Well, oil be darned: Why Shell is doing better than ever
Don't dare mention the runny black stuff to the mega-company's boss. It's all about renewables now
“We’re not an oil company,” says Ben van Beurden from across the table.
It is an affable, but pointed intervention typical of the man leading the FTSE 100’s highest-valued business. “I don’t want to be facetious or pedantic,” he continues good-naturedly. “But we are a much broader and more sophisticated company than one that produces oil. We produce much more gas than we do oil, for a start.”
For the boss of Royal Dutch Shell, the distinction is one that rings at the heart of a personal mission to transform a company that for more than 100 years has fuelled the development of the modern world.
It is just days since the UN’s Intergovernmental Panel on Climate Change warned the world that even greater ambition is needed to guard the planet against global temperature rises which threaten an environmental catastrophe. It is also a year since Van Beurden announced Shell’s plan to cut half of its carbon emissions by 2050, and 20% by 2035.
He is, of course, correct. Shell’s presence in the modern world is easy to overlook but impossible to avoid. Far beyond the fossil fuels that power the modern world – from passenger vehicles to the grind of industrial machinery – Shell produces the asphalt that paves roads and the chemical building blocks used in plastics, paints and the sunscreen on your skin.
“As long as we tolerate being characterised as ‘just an oil company’, with all the negative connotations that come with that, then we’ve already lost,” he says. “We are a company which is integral to the quality of life, the prosperity, the longevity that we all enjoy on this planet.
“There has never been an industry that has done so much for the quality of life as we know it than our industry, and we need to maintain that relevance and evolve in line with society’s expectations,” he explains, his words rich with gravitas but delivered with the ease of someone who has spent his entire career in one industry and can see the direction in which it is suddenly heading.
My friend the oil crash
Van Beurden joined the energy giant in 1983 as a young chemical engineer, and by 2013 had climbed the ranks to the executive committee. Today he stands where an impressive corporate past meets an increasingly uncertain future. It is an existential challenge that falls to him to address, and it runs far deeper than carefully chosen diction.
In the same way that Shell is more than an oil company, Van Beurden’s vision is more than a play to the social concerns of the day. The ambitions of this energy giant are shot through with climate concerns but at its core his ambition is unapologetically financial. In only a few short years Van Beurden has steered the energy goliath through the oil market’s most brutal downturn, emerging as the leader of arguably the most successful of the world’s six “supermajors”.
He stepped into the top job at the Anglo-Dutch group in early 2014, just months before the global oil price began a precipitous fall from more than $100 a barrel to less than $30. But he credits the oil crash for Shell’s return to the leadership of the sector. The 18-month market rout drove it to a record loss, stripping billions from the company’s market value and costing more than 10,000 jobs.
But, in retrospect, it was Van Beurden’s “biggest friend” for two clear reasons, he says. It allowed the group to succeed in making a play for BG Group, the largest player in the global market for liquefied natural gas (LNG) shipped on giant supercooled tankers. The 2016 deal secured Shell’s place in what is expected to be the fastest-growing energy market of the next decade.
The deal, together with the depressed oil market, aided Van Beurden’s ambition for a complete financial overhaul of the business, which like many in the industry was left bloated and undisciplined after years of bumper oil prices.
“I came into the job with the expectations, and promise, that we would significantly improve the financial performance and predictability of the company. Nothing focuses the mind as much as a real affordability crisis,” he says.
“If I look back on it, all the achievements that we’ve had so far, which to my mind have transformed the financial fortunes of the company, have been helped or created by the oil price downturn,” he smiles.
We ain’t seen nothing yet
The bet on BG Group is already paying off after Shell unveiled investment in LNG Canada, a deal where low-cost natural gas will be shipped from the east coast of North America to energy-hungry buyers in Asia. For the next 40 years this project will give Shell a foothold in the shift from high-carbon coal to gas.
This is just the start.
If Van Beurden’s plans succeed, the multibillion-dollar turnaround will be eclipsed by what may prove to be the most dramatic transformation in corporate history.
