In 1902 the Royal Dutch Petroleum Co. built a refinery in Rotterdam, on the river running to the nearby North Sea. The facility would later relocate a few miles downstream to the village of Pernis, where it processed crude from the company’s distant concessions on the island colony of Sumatra, in modern-day Indonesia. At the time, petroleum was mostly refined into kerosene to be burned for heat and light. But the young company’s Sumatran crude was particularly light and low in sulfur, and thus suited to a newer use: powering the automobiles that were growing in popularity as playthings for the wealthy. Five years later, to compete with the American juggernaut Standard Oil, the Dutch company merged with an English competitor run by brothers Marcus and Samuel Samuel, who’d developed a new type of ship to carry crude in bulk. The brothers named each tanker in their growing fleet after kinds of seashells—an homage to their father’s import-export business, which had brought shell-encrusted curios into England from East Asia.
During the century that followed, the appetite for petroleum products grew exponentially, and Royal Dutch Shell grew accordingly to feed it. Today the Pernis refinery, officially called Shell Energy and Chemicals Park Rotterdam, is the biggest in Europe at more than 5 square kilometers (2 square miles). Each year, 20 million metric tons of petroleum flow through the compound’s holding tanks, processing units, towering catalytic crackers and tens of thousands of kilometers of pipes and are transformed into gasoline, diesel, jet fuel and the chemical feedstocks for products such as plastics and hand sanitizer.
Right now a new unit is being built at the park, one that can turn animal waste and used cooking oil into diesel and aviation fuel. When it comes online in 2024, the so-called HEFA unit (for hydroprocessed esters and fatty acids) will produce as much as 820,000 tons of biofuel a day, making it one of the largest such facilities in Europe. It’s the first step in a broader transformation envisioned for the plant: One by one its 60 or so units will be repurposed or replaced, shifting both their inputs and outputs. Less crude will flow in, and more green materials will flow out. The plant will also shift away from fuels in general—even biofuel releases carbon when it combusts. And Pernis will produce more chemical feedstocks, lubricating oils, bitumen (for asphalt) and other products that aren’t burned at all. “We will just switch off a few units, but we will build more new ones to replace them,” says Jos van Winsen, the plant’s general manager, sitting in his office overlooking the jungle of pipes below. “We will change our footprint, and we will change our product portfolio.” That, at least, is the idea.
Shell Plc, the world’s largest international oil and gas company by market capitalization after Exxon Mobil and Chevron, is trying to do something with little precedent. In 2020 its then-chief executive officer, a Dutch chemical engineer named Ben van Beurden, announced it would be a “net-zero” emitter by 2050. That goal, and that timeline, could put Shell in line with the transformation of the energy system necessary to keep global warming to 1.5C. That’s the limit to which the 193 nations that signed the Paris Agreement climate treaty have committed to pursue—and the threshold below which, according to the United Nations’ Intergovernmental Panel on Climate Change, the world might avoid the most devastating effects of warming. Shell’s goal applies not only to the emissions of its own business activities but also to the much more considerable emissions of its customers, millions of whom buy gas for their cars from Shell filling stations.
Under pressure from their home governments and some shareholders, other European energy giants are making similar promises. Britain’s BP Plc, like Shell, has committed to eliminate or offset its emissions and those of its customers by 2050, slashing oil production while it develops a sizable renewable power business. France’s Total SE has changed its name to TotalEnergies SE to reflect its identity as more than just an oil and gas company, and it’s also investing heavily in renewables.
It’s a different picture in the US, where a public consensus around the urgency of climate change remains elusive, and American competitors Exxon Mobil Corp. and Chevron Corp. have been slower in committing to fight global warming. But Van Beurden, who came up through the ranks of Shell’s gas and refining businesses (including a stint at Pernis), argues that complacency may look financially irresponsible in a world that’s moving toward lower-carbon energy. “If you want to have a business model that is sustainable in the long run, there’s no choice but to participate in the energy transition,” he says, in an interview in his London office last November, weeks before the end of his tenure as CEO. “Why would I invest in a business that may well peak in the next few years?”
