Shell plc (LON:SHEL) has published its first energy transition update since the launch of its Powering Progress strategy in 2021. At our Capital Markets Day in June 2023, we outlined how our strategy delivers more value with less emissions, emphasising the “more value” part. In this energy transition update, we are focusing on how the same strategy delivers “less emissions”.
- Shell will continue its drive to halve emissions from its operations (Scope 1 and 2) by 2030, compared with 2016 on a net basis. By the end of 2023, Shell had achieved more than 60% of this target. Shell also reduced the net carbon intensity of the energy products it sells by 6.3% compared with 2016, the third consecutive year it hit its target.
- To help drive the decarbonisation of the transport sector, Shell has set a new ambition to reduce customer emissions from the use of its oil products by 15-20% by 2030 compared with 2021 (Scope 3, Category 11). [A]
- Shell confirms it will invest $10-15 billion between 2023 and the end of 2025 in low-carbon energy solutions, making Shell a significant investor in the energy transition.
Our target to achieve net-zero emissions by 2050 across all our operations and energy products is transforming our business. We believe this target supports the more ambitious goal of the Paris Agreement to limit global warming to 1.5°C above pre-industrial levels. Shell’s strategy supports a balanced and orderly transition away from fossil fuels to low-carbon energy solutions to maintain secure and affordable energy supplies.
“Energy has made an incredible contribution to human development, allowing many people around the world to live more prosperous lives. Today, the world must meet growing demand for energy while tackling the urgent challenge of climate change. I am encouraged by the rapid progress in the energy transition in recent years in many countries and technologies, which reinforces my deep conviction in the direction of our strategy,” said Wael Sawan, Shell’s Chief Executive Officer.
“Shell has a very important role to play in providing the energy the world needs today, and in helping to build the low-carbon energy system of the future. Our focus on performance, discipline and simplification is driving clear choices about where we can have the greatest impact through the energy transition and create the most value for our investors and customers. We believe this focus makes it more, not less, likely that we will achieve our climate targets. By providing the different kinds of energy the world needs, we believe we are the investment case and the partner of choice through the energy transition,” said Sawan.
Our energy transition plans cover all our businesses. Liquefied natural gas (LNG) is a critical fuel in the energy transition, and we are growing our world-leading LNG business with lower carbon intensity. We are cutting emissions from oil and gas production while keeping oil production stable, and growing sales of low-carbon energy solutions while gradually reducing sales of oil products such as petrol, diesel and jet fuel. As one of the world’s largest energy traders, we can connect the supply of low-carbon energy to demand, as we have done for many years with oil and gas.
We have made good progress against our climate targets:
- By the end of 2023, we had achieved more than 60% of our target to halve emissions from our operations by 2030, compared with 2016. This goes above and beyond the targets set by signatories to the Oil and Gas Decarbonization Charter agreed at COP28.
- We continue to be an industry leader in reducing methane emissions. We were one of the first companies to set a target to achieve near-zero methane emissions by 2030. In 2023, we achieved 0.05% methane emissions intensity – significantly below our target of 0.2%. And in 2023 we also contributed to the World Bank’s Global Flaring and Methane Reduction Fund – further supporting industry-wide action to drive down methane emissions and flaring.
- In 2023, we achieved our target to reduce the net carbon intensity of the energy products we sell, with a 6.3% reduction compared with 2016 – the third consecutive year we hit our target.
As Shell transforms into a net-zero emissions energy business, we aim to take the lead in the energy transition where we have competitive strengths, see strong customer demand, and identify clear regulatory support from governments. To help drive the decarbonisation of the transport sector, we have set a new ambition to reduce customer emissions from the use of our oil products by 15-20% by 2030 compared with 2021 (Scope 3, Category 11).[A]
Our focus on where we can add the most value has led to a strategic shift in our integrated power business. We plan to build our power business, including renewable power, in places including Australia, Europe, India and the USA, and have withdrawn from the supply of energy directly to homes in Europe.
In line with this shift to prioritising value over volume in power, we will focus on select markets and segments. This includes selling more power to commercial customers, and less to retail customers. Given this focus on value, we expect lower total growth of power sales to 2030, which has led to an update to our net carbon intensity target. We are now targeting a 15-20% reduction by 2030 in the net carbon intensity of the energy products we sell, compared with 2016, against our previous target of 20%.