“We want to look back on this period as one where we started to make the right calls that will allow us to thrive in the energy transition over the decades to come. The jury will be out on that for some time, but the things that we are doing in terms of transforming our portfolio, [which] will shape the company in a way that will make it an enduring and successful company, will be traced back to today,” he says.
These include Shell’s return to the solar power sector, a drive into electric vehicle charging, and the high-profile acquisition of the UK’s largest independent home energy supplier, First Utility.
No profit, no dice
Van Beurden is quick to deny any suggestion that the “right” decision to shift towards lower-carbon energy is driven by a desire to “greenwash” Shell’s image.
“In the end this is about the longevity of the company, and is therefore an existential issue,” he says. “It’s very simple. What society will need to do to have a good quality of life, with a healthy planet, is go through a transformation of the energy system which will be so capital-intensive, and so disruptive of everything we know today – it can only be done if there is profit. Otherwise it will not happen. We cannot subsidise our way to a 1.5C outcome. We will get through with the might of business making these things happen. That’s our role.
“It is not just because we are a member of society but also because there is a massive business opportunity,” he says.
Shell first made tentative advances into the embryonic renewable energy sector almost 20 years ago. They were steps that were ultimately retraced years later. In 2006, Shell paid SolarWorld to take over its entire solar business, and in 2008 the company withdrew from the London Array project in the Thames Estuary, which has become the world’s largest offshore wind farm. Under Van Beurden Shell will take bigger steps.
“It was late 2012, maybe 2013,” he recalls. “We had a deep discussion in the board in which we asked whether we want to again grow a significant new energies division within the business. The board felt very strongly that this is what we need to do if we want to be an economically sustainable and relevant company.”
At the time oil had never been more lucrative. The global price hovered near all-time highs of $140 a barrel and political consensus around the need to act against climate still foundered. The Paris climate accord would emerge only years later, but Van Beurden says the need to act was already “inevitable”.
“We knew that this would not be a case of trying to be a better solar panel manufacturer than the Chinese, or invent a superior wind turbine. It would also not be as simple as investing in power generation capacity either,” he says. “But if we could be an integrated electricity player – bringing some of the skills that we have from adjacent businesses to it – we could come up with a hypothesis for a double-digit return business,” he says.
“Now, there is no company in the world that does that at this time. This is literally a hypothesis that we need to prove.”
Shareholders and investors will need to be sure that a return to low-carbon energy will pay off. The five years ahead will be crucial in proving the case that clean electricity is an area profitable enough to match Van Beurden’s financial ambitions for the company.
The group is dedicating between $1bn to $2bn of investment a year to test its theory, a fraction of its $25bn-a-year budget but still a powerful pledge for the growing sector.
“I wouldn’t say that we have a deadline on this, because much of it will depend on how society wants to change,” he says, “But I would imagine that the way things are going by the early 2020s we will know whether the hypothesis holds and whether we therefore want to turbo-charge this business.”
The moves into the new energy future will need to demonstrate returns that win over Shell’s most hard-nosed shareholders and investors. In the meantime, Shell’s vast fossil-fuel empire will demand far more attention to keep spinning off cash to fuel the experiment.
From the outside it may appear that Van Beurden is walking a tightrope between the company’s fossil-fuel past and a cleaner, greener future. He disagrees, but with unruffled cheer. “My job is not to see to what extent I can please everyone in equal measure at the same time. My job is to integrate all these inputs into a proposition that is unique and that works for us. But that actually isn’t that difficult,” he grins.
“The difficult part is operational. To see the risks, to make the decisions, and make them resilient; that’s the real job, and that’s every single day. In the end, in this industry, it all comes down to very strong convictions which you need to hold. And a very strong desire to win.”
Ben van Beurden’s CV
Education: Masters in chemical engineering from Delft University of Technology, the Netherlands;
Family: Married with three daughters and a son;
Interests: Reading, running and travelling with his family; Big break: After 30 years with Shell he joined the executive committee in 2013.
– © Telegraph Media Group Limited (2018)