A net-zero Shell would have to be radically different from the company that exists today. In 2021, Shell and its customers released almost 1.4 billion tons of carbon dioxide into the atmosphere—more than the emissions of Japan, the world’s third-largest economy. Last year, with prices elevated by the war in Ukraine and resulting supply disruptions, Shell and its competitors made record profits extracting, processing, transporting, selling and speculating in oil and natural gas. And up until now, the energy giant’s decarbonization efforts have produced little, hampered by shifting management priorities and a reluctance to fully commit to the thinner profit margins of low-carbon energy. Announcing Shell’s earnings on Feb. 2, its new CEO, Wael Sawan, recommitted to the net-zero plan, known as Powering Progress. At the same time, and despite an unprecedented windfall, the company said spending on its renewables unit wouldn’t increase in the coming year.
Still, the world around Shell is changing. In the past two decades unexpectedly rapid technological advances have slashed the cost of renewable energy. The price of lithium-ion batteries is forecast to keep falling after a post-pandemic jump last year, speeding their adoption in electric vehicles and also in the power grid, where industrial-scale storage could smooth the intermittency of wind and solar power. New European laws will require a faster build-out of renewable power, ban internal combustion engines in new cars starting in 2035 and impose steadily rising costs on emissions through a cap-and-trade system. In the US, President Joe Biden’s climate bill, the Inflation Reduction Act of 2022, guarantees generous subsidies to scale up green power and EVs and replace gas boilers with electric home heating. It’s later and potentially slower than many climate activists and scientists would like, but an energy transition is indeed happening. The question is whether companies such as Shell, long part of the problem, can be a meaningful part of the solution.
Shell’s efforts to seriously expand beyond oil and gas date to 1997, when the company set up a business called Shell International Renewables. “Renewables are now one of our core areas of business and demonstrate our intention to invest in areas of sustainable growth,” the company wrote in a 1998 report titled Profits and Principles—Does There Have to Be a Choice? In 2001, Shell teamed up with German utility E.ON SE and a unit of the industrial giant Siemens AG to manufacture solar panels in the Netherlands and in Germany. After it bought out its joint-venture partners in 2002, Shell briefly became one of the world’s largest solar manufacturers.
But throughout the early 2000s, China was massively subsidizing its own solar industry, offering manufacturers free land, tax breaks and cheap credit to scale up. That brought the price of solar panels down far sooner than most forecasters had predicted. It also drove just about everyone else out of the business. As the market became flooded with cheap Chinese photovoltaics, Shell shut its main factories in Europe and tried unsuccessfully to shift to a more efficient solar cell technology. “It was never a really good business proposition,” Van Beurden says now. “We couldn’t make that work.” In the late 2000s the company halted the expansion of its wind-power portfolio, the biggest part of its renewables business. Shell folded its remaining renewable businesses into its much larger natural gas division. (Natural gas produces fewer emissions than oil when burned, and far less than coal, so energy companies often present it as a bridge fuel in the energy transition.)
Still, others did make it work. In 2008, when Shell pulled out of the London Array, a wind project off the southern British coast, it sold part of its stake to Denmark’s Orsted A/S (then known as DONG Energy, a name derived from Danish Oil & Natural Gas). Orsted and its partners agreed to spend €2.2 billion ($2.9 billion at the time) to build what was, at 175 turbines, then the world’s biggest offshore wind farm. The Danish company sold off its natural gas arm and is now the largest offshore wind company in the world, with a total renewable power capacity more than four times greater than Shell’s at the end of 2021.
In 2018, Shell hired an outsider, Elisabeth Brinton, who’d helped build a renewables business at Australia’s AGL Energy Ltd. Brinton brought in management consultants from McKinsey & Co. and proposed creating a division within Shell that would take electric power generation and part of the company’s growing energy trading operation out of the natural gas division—undoing much of the reorganization that had followed the failure in solar panels.
The maneuver was meant to raise the prominence of those businesses and ensure growth independent of Shell’s fossil fuel operations. “Becoming a net-zero emissions energy business is a huge task,” Brinton said in a Q&A posted to the company website in 2020. “The business plans we have today will not get us there. So, our plans must change over time, as society and our customers also change.” But the migration never happened, and Brinton left soon after to work on sustainability at Microsoft Corp. (She declined to comment for this story.)
Her departure was part of a broader exodus. An internal study in 2021 found that more than 80% of external hires to Shell’s renewable and other low-carbon businesses left within four years, according to a former executive involved in commissioning the study, who asked not to be named speaking about their past employer. That executive, and five more who spoke to Bloomberg Businessweek on the condition of anonymity, described a similar personal trajectory: joining the company optimistically hoping that its name and balance sheet could create incredible opportunities, then growing frustrated over time. The new-energy sectors Shell tried to enter were often occupied by much smaller companies that could act more quickly. A spokesperson for Shell says its renewable and new-energy business has lower-than-average attrition for the industry and “has grown and evolved significantly.”
