Shell Makes Switch to Renewable Energy

(Noted News) Royal Dutch Shell (RDS.A), is in the process of shaving off up to 40% of the costs of producing oil so it can spend the extra cash on moving into renewable energy and power markets.

As “Big Oil” learns to adapt to the changing energy markets and the demand for green energy, Shell leads the way with its initiative called Project Reshape. The initiative aims to save at least $4 billion in the next year to restructure the company to provide renewable energy.

With competition from the other big oil companies like BP and Exxon, and the notoriously low profit margins of the renewable energy industry, Shell is in a race to construct a business model that will carry them into the next chapter of energy markets and hopefully revitalize otherwise disappointing returns and share prices.

An anonymous senior source at Shell told Reuters that it was time to switch gears.

“We had a great model but is it right for the future? There will be differences, this is not just about structure but culture and about the type of company we want to be.”

Shell will be cutting costs primarily in its upstream oil and gas divisions not only by cutting operating costs and funding for new projects, but also by restructuring the company to reduce the necessity for employees, cutting thousands of jobs.

Shell has 45,000 gas stations across the world, which is the most of any gas or oil company. Advisors will also be looking to cut costs from those stations as well, which, according to the sources at Reuters, will be an important component to the transitionary period.

“We are undergoing a strategic review of the organization, which intends to ensure we are set up to thrive throughout the energy transition and be a simpler organization, which is also cost-competitive. We are looking at a range of options and scenarios at this time, which are being carefully evaluated.” 

According to Shell CEO Ben Van Beurden, the travel restrictions caused by the COVID-19 pandemic forced a digitalization of the oil giant’s business models. The company introduced machine learning technology to its factories to minimize outages and maintenance times.

Besides making their refineries more efficient and digitalized, Shell will also get rid of some, going from 17 total refineries to 10 by next year. They have already sold 3. The company wants to concentrate its production in a few key areas, like the Gulf of Mexico, Nigeria, and the North Sea, sources said.

According to Norwegian based energy consultancy DNV GL, both global oil demand and carbon emissions most likely hit their peak in 2019 due to the COVID-19 pandemic. The company, which acts as an advisory for both renewable energy and petroleum companies, believes that global energy consumption will be 8% lower than previously expected due to the pandemic.

“Lasting behavioral changes to travel, commuting, and working habits will also decrease energy usage and lessen demand for fossil fuels from the transport sector as well as from iron and steel production,” DNV GL said regarding its research on the impact of COVID-19 on oil demand and emissions.

“While we expect oil demand to recover next year, we think that it’s likely that it will never reach the levels seen in 2019.”

Sverre Alvik, head of DNV GL’s Energy Transition Outlook, believes that renewable energy indirectly benefits from a world with declining energy demand, because of a rush to cheaper sources.

“Renewable energy is seen benefiting from the crisis, because when total energy demand falls, the cheapest sources, such as wind and solar, are preferred to fossil fuels… COVID-19 has shown that behavioral changes are indeed possible, and we can use this opportunity to make a change which is good for (the) climate,” 

“While global CO2 emissions also likely peaked in 2019, the expected decline in future would not be steep enough to meet the Paris climate agreement goals, so other measures such as carbon capture and storage (CCS) and greater use of hydrogen were needed.” DNV GL said.

Shell’s share price (RDS.A) collapsed during the crash of March and never recovered. It is currently trading near 11-year lows of $26.98.

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