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* Shell to focus less on boosting renewable power output
* Trading and boosting customer base at heart of strategy
* GRAPHIC-Shell's low carbon spending: https://tmsnrt.rs/3t6Ls4r
By Ron Bousso
LONDON, Feb 1 (Reuters) - Royal Dutch Shell is
betting on its expertise in power trading and rapid growth in
hydrogen and biofuels markets as it shifts away from oil, rather
than joining rivals in a scramble for renewable power assets,
company sources said.
Shell and its European rivals are seeking new business
models to reduce their dependency on fossil fuels and appeal to
investors concerned about the long-term outlook for an industry
under intense pressure to slash greenhouse gas emissions.
Shell will present its strategy on Feb. 11 and unlike Total
and BP the company will focus more on becoming
an intermediary between clean power producers and customers than
investing billions in renewable projects, the sources said,
giving previously unreported details of the plan.
Shell announced in October it would increase its spending on
low-carbon energy to 25% of overall capital expenditure by 2025
and the sources said that would translate into more than $5
billion a year, up from $1.5 billion to $2 billion now.
The Anglo-Dutch company will, however, keep its overall oil
and gas output largely stable for the next decade to help fund
its energy transition, though gas is set to become a bigger part
of the mix, the sources told Reuters.
A Shell spokeswoman declined to comment on the details of
the company's new strategy ahead of its February announcements.
BP, meanwhile, plans to slash its oil output by 40% by 2030
and has swept aside its core oil and gas exploration team to
focus on renewables, with spending on low-carbon energy set to
rise 10-fold to $5 billion over the coming decade.
While Europe's big oil firms are all rolling out strategies
to survive in a low-carbon world, investors and analysts remain
sceptical about their ability to transform centuries-old
business models and triumph in already crowded power markets.
POWER TRADING
Central to Shell's plans are its experience in trading all
types of energy from oil to natural gas to electricity and its
vast retail network, which has more outlets than either of the
world's two biggest food chains, Subway and McDonald's.
Shell is already the world's leading energy trader, an
activity it calls "marketing". It trades about 13 million
barrels of oil a day, or 13% of global demand before the
pandemic, using one of the biggest fleets of tankers.
It is the top trader of liquefied natural gas (LNG), buys
and sells power, biofuels, chemicals and carbon credits, and now
aims to use its pole position to snare a large chunk of the
fast-growing low-carbon power market.
"The future of energy is particularly bright for our
marketing and our customer-facing businesses where we already
have scale. So we will accelerate a growth plan which is already
underway," Chief Executive Ben van Beurden said in October.
Trading has been key for oil majors for decades, allowing
them to use their global operations to quickly take advantage of
changes in supply and demand. Shell's trading helped it avoid
its first-ever quarterly loss in the second quarter of 2020 even
as consumption plummeted due to the coronavirus epidemic.
Nevertheless, analysts say Shell's trading division will
face a challenge because it is heavily reliant at the moment on
sales of refined fossil fuel products, which also account for a
large proportion of its carbon emissions.
"Shell faces difficult choices on how to balance its trading
cash flow that leverages oil products while still having
carbon-intensive operations," JP Morgan analyst Christyan Malek
said. "But because of their scale, customer base and
distribution, they can be much more flexible."
HYDROGEN HUBS
At the same time, Shell plans to boost its consumer base by
expanding its electricity supply business for homes and its
network of electric vehicle charging points, as well as signing
long-term corporate power purchase agreements (PPA).
Shell already has 45,000 retail outlets worldwide, far more
than its European rivals, and it is planning to add another
10,000 by 2025.
As a major biofuel producer, Shell wants to ramp up its
production of fuel made from plants and waste as an alternative
source of energy for transportation, the sources said.
Shell's is also betting on future growth in hydrogen, the
sources said. While still a niche market, hydrogen has attracted
huge interest in recent months as a clean alternative to natural
gas for heavy industry and transportation.
Hydrogen, and so-called green hydrogen which is made solely
with renewable power, comes with high costs and infrastructure
challenges though Shell is already investing.
Its push will centre initially on Europe, where it is
developing a hydrogen hub in Hamburg, Germany, and it is one of
several firms developing a hub in Rotterdam in the Netherlands.
It is also looking to expand into the United States and Asia.
The U.S. state of California, for example, is backing the
rollout of hydrogen fuel cell vehicles to help achieve its
climate goals while countries such South Korea and Japan are
betting heavily on hydrogen as an alternative fuel.
The sources did not give any targets for increases in
Shell's production of either hydrogen or biofuels.
Like Shell, rivals including BP, Total, Italy's Eni
and Spain's Repsol also plan to expand in hydrogen and
biofuels markets, as well as add electric vehicle charging
points to generate new revenue away from oil.
COMPETITIVE EDGE?
However, Shell won't chase the same ambitious targets some
of its European rivals have for adding wind and solar generation
capacity and will prioritise trading and selling electricity
instead, the sources said.
Shell is wary about investing heavily in renewable projects
where it won't have any particular competitive edge over other
oil companies or utilities, such as Spain's Iberdrola
and Denmark's Orsted that are already becoming
significant green energy producers.
Shell will still expand its renewable capacity, especially
in offshore wind farms where it believes it has an advantage
after years of operating offshore oilfields, but the business
will centre on profitability rather than size, the sources said.
"Shell will have some volumetric targets but that is not the
focus," a senior company official told Reuters. "A single focus
on the volume of renewable energy generating capacity could be
dangerous and lead us to some bad deals."
BP wants to boost its renewable generation capacity 20 fold
by 2030 while Total is aiming to have 100 gigawatts (GW) of
gross renewable energy generation capacity by 2030.
Investors are concerned, however, that they may struggle to
hit their profit projections by investing in costly renewable
projects which typically have lower rates of return than oil.
Shell provided some details on its new strategy on Oct. 29,
including a plan to narrow its oil and gas production to nine
hubs, cut the number of refineries to six from 14 and boost its
marketing business.
The company also announced plans to cut its workforce by up
to 9,000 employees, or about 10%, by August this year as part of
a broad cost-cutting review known as Project Reshape.
(Reporting by Ron Bousso; Editing by Simon Webb, Veronica Brown
and David Clarke)
