from. It is electricity, it is hydrogen, it is biofuels. Again, these are going to be the areas where we see most of the growth in the product mix that we will sell," van Beurden said.

"The fact that we believe our oil production has peaked [in 2019] is not because we believe it has peaked in the world," he said.

For Shell, the decision has been to invest more of its capital in non-oil energy. "Basically, ... you have to make choices," he said. The net effect will be a more concentrated portfolio of oil-producing assets in its best prospects, he said.

"But we do believe that we can still continue to invest in gas because gas will continue at least a decade longer than oil and will decline much slower than oil will decline simply because of its application, but that is not a strategy per se, it's an outcome of the strategy," he said.

Partners and solution providers

Scott Kirby, chief executive of United Airlines, who sat on the same panel, described the net-zero topic as a "defining issue for this generation to solve" and one that is "deeply personal" to him.

"It's been said it's just the right thing to do. For the most part, it is as simple as that for us. I also think that for people in leadership like us, [we need] to talk honestly about the real scale and scope of the problem.… Our children and grandchildren are going to judge us based on how we do in solving the problem," he said.

But Kirby was also quick to point out the tendency for people to discuss such topics with the intention of getting their name in the media rather than finding real solutions.

"What is unique about this moment is that companies … that are our partners … are either a producer of hydrocarbons or consumers of hydrocarbons and they are focused on solving climate change. They have to be a partner and solution provider," he said.

Sequestration

United Airlines sees sustainable fuels as an important part of the solution for carbon emissions, but it has encountered challenges when using hydrogen power for its short-haul, small aircraft service.

Hydrogen lacks the energy density to be appropriate for bigger airplanes, he said. "There is not anything even on the drawing board. It's going to alter jet rules. That means a combination of sustainable fuels, and I think it is important that we source [a] feedstock of sustainable fuel that is not taking arable land, which can otherwise be used for food production service," he explained.

"So, we focus on sources of feedstock that are not otherwise harmful to the environment," he said.

United Airlines uses a combination of solid waste and cooking oil for its biofuel feedstock in addition to industrial gases, according to Kirby. The company is also exploring the use of algae because it is a scalable feedstock. "Algae is tough, the science exists, but getting it to be economic, and work, is really difficult. I don't think there is an answer yet," he admitted.

With finding sufficient resources to make enough biofuels a challenge, United Airlines believes that hydrocarbon fuels will still be part of the aviation mix. And that expectation brings it to offsets of carbon as part of its package of answers. "[This] is why we are saying, we are going to be 100% green, for every net carbon molecule that comes out of the back, we're going to put one in the ground," he said. "That's how we get to [carbon] sequestration ... Perhaps it is the most important point that we need to get through to them. Policymakers and others need to solve this problem."

Cooperation

Cooperation and a comprehensive approach are needed, Shell's van Beurden concluded.

"The airlines, fuel suppliers, airports, engine manufacturers, and regulators [need] to come together to figure this out," he said. "For now, the only available solution at scale in the near term is basically to have drop-in biofuels made from sustainable sources."

"We have the technologies available to deploy here, [but] they are not commercially viable, without any support at this point in time … but I do believe we can bring that solution to scale if there is a sector that deals with the issues of competition, carbon leakage, and everything else that would otherwise disrupt how companies like [United Airlines] and Shell could try to make this work."

But urgency is part of the equation as well. "Only over time do I believe you can get to truly zero carbon fuels like fuels produced from direct air capture, green hydrogen, or hydrogen as such or electrical, but I think it is going to be a few decades out. We have to act now. We do not have the luxury to rack up a few decades worth of emissions before the end solution presents itself," he warned.

Posted 03 March 2021 by Bernadette Lee, Principal Journalist, Climate and Sustainability, OPIS, IHS Markit

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