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Shell CEO Ben van Beurden insists he doesn’t run an oil company any more

Is what’s happening now a disorderly energy transition, which you’ve said is one of your biggest fears?

What’s happening now is disorderly, but it’s not a transition. We’re seeing that if you want to somehow cut out 25% energy use or hydrocarbon-based energy use, you need draconian measures to get to that reduction. You need to lock down people. You need to shut down the economy. It shows the magnitude of the challenge, how complicated it is, and what the consequences would be if you really wanted to have a very simplistic approach to getting rid of oil and gas.

Does the pandemic change when the world reaches peak demand for oil?

I do think we will come out of this as a different society, maybe a radically different society. Attitudes will be different. Demand patterns may be different. We may see lower-for-longer demand. On the other hand, all the techno-economic challenges of the energy transition are still there. We still have to figure out how we’re going to use so much more electricity compared to today. Things will be different.

The 2015 acquisition of BG happened when the outlook for liquefied natural gas was very bullish. It’s not so bullish now. How do you see the future playing out?

We still very much believe that with the current supply-demand outlook, this is a fundamentally strong sector that will grow at a rate close to 4% per year. It’s the fastest-growing sector in the hydrocarbon space. And we’re the ones best positioned to take advantage. We will obviously flex our investment program to be aligned with where we believe the sector will go, but the profitability of the business and the outlook of this business is going to be as good as what you saw before the pandemic.

With a drastic cut in dividends, aren’t you risking alienating investors?

I would imagine the companies or investors who look at us merely as a dividend machine will consider us now less valuable. But then there’s another group that looks at the underlying intrinsic value of the company. There will be some investors who decide they don’t need to go elsewhere and some who will find it very interesting.

Is the dividend cut resetting expectations of lower returns in a green transition?

That is obviously not the reason why you would do that. We had to reduce the shareholder returns because we didn’t have the money to make these returns under the current circumstances. That doesn’t mean we can now invest in lower-return businesses. This energy transition requires a different type of investment and a different type of company. It’s not going to happen if there are no returns to be made.

But with oil at such low prices, how will you fund the transition to clean energy?

I would like to think that oil and gas prices, chemical and marketing margins will not stay at depressed levels. If they do, then we have a permanently changed world, and you have to then reinvent the company much more structurally than what we’re currently doing. At the moment, we’re taking countermeasures; we’re not reinventing the company. If there are less attractive investments available in oil and gas, then obviously the capital will be allocated elsewhere in favor of sectors that do bring good returns.

Are returns on renewables now becoming comparable to those on oil and gas?

By the time you make an investment decision in oil and gas assets, you’ve already spent a lot more money on the development of that asset. If you want to make a comparison between projects in the power sector, or even in the chemical sector and the resource extraction sector, you have to look at the return of the entire portfolio. If you do that, there isn’t that much difference. We expect to make 8% to 12% return in the power sector in which we’re building wind parks and solar parks. And 8% to 12% currently we don’t even make in our upstream business.


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