We will continue to transparently report our progress against our targets and ambitions every year.
Driving towards a net-zero future
We are investing $10-15 billion between 2023 and the end of 2025 in low-carbon energy solutions, making us a significant investor in the energy transition. And in 2023, we invested $5.6 billion on low-carbon solutions, more than 23% of our total capital spending.
These investments include electric vehicle charging, biofuels, renewable power, hydrogen and carbon capture and storage. Our investments in new technologies are helping to reduce emissions for Shell and our customers. We aim to help scale new technologies to make them an affordable choice for our customers and are focusing our advocacy on key areas which we believe are critical to the energy transition: policies that support national net-zero ambitions including carbon pricing, supplying the secure energy the world needs, driving changes in demand and growing low-carbon solutions.
[A] Customer emissions from the use of our oil products (Scope 3, Category 11) were 517 million tonnes carbon dioxide equivalent (CO2e) in 2023 and 569 million tonnes CO2e in 2021.
Chair’s message
This energy transition update marks an important moment for Shell. It comes three years after we launched our Powering Progress strategy, and builds on our Capital Markets Day in June 2023 when we set out our plans to create more value with less emissions.
Our target to become a net-zero emissions energy business by 2050 remains at the heart of our strategy and is transforming our operations and energy products. We believe this target supports the more ambitious goal of the Paris Agreement, to limit the rise in the global average temperature to 1.5°C above pre-industrial levels.
As we work towards net zero, we are reducing emissions from our operations and energy products while becoming an increasingly successful organisation. Our energy transition plans cover all our businesses: Integrated Gas, Upstream and Downstream, Renewables and Energy Solutions. In this publication, we set out pathways to net zero for our two biggest customer sectors – transport and industry – based on where we believe we have the competitive advantages to provide our customers with the products they need through the transition.
Helping reduce emissions for our customers
We want to lead in the decarbonisation of transport using the strength of our brand, deep customer relationships and global reach. We aim to grow our public charging network for electric vehicles, and remain one of the world’s largest blenders and distributors of biofuels [A]. As the energy transition progresses, we expect to sell more low-carbon products and solutions, and less oil products including petrol and diesel.
To measure our progress, we have set a new ambition to reduce customer emissions from the use of our oil products by 15-20% by 2030 compared with 2021 (Scope 3, Category 11) [B].
- Includes volumes from our joint venture Raízen
- Customer emissions from the use of our oil products (Scope 3, Category 11) were 517 million tonnes carbon dioxide equivalent (CO2e) in 2023 and 569 million tonnes CO2e in 2021.
The world needs a balanced and orderly transition away from fossil fuels to maintain secure energy supplies, while accelerating the transition to affordable low-carbon solutions. We are growing our world-leading liquefied natural gas (LNG) business so that we can continue to provide a critical fuel in the energy transition. Our investments in carbon capture and storage, hydrogen and renewable energy will help us produce LNG with lower carbon intensity in the future.
Through our world-class trading business, we can connect the supply of low-carbon energy to demand, as we have done for many years with oil, gas and LNG.
As we work towards net zero, we are making clear choices about where we can add most value for our investors and customers. We expect renewable power will be critical for helping our commercial customers decarbonise, and plan to build our integrated power business in places including Australia, Europe, India and the USA. We have withdrawn from the supply of energy directly to homes in Europe because we do not believe we have a competitive position there.
Technologies of the future
We are increasing our investments in research and development, and investing in the fuels of the future. We aim to scale up new technologies to create affordable options for our customers into the 2030s. We are building Holland Hydrogen 1, one of the largest renewable hydrogen plants in Europe, close to our Energy and Chemicals Park Rotterdam in the Netherlands. We are also investing in carbon capture and storage technology to reduce emissions from our own operations such as refineries and LNG plants, and, in the longer term, to help our industrial customers reduce their emissions too.
I saw first-hand the potential of some of the exciting new technologies we are developing when I visited Oman in January 2024. We are part of a group exploring a project to produce green ammonia and liquefied synthetic gas from renewable hydrogen. These technologies are still in the early stages, but they could help to decarbonise industry and commercial road transport in the future.