The tension at the heart of Shell’s effort is that, even as oil use and, potentially, gas use are projected to peak in the next decade or two, the business remains highly lucrative. Last year’s annual profit of $39.9 billion obliterated Shell’s 2008 record of $28.4 billion. By contrast, many of the alternative energy technologies that exist today are unproven at scale, and those with a track record remain far less profitable than oil and gas. “We’ve now reached the point where the oil and gas majors accept that climate change is happening and society does expect them to deal with it,” says Michael Liebreich, former CEO of BloombergNEF and an energy consultant who’s advised Shell. But the companies, he says, “can’t do it as fast as they say because, fundamentally, oil and gas keeps the lights on. And it’s the only bit that makes money.”
Part of the issue for Shell has been the breadth of its ambitions. The company expects to be, Van Beurden says, “a very large company when it comes to electricity,” expanding not only in wind and solar but building a network of electric vehicle chargers and using its trading arm to buy renewable power from other producers and sell it to customers. There’s a logic to this: Decarbonization, according to most models of how it might realistically transpire, will happen by increasing the number of things, and types of things, that get powered off the electric grid rather than by burning something.
In announcing itself as an electric power company, Shell will have to master a substantially different business from the one it’s been in for most of its history. Petroleum and natural gas are concentrated in commercially viable amounts in a limited number of places on the planet. For the most part, those deposits are difficult and expensive to find and exploit. Transporting the fuel to where people want to burn it (i.e., everywhere) requires a global infrastructure of tankers, tanks and pipelines and, with natural gas, liquefaction plants and enormous specialized terminals. Scarcity and uncertainty let fossil fuel companies charge a healthy premium for their product. And when prices are low, producers can park their product and wait for the laws of supply and demand to begin to work in their favor.
Electricity is different, and renewable electricity especially so. Sunlight and wind aren’t something one goes and discovers, nor is it currently practical to send their energy around the world. Electricity companies aren’t extracting a valuable commodity that they can store or transport or hoard; they’re providing a service. And selling electricity to people to use in their homes at scale requires navigating a quilt of regulations that govern those markets from state to state and country to country. “It’s a more local business,” says Atul Arya, chief energy strategist at S&P Global Commodity Insights. “The oil business, whether you’re in Alaska or in Texas or in the North Sea or in the Middle East, is a pretty similar business.”
Several of Shell’s new-energy hires say the company’s reluctance to adapt its mindset undermined their efforts. Shell executives accustomed to the chancy but high-reward world of oil and gas were reluctant to sign off on capital investments in wind farms and solar arrays, with their reliable but reliably lower profit margins. According to Mads Nipper, CEO of wind leader Orsted, a typical offshore wind project can have a return of as little as 1% after the cost of capital. By comparison, Shell’s published figures target a return of 20% to 25% in oil and gas drilling projects. In late 2021 activist investor Daniel Loeb proposed the company split itself up, separating its liquefied natural gas, renewables and marketing divisions from its legacy business. Shell publicly defended its integrated approach, and the proposal didn’t go anywhere.
Shell is on track to reach certain carbon goals. The Greenhouse Gas Protocol, a widely used accounting standard, breaks down emissions into different categories to quantify an organization’s full climate impact. Scope 1 emissions are those that an entity creates directly—in Shell’s case, the carbon dioxide and methane released into the air from its refineries and gas platforms and its trucks delivering its products. Scope 2 comprises more indirect emissions, those created by the company’s own energy suppliers—the natural gas, for example, burned by the power plants owned by the utilities to which Shell pays its electric bills. By the end of this decade, Shell plans to halve its Scope 1 and 2 emissions, from a total of 83 million tons of CO2 emitted in 2016 to 41 million in 2030. (In 2021, the last year reported, they were down to 68 million.)
But those make up less than 10% of the company’s overall carbon footprint. The far greater share is its Scope 3 emissions—those produced by the fuel it sells to people and businesses to burn in their cars, trucks and airplanes. Shell has no clear plan for getting rid of those. On the company’s website, a flowchart depicting the climate targets of its Powering Progress plan relies on a deus ex machina, with one bubble representing 1.3 billion tons of CO2 in 2021, another representing zero tons in 2050—and no steps in between.
