By Joanna Wrighton and Rob van’t Wel on Jan 20, 2022
It was another extraordinary year for Shell. What were the highlights of 2021 for you?
The launch of our Powering Progress strategy was a huge moment. It’s the most complete and clearest articulation of our strategy in Shell’s recent history. It includes ambitious goals for shareholders, for action on carbon emissions, for people and for the environment. Powering Progress also sets the most ambitious targets in our industry to reduce emissions.
The simplification of our share structure and the move of our headquarters from The Hague to London was also a significant moment in our history.
What were the low points of 2021?
An attack in Nigeria where seven people were killed on our watch. It was a deliberate attack on the people who work for us which gives me tremendous heartache.
The other low point pales in comparison to the fatalities, but it was the District Court ruling in the Netherlands that Shell should reduce its carbon emissions faster than planned. I was listening at home as the judge gave her verdict. It felt like a body blow.
I found it deeply troubling that Shell as a single business should be held accountable for how the world produces and uses energy. That goes against everything I believe in when it comes to climate change, namely that this is a societal problem, not a problem for a single company to solve. It’s also worrying that the ruling was met with so much approval in some places, as if this was indeed the solution society needed.
Despite your concerns you have said that Shell will rise to the challenge of the ruling that Shell must reduce its worldwide net carbon emissions by 45% by 2030, compared to their 2019 level. What could progress look like in 2022?
We have already set a target to halve emissions from our operations and from the energy we buy to run our operations, our so-called scope 1 and 2 emissions, by 2030 compared to 2016. That is an important signal that we are stepping up to the challenge.
To achieve that target we will continue to transform our refinery and chemicals plants into lower-carbon energy and chemicals parks and improve energy efficiency, among other things. In 2022, we plan to significantly step up investment in carbon capture and storage.
We also need to figure out how to design liquefied natural gas plants, and petrochemicals plants, so that they can be carbon neutral. These are massive engineering and technology innovations that Shell will have to deliver. That is what I mean by rising to the challenge.
The court ruling also applies, on a significant best efforts basis, to our scope 3 emissions. These are the emissions produced when our customers use our products. Here, we are working with our customers to cut emissions. We are focusing on decarbonising different sectors. In aviation, we are building our first large-scale sustainable aviation fuel plant in the Netherlands, for example, and we are looking at alternative energy for industry, such as hydrogen or greater electrification.
But no matter how hard we work on reducing the emissions of our customers when they use our products, our progress will remain dependent on society’s progress with the energy transition. We cannot go faster than all our customers or we would have no customers to buy our products. And we would go out of business.
I use my feelings as a resource to redouble my efforts.
You had been considering simplifying Shell’s share structure and moving the headquarters from the Netherlands to the UK for some time. Why did you decide to do it now?
Our company needs to be able to move fast and do new things to accelerate the energy transition. The dual share structure was a real handicap. We were a British plc headquartered in the Netherlands. That meant that legally we had to follow UK company law, and fiscally we had to follow the tax code in the Netherlands. We had constraints on issuing and buying shares, on restructuring and on acquiring other companies.
Under the dual share structure, for example, we would not have been able to return as much as we wanted at pace to our shareholders from the sale of our Permian oil and gas assets in the USA.
I had personally worked on finding a solution with the Dutch government for all my eight years as CEO. Still there was no solution in sight, other than the solution to move the headquarters to the UK.
It was a very sad moment when I made the decision to put the simplification to shareholders and the Board. When I joined Shell 38 years ago as an engineer, I thought it was the most iconic company in the Netherlands and even in Europe. I could never have imagined being CEO, let alone taking the company’s headquarters out of the Netherlands. But I felt there was no choice because of the need to move faster in the energy transition. It is the right thing to do for our company.
What is Shell’s long-term commitment to the Netherlands?
We still have a significant corporate presence in the Netherlands, and we have no plans to change that. The Netherlands will remain a key energy transition country for us. In the last two years, we have sanctioned 4 billion euros in low-carbon projects such as wind farms, charging for electric vehicles and a biofuels plant. That is more than we have invested in low-carbon projects in any other country, and it puts us among the top investors in the energy transition in the Netherlands.
What do you think of the outcome of the COP26 climate summit in Glasgow and what does it mean for Shell’s strategy?
The world made progress at COP26 and that makes me optimistic. It may not be fast enough but six years ago at the time of the Paris Agreement the world was not even close to the trajectory we are on today. Governments are also beginning to understand that different sectors of the economy need different policies to reduce carbon, and that decarbonisation goes beyond building more solar and wind power, which can only produce electricity. The energy system is only 20% electricity today.
That is exactly what we advocate, and it is at the heart of Shell’s strategy. We are helping customers to achieve net-zero emissions by providing low-carbon energy products and solutions, and they will be different for motorists, airlines or shipping companies.
There was also progress on Article 6, which sets the rules for co-operation between countries, mainly in the form of cross-border carbon trading. The world cannot get near net-zero emissions without a functioning global carbon market. There was a breakthrough at COP26 in the sense that governments agreed the rules that will allow the implementation of Article 6. Now we must see how they put these carbon trading mechanisms into practice.
Since you became CEO of Shell in 2014 you have made many changes. What is your opinion about Shell’s transformation so far?
Shell is a much more financially resilient company than when I took over. Even during the COVID-19 pandemic, we are producing strong results with a smaller portfolio. We have a strategy that points to the future and we have made some tough decisions.