More value with less emissions
At our Capital Markets Day, we said we would deliver more value with less emissions. We have made good progress in our first year under our new Chief Executive Officer Wael Sawan. In 2023, we returned 42% of our cash flow from operations to our shareholders, the upper end of our 30-40% range through the cycle. We also reduced carbon emissions from our operations by 31% compared with 2016 levels, putting us well on the way towards our target of a 50% reduction by 2030 on a net basis. We achieved our short-term target to reduce the net carbon intensity of the energy products we sell, with a 6.3% reduction against our target of 6-8% compared with 2016.
Transparency and shareholder support
In 2021, 89% of our shareholders voted in support of our Energy Transition Strategy. Since then, we have published two progress reports, which our shareholders have also supported. Along with other Board members, I met with many of Shell’s largest institutional shareholders following those votes. I appreciate their time and feedback and look forward to our next engagement in April 2024.
The publication of our Energy Transition Strategy brings increased transparency, and better dialogue with our institutional investors. We heard that following Capital Markets Day, for example, some wanted us to be clearer about how we will deliver both more value and less emissions, and we are showing exactly that in this update.
This year, we are again asking our shareholders to vote at our Annual General Meeting on our Energy Transition Strategy. As before, this vote is purely advisory, and not binding for our shareholders. The legal responsibility for approving or objecting to Shell’s strategy lies with the Board and Executive Committee.
We believe our strategy will transform Shell into a net-zero emissions energy business, creating value for our shareholders, customers and wider society. We will offer shareholders an advisory vote at the 2024 Annual General Meeting based on the energy transition plans described in this publication and our Annual Report and Accounts 2023. The Board recommends that shareholders vote in favour of the Resolution asking them to support those plans.
Sir Andrew Mackenzie
Chair
Chief Executive Officer’s introduction
This is our first update to the Energy Transition Strategy that we published in 2021. It is an opportunity to take stock of our progress, to reflect on what we have learned, and to look forward as we transform Shell into a net-zero emissions energy business by 2050.
Over the past three years we have seen the critical importance of secure and affordable energy for economies and people’s lives. As the world’s population grows by an estimated 2 billion people by 2050, and the benefits of energy are extended to the hundreds of millions who do not have it today, demand for energy will only grow.
At the same time, the world must achieve an orderly transition away from fossil fuels to low-carbon energy to achieve net-zero emissions. Today, fossil fuels meet around 80% of global energy demand, with an even greater reliance in many developing countries. We support a balanced energy transition, one that maintains secure and affordable energy supplies as the world moves to net zero.
I am encouraged by the rapid progress in the energy transition in many countries and technologies in recent years, including the continued growth in demand for liquefied natural gas (LNG), a critical fuel in the energy transition, and for low-carbon energy solutions such as solar and wind power, and electric vehicles. This progress reinforces my deep conviction in the direction of our strategy.
Shell has an important role to play in providing the energy the world needs today, and in helping to build the low-carbon energy system of the future. There are exciting opportunities to use the strength of our innovation capabilities in the areas where we can have the greatest impact. Our purpose – to provide more and cleaner energy solutions – sets the direction for everything we do.
Progress towards our targets
Since we launched our Powering Progress strategy, we have made good progress against our climate targets, and learned where we have competitive strengths. By the end of 2023, we had achieved more than 60% of our target to halve emissions from our operations by 2030, compared with 2016. We achieved this by adapting our portfolio, including by repurposing refineries, and making changes to our operations such as powering some oil and gas platforms with renewable energy.
We continue to be one of the leaders in reducing emissions of methane, a potent greenhouse gas that can be released during oil, gas and LNG production. We were one of the first companies to set a target to achieve near-zero methane emissions by 2030. In 2023, we continued to keep our methane emissions intensity well below 0.2%. We made good progress towards our target to eliminate routine flaring from our upstream operations, compared with 2016 [A]. We also met our short-term target to reduce the net carbon intensity of the energy products we sell, with a 6.3% reduction against our target of 6-8% compared with 2016.
