Haibo: How Can Traditional Energy Companies Realize The Transformation Of Net Zero Emission?

Global oil prices fluctuate sharply, and "carbon neutral" transformation is imminent For traditional large oil companies, the external environment has never been so harsh: they have to find a path through the era of carbon reduction.

In 2020, the major economies in the world, except the United States, have issued their own carbon emission reduction, carbon neutralization goals and strategies. Among them, Europe will be carbon neutral by 2050, while China's goal is to achieve a carbon peak by 2030 and achieve carbon neutrality by 2060.

As the enterprises producing high emission fossil energy, the oil giants are facing the challenge from the public and investors, and they are questioned whether they can continue the previous glory in the new transformation cycle.

What's worse, with the outbreak of the new crown epidemic, there has been a phenomenal drop in global oil prices, which means that a large number of oil assets are facing the risk of write down or even abandonment. On the one hand, oil giants have to catch up with the pace of global energy transformation, on the other hand, they have to write down or even abandon the current "cash cow".

"Our total oil production is declining at a rate of 2% a year in recent years." "But I have to stress that the traditional upstream business is still absolutely necessary for shell, and it can continue to provide shell with the cash flow that we need to invest in future growth business," shell's global downstream business executive director Heber told reporters

Become the world's leading power company

For more than a century, the business model of the oil industry has never changed - oil giants buy oil and gas fields around the world and sell oil and gas to the world on the basis of that. However, under the current situation, this business model is coming to an end. More and more international oil companies are waving goodbye to the tradition of more than 100 years.

Shell has announced that its annual oil production will be reduced by 1% - 2%, and its oil production will be reduced by 10% - 22% in 10 years. If this strategy continues until 2050, shell's oil production will drop by 35% - 81%.

Not only has shell announced that it will reduce oil and gas production year by year in the future, but its two European counterparts, total and BP, are even more aggressive than shell. BP has promised to cut its oil production by 40% and raise its low-carbon spending to $5 billion a year by 2020.

In contrast, shell's future investment strategy appears to be more "robust". Haibo revealed to reporters that shell will maintain annual expenditure of 19 billion to 22 billion dollars in the short term. Once the asset liability ratio of the company is reduced to US $65 billion (currently US $75.4 billion, debt ratio is 32%), we will further increase capital expenditure on the basis of ensuring shareholder distribution.

"A large part of the new capital expenditure will be invested in the future growth business area. Over time, more capital will be invested in future growth areas. " He said. In the short term, shell's investment in renewable energy is $2-3 billion, compared with $8 billion in its traditional upstream business.

As for its investment in renewable energy is far lower than that in traditional projects, Haibo explained that "compared with the traditional upstream business and a part of the transformation support business projects, renewable energy projects are light capital projects, and the demand for capital investment is not so large. It needs to be more of an operating expenditure than just capital expenditure. "

As for the rate of return on investment of different projects, shell hopes to achieve an internal rate of return of 10% - 15% in the field of chemical and chemical products, and 15% - 25% in the field of consumer marketing. The requirements for renewable energy and energy solutions are relatively low, but they also need to reach more than 10%.

As for the focus of the transformation, shell CEO van burden and others said that shell will become the world's largest power company in the future. Shell plans to sell about 560 trillion watt hours of electricity by 2030, twice as much as it currently sells.

Haibo told reporters that in order to achieve this goal, shell's global electric vehicle charging network will grow from more than 60000 charging positions at present to about 500000 by 2025, an increase of more than seven times.

The biggest difficulty lies in promoting carbon reduction of customers

The carbon neutralization rate set by shell shows a significant acceleration.

Compared with 2016, shell's net carbon emission intensity will decrease by 6% - 8% in 2023, 20% in 2030, 45% in 2035, and 100% in 2050.

It is worth mentioning that in the long-term goal of shell, the use of afforestation and other "carbon compensation" methods is mentioned to neutralize the company's carbon emissions. However, the difficulty of this method is that more and more companies have announced to adopt the same method, and even the European Union has taken tree planting as an important means of carbon compensation. Shell's efforts can easily become a "mirage" in practice.

This is because, with the current annual carbon dioxide absorption capacity of the earth, plus the land available for tree planting on the earth, there are no trees that can meet the requirements of "carbon compensation" for all companies and countries. So such an approach may seem nice, but especially as time goes on, the feasibility may become lower and lower.

At present, shell does not seem to notice any problems in its long-term strategy, and no country or organization has pointed out the possible paradox in these "carbon neutral" plans. In addition to the "carbon compensation" approach, shell is also trying to use carbon capture and storage technology to reduce the total amount of its carbon emissions.

It is worth mentioning that among all the international oil giants in the world, shell has explicitly proposed to include "category 3" emissions into its carbon emission reduction plan.

According to the current general definition of international oil companies' carbon emissions, categories 1 and 2 are emissions from the oil companies' own industrial chain, while Category 3 refers to the full chain carbon emissions of all products sold by oil companies (whether they produce them or not). Carbon emissions in Category 3 account for 90% of shell's total carbon emissions.

"In the process of promoting carbon emissions, the biggest difficulty is actually the biggest opportunity, not what shell wants to do and how to do it." "It's about how we can drive the whole society and work with our customers to drive decarbonization," he said

He believes that to achieve a net zero emission future, shell's consumers also need to change their energy consumption habits from now on. "For shell, in the future, our work will be more based on the majority of customers, and even as a starting point to push back our business." "As a result, by 2050, shell will no longer serve customers who still have unfettered carbon emissions," he said

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