Shell’s own language about its emissions trajectory is less categorical at certain times than others, especially when addressing its shareholders rather than the general public. “Our 2050 net-zero target is conditioned by society’s progress as there is significant risk that Shell will not be able to meet its net-zero target if society is not net zero,” the company wrote in its most recent annual report. Shell’s oil production is indeed declining slowly after peaking in 2019, but that’s in part because the company has focused more on natural gas. Sawan, the new CEO, previously ran both of Shell’s profit engines—its business liquefying and transporting natural gas and its fossil fuel discovery and extraction arm—and he’s made it clear that he’s in no hurry to abandon gas. In an interview with Bloomberg Television on Feb. 2, he said that that business “continues to grow in a world that is desperately in need of natural gas at the moment,” adding, “and I think for a long time to come.”
Nor will all of the reductions Shell calculates necessarily translate into less carbon escaping into Earth’s atmosphere. By decade’s end the company aims to achieve 120 million tons a year of Scope 1, 2 and 3 emissions reductions from funding projects that protect or restore forests, grasslands and other natural areas around the world. Because they absorb carbon from the air, these can offset emissions that a business such as Shell continues to produce. The so-called nature-based solutions space, however, has been dogged by questions about its actual impact: Carbon-offset research company Sylvera Ltd. has found that only 31% of the projects it studied had the climate impact they were meant to.
And so far, much of the emissions progress Shell has achieved has come from selling off oil wells and refineries in the US, Denmark and Germany. While that moves those emissions off Shell’s books, it doesn’t make them go away. “You shouldn’t sell the asset to someone else,” says Dimitri Lafleur, an analyst at Global Climate Insights. If you’re concerned about reducing emissions, he argues, “you should run it down to the end of the field life.”
Lafleur previously worked for Shell as a geophysicist in its natural gas fields, first in the UK and the Netherlands and later in Australia. “At some stage it became clear to me that climate change was a really concerning issue,” he says, “and I thought Shell wasn’t doing enough.” He says he pitched his managers on geothermal energy, which uses techniques similar to oil and gas drilling to tap subterranean heat for renewable energy. But Lafleur says the company wasn’t interested. In 2012 he quit to pursue a Ph.D. focused on energy and climate change. According to the Shell spokesperson, the company is currently involved in seven geothermal projects in the Netherlands.
Listen to Dmitri Lafleur’s story of leaving Shell for a career in climate on Bloomberg Green’s Zero podcast.
“There are a ton of things Shell can do,” Lafleur says. “Given the level of expertise and skills of project management, they’re very well-placed to execute very complex projects.” Indeed, Shell itself touts that same engineering expertise—in deep-water drilling and working in other remote and logistically tricky environments—as a potential advantage in building wind farms at sea. But to Lafleur, Shell still looks like the conservative place he left a decade ago. “It’s not the pace that’s required, given the acceleration we need,” he says. “If you’re not doing sufficient cuts in the next decade, the ship for 1.5C has sailed.”
The company faces a similar criticism in court: In 2021 a three-judge panel in the Netherlands, presiding over a lawsuit brought by a group of environmental organizations, ruled that Shell had to cut all of its emissions—Scope 1, 2 and 3—by 45%, and by 2030, not two decades later. Shell is appealing, arguing that it shouldn’t be expected to succeed where governments have so far failed. “The energy transition should be valid for the whole market,” Marjan van Loon, president of Shell’s Netherlands unit, says of the decision. It shouldn’t be a matter, she argues, of “a court case or one company.”
In the last years of Van Beurden’s tenure, Shell unquestionably scaled up its investment in the renewable and low-carbon technologies it had talked about for decades. In the past two years it bought Indian solar developer Sprng Energy for $1.6 billion and US renewable power company Savion LLC for an undisclosed sum. It also has agreed to pay almost $2 billion for Denmark’s Nature Energy Biogas, which turns animal manure into natural gas. In addition, Shell is investing more in its own in-house renewables efforts. Overall spending on its renewables and energy solutions unit rose to a record $3.5 billion in 2022, nearly 50% higher than the year before.
By comparison, however, Shell invested more than twice that amount, $8.1 billion, in oil and gas exploration and extraction last year. And on the February earnings call, Sawan suggested future investments in renewables and other energy transitions will be more stringently evaluated: “We will make sure that those investments go into the areas where we can see line of sight toward attractive returns to be able to reward our shareholders.”
