Royal Dutch Shell: all things to all people

Royal Dutch Shell loves a scenario. Thursday’s annual strategy confab produced three more, this time on how the world could decarbonise. They have friendly enough names: Sky, Waves and Islands. In turn, the company’s own plan for zero-emissions aims to charm everyone, promising progressive dividends while it shrinks its carbon shadow. Shareholders will only agree when the share price catches up to global peers.

Action on climate change has gained momentum in the past two years. Odd then that Shell, which has long thought about carbon pricing, has taken more time than most of its European peers to state its plans. Shell’s latest scenarios hinge on political co-operation. Two point to a slower decline of emissions from 2040. One, Sky, requires countries to co-operate fully to achieve zero CO2 emissions before 2060.

Shell plumps for something quicker than that, aiming for 2050. To achieve this its oil production, having peaked in 2019, must drop by as much as a fifth by the end of this decade. As well as cutting carbon output in its upstream production business, Shell’s downstream refining and marketing divisions will focus on making and selling renewable fuels, while offering charging stations for electric cars.

Crucially, plans include reducing carbon intensity (per unit of output) by 45 per cent by 2035. Moreover, Shell will tie the remuneration of 16,500 staff to its decarbonisation targets, roughly a fifth of the workforce. If anyone will be reaching for the sky, it is these employees.

Yet if shareholders are worried that Shell has given up on its main source of income, they should rest easy. A large slug of the capital expenditure budget ($8bn) goes to the oil production business, with another $4bn on integrated natural gas projects. Promising a 4 per cent progressively growing dividend, as it did in its full-year results earlier this month, requires cash flow to keep up. Yet at that growth rate, it will be a race between the restoration of the previous dividend and getting to carbon net zero.

Shell’s plan is later than those from rivals such as BP, Eni and Total. But its decarbonisation plan offers something for all stakeholders, with employee incentives too. Maybe there is too much for too many. Without more dividends and payouts, Shell’s share price will not overtake those of its rivals.

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