Decarbonization of big oil – Shell’s evolution to big power

    Shell’s aggressive investment in alternative power reminds us that the future is electric

    shanghai, china, east asia

    2,028 total views, 20 views today

    Shell’s aggressive investment in alternative power reminds us that the future is electric

    Carbon footprint felt ’round the world

    All over the world, automakers, tech enterprises, and now a number of forward-thinking oil and gas companies are looking to capitalize on the EV revolution.

    Big oil is shifting its narrative as policy pressure adheres to aggressive climate targets proliferating to opportunities in the investment community. Across the board, the decision is also purely economic: if EV stock rises as anticipated, the oil industry will lose an estimated 5.5 million barrels per day to displaced global demand. As fuel efficiency continues to improve, and as more countries and governments issue more demanding fuel efficiency mandates, Royal Dutch Shell is offering a preview of where the traditional oil and gas company structure might be headed.

    Shell’s shift to a lower carbon footprint will transform it from one of the biggest oil companies in the world to the world’s largest electricity company by the 2030s. Shell will cut its carbon footprint in half by 2050, with electric power and EV charging driving much of a promised yearly $2 billion investment in renewables and cleantech. While $2 billion is not a large spend for a big oil company, within renewables and clean technology industries, the value is a significant amount that will propel the industry forward.

    Shell New Energies

    Shell launched “Shell Energy Inside” in the US as part of Shell New Energies, a division that focuses exclusively on developing and implementing low carbon services in late 2018.

    Shell New Energies acquired Greenlots, the EV charging and management software developer in 2019. Greenlots installs and operates public charging stations, provides grid-balancing services to various utilities, and offers digital technologies to a number of car companies, including Volvo and General Motors. With capital funding from Shell, Greenlots can grow their network and enjoy investment advantages in prime charging locations much earlier than competitors.

    Shell also acquired NewMotion, which owned one of Europe’s largest EV charging networks, in the Netherlands in 2017. Later in 2018, Shell made an investment in Ample, a new entrant to the electric-car charging space.  

    To capitalize on EV infrastructure, oil companies will face stiff competition. Car manufacturers are looking to ownership of EV charging infrastructure as a new revenue opportunity. In states where its not restricted, utility companies will look to own infrastructure, too.

    European major oil companies’ total M&A spend on power and renewables, 2011-2018.

    Integrated power market investment strategy

    In Europe, Shell has sought to close the energy gap by partnering with Dutch pension fund PGGM making a joint bid for the electrici and gas utility Eneco. Shell acquired its first European electric supply utility FirstUtility in 2017 catering to residential customers; the company has since re-branded to Shell Energy.

    In 2018, shell dug deeper into residential retail by taking stake in US based Inspire Energy. The move to buy Eneco is just one more telling sign that it’s going to pay to pursue an integrated power market investment strategy, making aggressive first moves in the retail business.

    As the EV surge continues and industries beyond traditions energy providers scramble to adjust to new models and accommodate a new set of customer needs, Shell’s acquisitions position the company at the vanguard of oil companies looking to ride the lightning.

    Eneco is currently owned by 53 Dutch municipalities, and has opted to remain privatized through a controlled auction thus far. A Woodmac analysis of its 2017 net assets indicated that Eneco could be valued at close to $3bn, including multiple interests holding over 1300 MW of renewable generation capacity.

    For Shell, who is already linked with Eneco in the building of the Borssele 3 and 4 offshore windfarms (731.5MW), this solid asset base is complemented by Eneco’s strong brand across both generation and supply, energy storage, smart heating controls, demand response and EV charging.

    The EV wave poses numerous and unique challenges for the oil and gas industry, but some companies like Shell have adopted a strategy of “If you can’t beat ‘em, join ‘em.” If current trends continue, Shell’s aggressive investment in the alternative power and renewables value chain should remind even the most established companies that the future is electric, and open for business.

    Want even more EV coverage? Check out Wood Mackenzie’s electric vehicle market research hub.