Shell is hitching its long-term climate goals to hydrogen airplanes

Shell has a plan.
Shell has a plan.
Image: REUTERS/Yves Herman
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Oil major Royal Dutch Shell says it knows what the world needs to meet the Paris climate goals: hydrogen-powered airplanes by 2070, carbon capture deployed on a grand scale, and reforesting an area the size of Brazil.

Oh, and lots more oil, at least in the next few decades.

Yes, Shell will have to change the makeup of its portfolio as time goes on, company CEO Ben van Beurden told an audience of investors and analysts on Thursday (Jan. 31) at its fourth-quarter earnings event. But “it doesn’t mean we can’t sell oil and gas.”

Shell’s fourth-quarter earnings report released Thursday showed better-than-expected profits for the company in 2018. It reported $22 billion in cash flow from operations for the quarter, which was three times higher than it managed to make by the same time in 2017. And the fuel keeps flowing: Shell opened 14 new deep-water wells in the Gulf of Mexico last summer, and natural gas was pouring at a rate of 145,000 barrels per day out of its wells in the Permian basin in Texas.

Meanwhile, the vision of hydrogen planes and carbon capture was laid out in a 2018 Shell scenario-planning document published in March 2018, about what it would take for the world to achieve a zero-carbon-emissions world in the next 50 or so years, in time to meet the Paris goal of staying well below 2°C of warming over pre-industrial global average temperatures. Shell calls the plan “Sky.”

In this vision, the world is at net-zero carbon emissions by 2070. To get there, electricity is going to have to replace other, more carbon-emitting energy sources like oil and gas for transportation, heating, and industrial processes. Nuclear and hydrogen fuel-cell technology must rapidly develop to become major sources of energy in the next 50 years. Carbon capture and sequestration technology—taking the carbon dioxide generated from burning fossil fuels and injecting it into the ground instead of emitting it into the atmosphere—must mature as an industry so that it is used globally—we’re talking 10,000 new carbon capture facilities built in 50 years. “If you want to have a net-zero energy system, society will have to find offsets for [fossil-fuel use],” van Beurden said Thursday.

The vision “leaves no margin for interruption, stalled technologies, delayed deployment, policy indecision, or national back-tracking,” Shell wrote in the Sky document. Like Vox pointed out when the plan was released, that’s ambitious as hell.

But, Shell’s business is fossil fuels, and so it’s no surprise that in its plan, oil and gas consumption doesn’t decline much for several decades; in Shell’s vision, it rises and plateaus through 2040, before eventually declining to right around where it is today, and eventually drawing down for real around 2060.

That means no real disruption to oil and gas companies’ revenue streams until they have plenty of time to smoothly transition to other sources of income. And by then, van Beurden said Thursday, Shell will be all-in: “I have confidence that Paris will be delivered. And it has to be delivered through business, and I intend to fully benefit through that.”

Shell is already inching its way towards those goals, at a relatively leisurely pace of $1 to $2 billion worth of investments in “green” technology a year. The $1 billion Shell invests to support its “Sky” vision is about 4.7% of its 2018 reported profits of $21.4 billion. Exxon also spends about $1 billion per year. According to Reuters, the only oil major to beat Shell at green spending is Norway national oil company Equinor, which plans to spend 15-20% of its budget on renewables by 2030.

Shell’s investments are noteworthy. For example, just this month, it bought Greenlots, an electric-vehicle-software company that puts Shell in the EV-charging business. Last year, Shell bought leases for wind-farm plots off of Massachusetts.

Yes, Shell will put money towards green energy (“I think it’s the only thing that will keep us relevant throughout this energy transition,” van Beurden said) but it will do so tepidly. Of course, to invest more radically in green technology, Shell has to have the cash to spend—and the willingness to hold back more cash from its investors. Low oil prices over the last few years has made profit margins slimmer across the oil industry, which means spending big money on green tech would be more of a deep cut, rather than a tolerable skim. Still, it’s a choice.

Indeed, at its current modest rate of investment, Shell isn’t about to be weatherproofed against a loss of oil demand if governments decide to dramatically shift away from fossil fuels to prevent a climate emergency sooner than Shell’s own scenario suggests

As Reuters energy policy editor George Hay points out, “Shell investors will just have to cross their fingers and hope that peak demand is a long way away.”