Stuart Elliott: 30 JAN 2020

London — Shell CEO Ben van Beurden said Thursday the company was “not spending enough” on its new energies business, particularly in electricity.

Speaking to journalists following the release of Q4 earnings, van Beurden said he “desperately” wanted to grow the business more quickly, but it would remain disciplined in its spending.

Shell created its new energies division — which brings together assets in electricity supply and generation, electric vehicle charging, and other new fuels such as hydrogen and biofuels — in 2016.

So far, Shell has invested $2.3 billion in the business, excluding operating costs, despite having pledged in the past to spend more than double that amount.

“We are not spending enough on new energies, especially in power, and we want to ramp that up,” van Beurden said.

“To transform our portfolio we have to progressively spend more,” he said, pointing to the “relatively nascent” level of the business to date.

Van Beurden said spending would be in the range of $1 billion-1.5 billion in the next couple of years.

Eneco bid

Oil majors are coming under increasing pressure to switch away from a hard focus on oil and gas production to produce more low-carbon fuels.

Shell had been interested in buying Dutch sustainable energy utility Eneco last year, but was outbid by a consortium of Japan’s Mitsubishi Corp. and Japanese utility Chubu Electric Power Co. in a Eur4.1 billion ($4.5 billion) deal.

Van Beurden pointed out that if Shell had been successful in its offer for Eneco, it would have “busted” its spending budget for new energies.

“It did not come about, and we regret it,” he said. “But we have other opportunities. Our commitment to growing the business is completely unchanged.”

Shell’s new energies portfolio to date includes wind generation assets onshore the US and Dutch offshore wind, power trading capabilities, solar plant and electric vehicle charging.

Van Beurden said Shell wanted to “maintain a strong societal license to operate” and to “thrive in the energy transition”.

“The pressure is keenly felt. We want to be a force for good in changing the whole energy system to a low-carbon version. But it cannot be done by curtailing supply and demonizing 10% of supply that is publicly listed,” van Beurden said.

He said Shell and other “strong incumbents” were best-placed to help transform the energy system by working with sectors that consume energy on the path toward net-zero emissions.

LNG belief

Part of the company’s transition plan is a focus on gas and LNG, van Beurden said.

“Our LNG business with trading, marketing and optimization goes from strength to strength,” he said.

Shell’s LNG liquefaction volumes in the first quarter are set to be 9 million-9.5 million mt, the company said in its results statement, compared with 9.21 million mt in Q4.

Q4 volumes were up 5% year on year mainly as a result of additional capacity from the Prelude floating LNG facility in Australia and the Elba LNG facility in the US.

Van Beurden said Shell would prioritize more investment in LNG in the coming decade.

Asked whether Shell’s business was being impacted by the low spot LNG prices, which this week have fallen to their lowest level since May 2009, Shell CFO Jessica Uhl said the company had been able to create value despite the “very difficult” macro environment.

“We have a long-term view [on LNG],” Uhl said. “We continue to believe in the fundamentals of the industry in terms of its contribution to a lower-carbon future,” she said.

Gas, she said, is a “critical” part of the energy transition.

“We believe in the fundamentals of its role in energy, and demand and these things will work themselves out in time.”

Nord Stream 2

Van Beurden, meanwhile, also commented on the US sanctions against the Nord Stream 2 gas pipeline from Russia to Germany, given that Shell provided financing for the project.

The sanctions would penalize any company helping to lay the pipeline and mean its completion will be delayed until at least the end of 2020.

“We are not an investor in the project. We are a debt provider to the project. As a result of that, the pipeline not being completed means it will not be able to generate cash flows that were meant to service the debt,” van Beurden said.

“There will be some challenges on how that project goes forward.”

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