Oil giant Shell will be creating a new division dedicated to investing in green energy in order to avoid the “nasty, brutish and short” end predicted for oil companies by Chatham House.
The move is part of a broader effort from Shell to keep up with the global trend of a transition to lower carbon forms of energy.
The new division, called New Energies, will start with an initial capital investment of $1.7 billion, and will work with additional annual capital of $200 million. It will act both as a consolidation of Shell’s existing efforts in the biofuel and hydrogen fields, and will form the basis of a new venture into wind power.
Shell does currently own interest in various wind power projects throughout the world, but the company’s former head, Jeroen van der Veer officially halted any spending on renewable projects back in 2009. As part of this new drive to get back into green energy, Shell will be starting by working on building two new offshore wind farms in off the coast of Holland.
The Guardian spoke to insiders at the company, who said of the project and the general change in direction that it represents for Shell: “He [Ben van Beurden, Shell chief executive] does not want to get out so far in front that he dilutes investor returns, but he does want to make sure that Shell is at the leading edge of transition”.
Shell are yet to formally announce the creation of New Energies, with some insiders claiming that there is a slight fear of being met with criticism from environmentalist groups who may see the move as little more than a token gesture, since the division’s total budget is less than 1% of the Shell’s oil and gas budget.
There is no doubt that Shell, and indeed every major oil company at the moment, has their work cut out for them. The combination of low oil prices, ever increasing demand for energy, and environmental imperatives worldwide mean that in order to maintain their place requires some inventive reinvestment.
Van Beurden is reported to have delivered the following message at a company conference: “The big challenge, both for society and for a company like Shell is how to provide much more energy, while at the same time significantly reducing carbon dioxide emissions.”
Shell are not alone in working towards a ‘transition’ from fossil fuels to renewables, with BP and Total also making similar moves.
This latest news comes soon after a paper published by researchers at Chatham House criticised the oil industry as a whole.
Paul Stevens, who wrote the report, argued that the what he saw as the impending downfall of oil majors has been a long time coming. He said: “The prognosis for IOCs (International Oil Companies) was already grim before governments became serious about climate change and the oil price collapsed.”
He argued that longstanding business models pursued by IOCs were wrongheaded and shortsighted from the start.
Stevens gave oil majors a future lifespan of around ten years, and argued that with major reform, a complete eradication could be replaced by a slow but steady decline into something far less prominent than exists now, but was fairly clear that the age of dominance for oil majors is, by and large, over.
Plummeting oil prices has had a huge effect on the viability of IOCs to investors, and this threatens their existence in a big way.
“Inevitably,” he said, “they must shrink into the remaining areas, functionally and geographically, where they can earn an acceptable return.
“This requires a major change in the corporate culture of the IOCs. It remains to be seen whether their senior management can manage such a fundamental shift. If they can, then the IOCs will be able to slip into a gentle decline but ultimately survive, albeit on a much smaller scale. If they do not change their business model, what remains of their existence will be nasty, brutish and short.”