Outrage as Shell rolls back commitment to cut oil output

In a shocking move, newly-appointed Chief Executive Officer, Wael Sawan, of British multinational oil and gas corporation, Shell, has revealed the company’s intentions to shelve its previously announced plans to incrementally decrease oil production over the course of the decade and instead to maintain a consistent level of production through to 2030. Previous to this announcement, the deal was that Shell would reduce its output by roughly 1-2% each year has now been abandoned. For Sawan, this is the most rational course of action to provide maximum value for shareholders, allowing Shell to increase the rate of the dividend and thereby to increase demand for shares, upping the price. For all the attempts by Shell’s CEO to market this strategy as common-sense business, many commentators are of the opinion that this is a wildly irresponsible approach for a fossil fuel proprietor to take during what remains the crucial decade for the mitigation of global warming.  

Royal Dutch Shell remains a leading entity in the FTSE 100 Index after over 100 years of operation but has nevertheless been wrestling with an existential conundrum for the last 30 years as the evidence continued to mount that the burning of fossil fuels was a leading factor in increasingly worrying warming trends – and for a while, sentiments seemed to be moving in a greener direction. The corporation's new CEO, Sawan, took over from predecessor Ben van Beurden in September. Van Beurden had previously set in motion a goal to achieve net zero carbon emissions by 2050, a target that had stirred surprise among both investors and environmental activists. The roadmap, albeit with only a slow phasedown in fossil fuel output, represented a degree of commitment to sustainable practices. 

Since Sawan's appointment, there's been a noticeable tilt towards prioritizing financial gains for shareholders. Sawan shared his vision with investors at the New York Stock Exchange, communicating his desire to not only generate short-term dividends but also build a sustainable wealth generation machine for the long term. 

His vision, he said, is underpinned by his belief in the necessity of oil and gas for the foreseeable future. While he also expressed a commitment to reducing emissions, it was clear that his emphasis lay on strengthening investor confidence and generating returns. 

This business-first approach is further exemplified by the company's spending plan. Shell has committed to invest a staggering $40bn in oil and gas production over the next 12 years, dwarfing the proposed investment of $10-15bn in “low-carbon” products over the same period. 

There have, however, been counterarguments from within the company's ranks. The official stance is that the previously announced gradual reduction in oil production was not an actual commitment to a steady reduction in output. Instead, it was a projection that, as Shell stated on Wednesday, has been surpassed already due to divestments and natural decline. 

A key factor in meeting this target was the $9.5bn sale of Shell's stake in a project in the Permian Basin, Texas. Following this transaction, the company’s output, which was around 1.9 million barrels of oil per day in 2019, dropped to 1.5 million barrels per day – a decline of 21%. A spokesperson from Shell asserted that the goal of reducing oil production by 2030 hasn't shifted, they've just reached it ahead of schedule, eight years early to be exact. 

However, this announcement coincided with a report from the International Energy Agency (IEA), a renowned global energy authority, which suggested that global demand for oil is likely to peak and then decline before the end of the decade. The IEA had also stated in 2021 that halting the development of new oil and gas fields was necessary to meet the ambitious goal of net zero carbon emissions globally by 2050 and stave off an impending climate crisis. 

Shell's renewed commitment to fossil fuels has not gone without criticism. Green party co-leader Carla Denyer termed the move as "climate vandalism". The increased emphasis on fossil fuel production and shareholder dividends, according to Denyer, exemplifies the inability of fossil fuel companies to direct us towards a greener future without strong political leadership. 

In a strategy update shared in New York, Sawan outlined Shell's plan to cut costs and concentrate on the company's most profitable sectors. The company plans to grow its gas production while maintaining steady oil production, aiming to stabilize liquids production until 2030. 

Shell also aims to increase dividends by 15% and return $5bn to investors via a share buyback. Sawan, while emphasizing shareholder value, did not entirely ignore Shell’s earlier environmental commitments. He reiterated the company's intention to achieve net zero emissions by 2050, with a caveat – this target may not be reachable if society at large doesn't achieve net zero emissions by the same timeline. 

In this pursuit, Shell still plans to spend between $10bn and $15bn from 2023 to 2025 on “low-carbon” products, despite the overarching focus on fossil fuels. Only time will tell whether this balancing act between profitability and sustainability will hold strong, or if it will yield to the pressing demands of a rapidly changing global energy landscape.