Oil & gas with LNG as centrepiece getting a $40 billion slice of Shell’s investment pie

UK-headquartered energy giant Shell has unveiled plans to spend around $40 billion in its Integrated Gas and Upstream businesses, as it believes that oil and gas will remain important players on the energy stage to enable global energy security in the foreseeable future. Bearing in mind the energy industry’s pivot towards low-carbon sources to accelerate the energy transition journey, the oil major intends to focus on liquefied natural gas (LNG) growth to reap the benefits of this shift while closing in on its emission reduction targets.  

Shell’s Capital Markets Day 2023 brought the announcement about investments of $40 billion being allocated to the UK player’s Integrated Gas and Upstream businesses while $10-15 billion spending from 2023 to 2025 is expected to support the development of low-carbon energy solutions, such as biofuels, hydrogen, electric vehicle charging, and carbon capture and storage (CCS).

Wael Sawan, Shell’s Chief Executive Officer, remarked: “We will provide the secure energy that the world needs by investing around $40 billion in our Integrated Gas and Upstream businesses while investing $10-15 billion in low-carbon energy solutions between 2023 and 2025, positioning us for the transition.”

According to Sawan, while the global energy mix is evolving, the demand for energy services is expected to keep on growing, thus, it will need to be assuaged with various energy sources, as there is no one-type-fits-all energy solution. However, Shell intends to focus on boosting LNG as a cleaner alternative to high-carbon energy sources such as coal.

“It is critical that the world avoids dismantling the current energy system faster than we are able to build the clean energy system of the future. Oil and gas will continue to play a crucial role in the energy system for a long time to come with demand reducing only gradually over time. Continued investment in oil and gas is critical to ensure a balanced energy transition,” highlighted Sawan.

In line with this, Shell believes that LNG is set to play “an even bigger role” in the energy system of the future than it plays today, as it can be easily transported to places where it is needed. In addition, Sawan points out that natural gas emits about 50 per cent less carbon emissions on average than coal when used to produce electricity, “making it the natural lower-carbon substitute in the near term.”

Zoë Yujnovich, Shell’s Integrated Gas and Upstream Director, underscored: “Continued investments in oil and gas will be needed to make sure that the energy transition happens in a balanced way with a secure supply of affordable and increasingly lower-carbon energy. We will contribute to this balanced transition by focusing our investments on the most profitable and carbon-competitive projects, spending about $13 billion a year of capex in our Integrated Gas and Upstream businesses through the decade.

“LNG will play a key role in a balanced energy transition, as it produces fewer greenhouse gas emissions than coal when used to generate electricity and fewer emissions than petrol or diesel when used for transport fuel. We see continued strong demand for LNG in the medium term and expect to grow our LNG term sales by 20-30 per cent by 2030.”

With around $13 billion per year expected to be spent on Integrated Gas and Upstream businesses during the decade, this adds up to a total of potentially over $100 billion in investments by the end of 2030. The oil major is of the opinion that the pace of the transition from fossil fuels to low-carbon energy depends on many things such as government policy and regulations, the affordability of energy, the development of new technologies, and changing customer demand.

Sinead Gorman, Shell’s Chief Financial Officer, explained: “We will be lowering our cash capex range to $22-25 billion for both 2024 and 2025. We expect to spend some $13 billion per annum in Integrated Gas and Upstream going forward, with both continuing to contribute significantly to cash flows for the foreseeable future, allowing us to sustain our liquids production and grow LNG sales.”

On the other hand, Yujnovich further elaborates that at the time when Shell’s Powering Progress strategy was launched, the oil major expected a gradual decline in oil production of around 1-2 per cent a year to the end of 2030. As the reduction came earlier than expected through divestments, the firm now expects to maintain its liquid production at approximately 1.4 million barrels of oil equivalent a day to the end of the decade.

