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Shell’s plan for net-zero transition keeps focus on fuel

22 February 2021 Cristina Brooks

Shell, as one of the largest integrated oil and natural gas companies, published its net-zero plan on 11 February, under which it promised to pursue biofuel, hydrogen, and carbon capture growth, potentially expanding its lower carbon fuel operations.

The plan bears one key difference from the transition plan of its big rival BP, published six months earlier, in that it spares Shell's production of fossil fuels by not setting targets for upstream production cuts. For example, it does not pledge cuts in the production of natural gas, mooted as a lower carbon fuel for ships and a potential source of blue hydrogen. As Shell CEO Ben Van Beurden said in a recent earnings call: "We think natural gas is an important fuel for the future."

Shell lays out a more ambitious target for carbon capture than BP. Shell's transition plan targets growing its carbon, capture and storage (CCS) capacity access to 25 million metric tons (MMt) a year, a five-fold increase from its current participation in about 4.5 MMt/year of projects. Shell participates in the operational Quest project in Canada, the forthcoming Northern Lights project in Norway, and the planned Porthos project in the Netherlands. Projects like these not only let Shell sequester its own emissions, but they already let it offer CCS as a service.

Shell is also experimenting with the kinds of fuel and chemical products it produces. The Anglo-Dutch giant pledged to cut production of what it termed "traditional fuels" by 55%. And the company will slash its refinery numbers from 13 sites to six "Chemicals and Energy Parks." Shell also said it would produce circular chemicals, or chemicals sourced from recycled waste, processing 1 MMt per year of plastic waste by 2025.

Like BP's transition plan, however, Shell's plan made hydrogen commitments. Shell plans to supply hydrogen as a fuel for trucks and industry, targeting a double-digit percentage share of global hydrogen sales.

BP pledged to grow its hydrogen business to a 10% share of core markets. BP has agreed a strategic cooperation deal with the Russian oil and gas producer Rosneft, in which it has a 19.75% ownership stake, to work on decarbonizing projects like hydrogen, CCS, and forest offsets.

Another thing BP and Shell share is their emphasis on biofuels. BP aims to raise its production from 22,000 barrels per day (b/d) currently to more than 100,000 b/d (on an ethanol-equivalent basis) by 2030. Shell didn't set a figure for its biofuels goal, but promised to grow production via its Brazilian joint venture, which produces 35,000 b/d of ethanol from sugarcane, and it hopes may account for 3% of global production by 2050.

In the power market, while Shell does own renewable generation, its transition plan omits any generation capacity target. On the other hand, BP is targeting around 50 gigawatts (GW) by 2030.

But Shell did set a goal for its electricity business, which also buys and sells renewable energy. Its transition strategy sees it selling twice as much electricity to retail and business customers worldwide. This aligns with its current operations in Europe, including supplying online retailer Amazon with energy via a power purchase agreement with its Dutch offshore wind joint venture, the Crosswind Consortium.

Shell's electricity segment focus was also hinted at in comments by van Beurden that the company's future customers will be "motorists, households, or businesses." Shell's transition plan pledged to expand its global electric vehicle (EV) network from more than 60,000 charging points today to around 500,000 by 2025. It has an existing network of 44,000 retail service stations in 75 countries. Shell previously made strides in the EV segment when acquiring Berlin-based EV charging station supplier Ubitricity in January 2021.

So far, BP has been slower out of the gate to install EV charging points, having set a goal to increase its total from a lower starting point of 7,500 to over 70,000 by 2030.

Oil and gas production

BP pledged to slash its upstream oil and gas production by 35-40% by 2030 and to stop exploring in new countries.

Shell held off from committing to similar oil and gas production cuts. Instead, the company said it would allow production to gradually fall by 1-2% annually as a result of "divestments and natural decline." Shell is a the second-largest major globally, according to an IHS Markit company profile, and conventional oil and gas production is among its highest cash-generating segments.

Its transition plan does, however, note its production of oil peaked in 2019, when the company produced nearly 1.7 million barrels of liquids per day. This is part and parcel with Shell's stated aim to offset its emissions by using nature-based projects.

All these commitments from Shell come after a tough year, when it and other energy companies struggled due to low oil prices. Shell plans to reduce its debt from $75 billion at the end of 2020 to $65 billion, including through divestments averaging $4 billion a year "in the near term." BP seems slightly more ready to shed assets, targeting $25 billion of divestment proceeds between the second half of 2020 and 2025.

Targets

One thing to keep in mind in comparing companies' announcements is that net-zero targets can mean different things for different companies. "Carbon intensity" can be defined as the amount of emissions of carbon for one "unit of economic output," which could be defined in many ways, for example as a financial or personnel unit.

Carbon intensity targets, however, don't guarantee reductions in carbon emissions. The target can be still met while increasing amounts of greenhouse gases (GHGs) are emitted, as long as the units of economic output also increase, and then increase some more. Shell says it will reduce its net carbon intensity by 20%, compared with BP's pledge to reduce the carbon intensity of products it sells by 15%.

Absolute emissions targets, which aim to reduce the amount of GHGs emitted, are harder to achieve, at least for a company planning to expand production. BP has since February 2020 published its net-zero absolute emissions goals for oil and gas production and overall operations, but Shell has yet to make an absolute emissions pledge.

According to a June 2020 paper by carbon benchmarking group Transition Pathway Initiative (TPI), BP and Shell are among five large private oil companies in Europe (six including Norwegian state-backed Equinor) that have set Scope 3 targets, the most difficult category to decarbonize, under the Greenhouse Gas Protocol. Companies can pledge to bring their own direct emissions down to net zero (Scope 1), and then those of their supply chains (Scope 2), and, ultimately, to the end use of their products (Scope 3).

For its part, BP has included its "upstream oil and gas production," excluding its interest in Rosneft, in its net-zero Scope 3 promise on its website. Shell has followed with its own Scope 3 promise on its website, albeit one which is focused on the products it sells.

Posted 22 February 2021 by Cristina Brooks, Senior Journalist, Climate & Sustainability, IHS Markit

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