More value, less emissions
At our Capital Markets Day in June 2023, we outlined how our Powering Progress strategy delivers more value with less emissions, emphasising the “more value” part of our strategy. In this energy transition update, we are focusing on how the same strategy delivers “less emissions”.
Our energy transition plans cover all our businesses. In Integrated Gas, we are growing our world-leading LNG business with lower carbon intensity. In Upstream, we are reducing emissions from oil and gas production. In Downstream and Renewables and Energy Solutions, we are growing sales of low-carbon products and solutions such as biofuels, electric vehicle charging and renewable power, while investing in hydrogen and other fuels of the future.
Our focus on performance, discipline and simplification is driving clear choices about where we can create the most value for our investors and customers through the energy transition. Our ability to raise and invest capital depends on delivering strong returns to shareholders, shaping the role that Shell can play on the journey to net zero. We believe this focus makes it more, not less, likely that we will achieve our climate targets and ambitions.
Reducing emissions from production
We believe the world will continue to need oil and gas for many years — produced with much lower emissions — alongside cleaner energy such as advanced biofuels, renewable power and hydrogen.
We expect LNG will play a critical role in the transition. It continues to provide a secure supply of energy in many European countries. It also offers flexibility to electricity grids as wind and solar power grow, and opportunities to lower carbon emissions from industries such as cement and steel by replacing coal.
In the future, by powering our LNG plants with renewable electricity, and adding carbon capture and storage, we aim to lower the carbon intensity of our LNG plants. Our LNG joint venture in Canada (Shell interest 40%), for example, the largest private-sector investment in the country’s history, will use natural gas and renewable electricity to reduce emissions from the plant by more than one-third compared with the world’s best performing facilities.
The Vito platform in the Gulf of Mexico (Shell interest 63.1%) is reducing emissions from oil and gas production. The platform started production in 2023 and is expected to produce around 80% less carbon dioxide emissions over its
operating life, compared with the original design. We are using the same concept for two more platforms in the Gulf of Mexico, Whale (Shell interest 60%) and Sparta (Shell interest 51%).
Supporting our customers as they decarbonise
We aim to lead in the energy transition where we have competitive strengths, see strong customer demand, and identify clear regulatory support from governments. The transport sector is a good example.
We are building on our customer relationships and expertise to help drive the decarbonisation of passenger cars, heavy-duty trucks, planes and ships. We aim to grow our public charging network for electric vehicles, and stay a leader in biofuels including sustainable aviation fuels or renewable diesel made from waste. By repurposing our remaining integrated refineries to focus on four regional energy and chemicals parks, we are creating the low-carbon production hubs of the future.
As we grow sales of low-carbon fuels we expect to reduce sales of oil products such as petrol and diesel. We have set a new ambition to measure our progress, to reduce customer emissions from the use of our oil products by 15-20% by 2030 compared with 2021 (Scope 3, Category 11) [B]. Our ambition is in line with the European Union’s climate goals for transport, which are among the most progressive in the world.
Our focus on value has led to a strategic shift in our power business towards select markets and segments. One example is selling more power to commercial customers, including renewable power, and less to retail customers. As a result, we expect lower growth in sales of power overall. We have updated our net carbon intensity target to reflect that change, with a 15-20% reduction by 2030, compared with 2016, against 20% previously.
Towards net zero
In total, we invested $5.6 billion in low-carbon solutions in 2023, which was 23% of our capital spending. We are spending $10-15 billion on low-carbon solutions between 2023 and 2025, making us a significant investor in the energy transition. With our focused approach, we believe our investments will have an important impact, allowing us to develop low-carbon solutions at increasingly affordable prices for our customers.
Shell will provide the different kinds of energy the world needs. We will invest in producing LNG with lower carbon intensity, in reducing emissions from oil and gas production, and in providing cleaner energy solutions. As we transform Shell into a net-zero emissions energy business, we believe we are the investment case and the partner of choice through the energy transition.
Wael Sawan
Chief Executive Officer
A. Subject to the completion of the sale of Shell Petroleum Development Company of Nigeria Limited (SPDC
B. Customer emissions from the use of our oil products (Scope 3, Category 11) were 517 million tonnes carbon dioxide equivalent (CO2e) in 2023 and 569 million tonnes CO2e in 2021.
