Shell Changes Course on Oil Production Cut Promises

(Photo Credit: Marc Rentschler/Unsplash)
(Photo Credit: Marc Rentschler/Unsplash)

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Peak Oil will be very kind to Shell.

The British oil and gas giant announced on Wednesday that it’s going to keep oil production steady this decade after all. That marks a gear-change from two years ago, when the company said it would cut oil production by 1-2% every year until 2030 — although Shell did some incredible logical acrobatics to argue otherwise. This comes just as the International Energy Agency announced a prediction that peak oil demand is now in sight.

Get It While It’s Hot

Shell’s 2021 promise to reduce oil production was made by former CEO Ben van Beurden, who also promised to get Shell to net zero by 2050. Van Beurden was replaced in January by Wael Sawan, who placed investor rewards front and foremost on Wednesday. Sawan promised to cut back on spending, boost the company’s dividend, and launch share buybacks later this year, saying: “We will invest in the models that work—those with the highest returns that play to our strengths.”

There may be a little bit of time pressure playing into Sawan’s decision as well. In a report published on Wednesday, the IEA said it expects global oil demand to peak in 2028:

  • The IEA expects demand for oil as a transport fuel to peak even earlier, in 2026. “The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade as electric vehicles, energy efficiency and other technologies advance,” IEA Executive Director Fatih Birol said in a statement.
  • Right now, however, companies are all in on gas and oil according to the IEA, with global investment into exploration, extraction, and production on track to hit its highest level since 2015.

“Oil producers need to pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition,” Birol said. In other words, that peak has a sharp ledge.

Drilling Your Cake and Eating It: While Sawan aggressively courts Wall Street, Shell maintains it’s staying true to its climate pledges. Shell claimed that it has in fact already fulfilled its 2021 oil production reduction promise, because seven months after making that promise it sold off a $9.5 billion stake in a Texas oil project. “Our target of a reduction in oil production by 2030 has not changed. We’ve just met it eight years early,” a spokesperson said. If they sell the whole company, does that count as achieving net zero?