But that is still not enough. We must move faster in the energy transition, particularly in today’s environment where society always wants us to accelerate. We cannot say, “When society has made up its mind to accelerate the energy transition, we will be a fast follower”. We must be a pace setter. We must find ways to be ahead of society where we can, to be prepared to build new low-carbon markets where it makes sense, while still creating value. That means being more daring.
Our challenge is to see what some of the new business models look like. How do we make money from large-scale biofuels facilities for aviation when biofuels for aircraft are uncompetitive with petroleum products, or from electric-car charging when there are not enough electric cars on the road?
We must create a culture where people are prepared to take more risks by providing low-carbon products in the expectation that we can sell them. I am comfortable investing in the first hydrogen plant in the Netherlands without the first hydrogen trucks being on the road, for example, because we can see that it is a springboard for creating future value.
Why did you decide not to invest the $9.5 billion proceeds from the sale of the Permian oil and gas business in the USA in low-carbon products and services? That could have been a logical step for any company serious about helping the energy transition.
On balance, I felt it was right to return $7 billion to shareholders. Firstly, I believe our shares are highly undervalued, so buying back shares makes a lot of sense. Secondly, buying back shares reduces the dividend burden we have, and we were selling an asset that helped to pay dividends.
We have kept the remainder of the proceeds for other purposes. We have been clear that we will step up investments in our Renewables and Energy Solutions business.
Some of the criticism that Shell is not moving fast enough to reduce emissions has been aimed at you personally over the past year. How do you deal with that criticism?
I work every day with a mission to bring more strategic clarity and to deliver on our strategy. When people attack Shell for not going fast enough that feels deeply personal. But I have no choice but to deal with the criticism. I cannot walk away from it or hide under my desk.
If anything, I use my feelings as a resource to redouble my efforts and speed up the pace of change. We are making a difference to the world, and we are making a real and practical contribution to advancing the energy transition.
Working from home and spending more time with my family also had a tremendously stabilising and grounding effect on me last year.
Shell wants to sell most of the oil and gas fields currently operated by NAM, Shell’s joint venture in the Netherlands. The company has also withdrawn from the Cambo oil field development in the North Sea. At the same time, Shell keeps investing in oil and gas in other places around the world. Are you shifting oil and gas production away from places where there is high societal pressure to countries where producing oil and gas is easier?
Many countries do not want oil and gas production anymore. They tend to be among the countries with the highest oil and gas consumption though. There is dissonance there. We can point out to governments that they will have to import oil and gas if they do not produce them. Is that better economically, or for the planet? I do not think so. But we cannot do anything about that societal sentiment. What we can do is to make the choice to operate in places where Shell is competitive, and where we can still provide the oil and gas that people need.
Supply challenges have led to unprecedented high prices for natural gas in some parts of the world. Do consumers in Europe need to get used to paying more for energy?
The natural gas prices we are seeing today in north-west Europe are at the extreme of volatility. I hope market conditions will improve and offer some relief and stability to consumers. But it will take intelligent policies and intelligent application of these policies to get it right. Some governments in north-west Europe have reduced domestic production of natural gas significantly, but demand remains high. That cannot be fixed in the short term by increasing domestic production because it is impossible to ramp back up quickly. It will probably take imports of natural gas, and the higher prices needed to attract those imports, to fill the gaps in supply.
In the future, I hope that countries will not unnecessarily reduce the supply of domestic oil and gas that they need. Governments also need to learn from this moment and tackle the demand for hydrocarbons as much as they have so far wanted to tackle the supply of hydrocarbons. Today, motorists still need fuel for their cars, and many homeowners need natural gas for cooking and heating, for example. Even if Shell stopped supplying these products, people would still need them, and they would buy them from other companies.
Does the integrated model mean that Shell is still too big and complicated, and trying to be all things to all people?
The companies that will make the energy transition happen are the ones like Shell with the scale, scope, financial muscle, and ability to operate in an integrated way. It will not just be the start-ups working alone.
As an integrated energy company, Shell has two big advantages. One is the interdependency of our assets. In the market for sustainable aviation fuel (SAF), for example, we have refineries to house biofuels facilities, an existing distribution network, access to 1,000 airports around the world and a sophisticated risk management and trading business. That interdependency makes our SAF strategy work.
The second advantage is our Upstream business, which produces oil and gas. That business will continue to produce the energy the world needs, provide strong returns to investors and, crucially, help us to fund our transition.
Given these advantages, why do you think Shell shares are still undervalued?
Investors value companies that produce a lot of surplus cash because of the dividends they can pay, and Shell has traditionally been in that category. They also value companies that do not generate surplus cash but that have great promise for the future, such as makers of electric cars.
We are trying to mix and match both these models. We have a traditional business that produces a lot of cash. We will share some of that cash with investors, but we will also use some to build the businesses of the future. The businesses of the future have the potential to be even more valuable than our traditional businesses. We think investors should take that into account.
Our integrated businesses enable us to produce cash when commodity prices are both high and low. We must continue to make progress against our strategy, and demonstrate more clearly the steps we are taking, and how we expect to make money from our energy transition businesses.
What motivates you to continue to do your job and what do you want to achieve in 2022?
I am fired up to work every day by the scale of the challenge of tackling climate change, and by Shell’s role in helping to make the energy transition happen. We are working on the biggest societal and technological changes of modern times, bigger even than during the industrial revolution.
In 2022, I hope to see good progress in reducing our emissions, and significant new investment decisions in the production of hydrogen. I want to win more business providing renewable power.
Today, we are known for our oil and gas projects and for the retail stations around the world selling our fuels. In time, we want to be known for our new business models and new types of products. This will be another pivotal year in our transformation.