Twenty miles west of the Pernis refinery, on an artificial peninsula reclaimed over the decades from the North Sea, an expanse of sandy soil surrounds a cluster of construction trailers. If all goes as planned, by 2025 the spot will be home to 10 electrolyzer modules, each the size of a shipping container, that separate water into oxygen and hydrogen. The former will be released into the air; the latter will be stored as a carbon-free compressed-gas fuel. Lijs Groenendaal, Holland Hydrogen 1’s supervisor, describes the project as she stands in coveralls over a toylike scale model. “Because it’s a molecule, you can transport it,” she says of the hydrogen fuel.
Despite its attempts to get into electric power, Shell is still banking on the continued need for transportable molecules. As impressive as recent advances in battery technology have been, a battery powerful enough to run an airplane or a large ship would leave no room for passengers or cargo. In addition, heavy industrial processes such as steelmaking will continue to require the high heat of combustion.
Hydrogen fuel is a potential solution for both. It produces no carbon when it burns and, in the electrochemical reaction of a fuel cell, can power a vehicle without being burned at all. Hydrogen is also an ingredient in fertilizers and other chemical products produced at Pernis. It’s a potential solution, as well, to the problem of storing wind and solar energy, by transmuting it via electrolyzer into an emissions-free fuel to be burned in power plants when the wind drops or demand spikes. “We are going to see a lot of investment getting to scale for hydrogen,” says Arya, of S&P Global Commodity Insights. “An electrification-of-everything world also relies heavily on hydrogen.”
HH1 will cost about €1 billion, Van Beurden says, and will be 10 times bigger than the next-largest project in Europe today. It will produce up to 60 tons of hydrogen a day; to ensure the process is carbon-free, the electricity to run the electrolyzers will come from an offshore wind farm that Shell is building with Dutch utility NV Eneco.
Even if hydrogen scales up dramatically, however, it will still play a far smaller role in the global energy system than what oil and gas do today. To make its hydrogen business viable, Shell will need to help create a market for it. It’s a similar issue with the biofuels it will start pumping out at Pernis. The company has the chemical and engineering expertise to produce them, but biofuels remain two or three times more expensive to produce than fossil fuels. Until that changes, they’ll remain a niche product. The same goes for the still economically unfeasible carbon capture and storage techniques that Shell and other energy companies say can render fossil fuel combustion almost emissions-free.
Shell already has relationships with the commercial and retail customers it will need to reach for hydrogen and biofuels—the company is one of the world’s biggest suppliers of jet fuel to airlines and diesel gasoline for trucks. And it has a history of taking new fuels and creating demand for them. In the 1960s, Shell was a pioneer in building the gas liquefaction plants and port terminal facilities without which natural gas would’ve remained a promising but impractical oil-well byproduct.
Then there’s that oil and gas money. Van Beurden suggests that at some point Shell will use its cash hoard to buy its way into new-energy prominence. “I’d be shocked if you wouldn’t make one or two significant moves in the portfolio,” he says. “Maybe in power. Maybe in bio. The moment will come that it’s opportune to make the move: A target will become available, a target will become attractive, and we are ready for it.” For a company the size of Shell, that means something an order of magnitude bigger than its previous investments—something, Van Beurden says, more like the $52 billion it spent to buy the natural gas company BG Group in 2016, an acquisition that was crucial to its shift away from oil.
Thus far, the businesses doing the most to drive and profit from the energy transition have been the Chinese companies dominating the solar cell industry and European innovators that have turned windmills from bucolic relics into industrial behemoths. Electric utilities and other developers have been the ones spending trillions of dollars to build renewable power plants. Battery makers and car companies—most prominently Tesla Inc.—have made electric cars a mainstream product. It hasn’t, in other words, been traditional energy giants.
For what it’s worth, some of Shell’s strongest critics believe it has a significant role to play. “Shell has the brains, the billions and the global reach to accelerate the transition,” says Mark van Baal, founder of activist group Follow This, which uses shareholder resolutions to push big oil companies including Shell to cut their emissions more aggressively. “The company finally says, ‘Yes, we’re going to transition, but we have to do it very slowly.’ If they wanted to do it slowly, they should have started in 1990. There’s no time to do it slowly anymore.”
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