“From the beginning of 2023 through 2025, we will have brought online projects with total peak production of more than 500,000 barrels of oil equivalent a day. This includes two new platforms in the Gulf of Mexico, three floating production storage and offloading vessels in Brazil, as well as the Pierce and Penguins oil and gas fields in the UK,” added Yujnovich.

As Shell does not anticipate new frontier exploration entries after 2025, it plans to focus its exploration efforts on extending the life of its heartland positions and on the Atlantic Margin. Even though the oil major is confident in its belief that hydrocarbons will be needed for a long time to come, Yujnovich says that it is also “acutely aware that these barrels will need to be increasingly lower carbon.”

Moreover, Shell intends to invest in LNG capacity where it has “a competitive advantage.” To illustrate this, Yujnovich points out that the oil major is adding 11 million tonnes per year of LNG capacity through new projects in Qatar along with an additional processing unit in Nigeria. The UK energy giant plans to invest around $2 billion every year – over the next three years – in projects that increase the supply of natural gas to its existing LNG facilities.

Based on Yujnovich’s statement, Shell is also focusing on the Prelude FLNG facility in Australia and has a multi-year plan to improve its operational performance, including a planned turnaround later in the year, which is expected to help to reduce its vulnerabilities.

Regarding Shell’s newest platform in the Gulf of Mexico, Vito, Yujnovich underscores that improvements to the original design of Vito reduced costs by more than 70 per cent from the original concept and are anticipated to curb carbon emissions by about 80 per cent over the lifetime of the facility. As a result, Vito will serve as a blueprint for other projects such as Whale.

While Shell is putting hydrogen and CCS into play to seed the growth of the energy businesses of the future, it also firmly believes that oil and gas will play “a significant role as the world transitions to a low-carbon energy system,” as underlined by Yujnovich.

In response to the plans Shell revealed during its Capital Markets Day, Global Witness, an international NGO, said that a new analysis – it had carried out – revealed the oil major’s “U-turn” could produce an average of 29 million tons of extra carbon per year, almost as much as Denmark emits annually. By 2030, the NGO estimates that Shell’s extra emissions would be as much as Spain – which it deems to be one of Europe’s largest polluters – produces in one year.

As a result, Global Witness has urged Shell to reconsider – what it sees as – the oil major’s “bombshell” decision to scrap its oil reduction targets in light of the recent IPCC’s Synthesis Report, which warned about more than a 50 per cent chance global temperature rise would reach or surpass 1.5 degrees between 2021 and 2040, which would have “a devastating impact for the planet.”

Jonathan Noronha-Gant, Global Witness, Senior Campaigner, stated: “Record profits, off the back of the energy crisis should be boosting up green investment. Instead its shareholder pay-outs and a doubling down on climate-wrecking fossil fuels. It will always be profit over people and planet for polluters. This U-turn from Shell is a climate bombshell and exposes the hollowness behind the setting of such a target.

“Shell simply cannot be trusted – with either their own meagre targets or our futures. Even by Shell’s own analysis, to stay below 1.5 C, warming growth in oil and gas production must be stopped immediately and if they can’t even listen to their own climate analysis, who will they listen to?”

Meanwhile, Shell is adamant that it is actively working on curbing emissions not only from its operations but also from the fuels and other energy products it sells to its customers in a bid to become a net-zero emissions energy business by 2050. This global climate goal was first announced in April 2020. Come October 2021, the oil major set a new target to halve its Scope 1 and 2 emissions compared to 2016 levels by 2030.

The UK player told Offshore Energy in February 2023 that it was more than halfway towards achieving its target reduction of 50 per cent by 2030 for Scope 1 and 2 emissions by the end of 2022. At the time, the firm estimated that it had reduced Scope 1 and 2 carbon emissions under operational control by 16 per cent compared with 2021, and 31 per cent compared with 2016.

Additionally, Shell aims to achieve near-zero methane emissions by 2030 and eliminate routine flaring from its Upstream operations by 2025. This means that the oil major plans to achieve this faster than the World Bank’s Zero Routine Flaring 2030 initiative.

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