Isn’t gas a hydrocarbon? In her official press release, Ms. Leila Benali , Morocco’s Minister for Energy Transition and Sustainable Development, said she was delighted that yesterday’s twelve-year supply agreement with Shell would speed up Morocco’s decarbonisation strategy. Shell will supply Morocco with 500 million cubic metres of liquefied natural gas (LNG) per year for 12 years. Morocco’s energy independence from Algeria is certainly assured, but the link with its decarbonisation strategy is hard to understand.
Yet this incongruous link between gas and the development of green energy is now part of the language used by oil majors around the world. The underlying reasoning is to maintain or even develop gas production in order to finance the energy transition. One after another, the oil companies are reneging on the climate commitments made in the Paris Agreement, arguing that the development of renewable energies requires investment. Maintaining hydrocarbons, and especially gas, would be the inevitable source of funding.
For climate protection NGOs such as Reclaim Finance, Oxfam and Greenpeace, this reasoning does not hold water. If the energy transition is stalling, it is not because the majors lack resources, but because shareholders are too greedy. The record profits of 2022 following the energy crisis have led to unprecedented levels of dividends and share buybacks. They could simply have been maintained, or even increased a little less, and that would have been just as many resources.
Wael Sawan, CEO of Shell, was more direct. On 16 June, he announced that he was going back on his climate objectives in favour of profitability. It is maintaining its oil production and accelerating its gas production, while confirming its zero-carbon strategy, but this time by 2050. The stated aim is to ensure high returns for its shareholders. Shell plans to invest 40 billion dollars in oil and gas production by 2025, and 10 to 15 billion dollars in the development of low-carbon energies, such as biofuels, hydrogen and electric vehicle recharging. That’s 3.5 to 4 dollars invested in hydrocarbons for every 1 dollar invested in low-carbon activities. This is better than in 2022, when the average was €6.1, according to calculations by Reclaim Finance.
This proportion could still be tilted in favour of renewable energies.
But the real leverage lies elsewhere, point out the NGOs. It is the return to shareholders.For every dollar invested in renewable energies in 2022, Shell shareholders received 7.5 dollars in dividends and share buybacks. And the trend is set to accelerate, with Shell planning to increase dividends by a further 15% in 2023.
So the climate transition now depends on shareholders.It is no longer an operational issue, a matter of investment arbitrage between several business units, but a matter of governance.It’s about changing the way value is shared by directing more financial resources towards operational investment, and less towards shareholders.
Shareholders themselves are divided on this point.Blackrock, the world’s leading asset manager, is on the side of NGOs in support of the climate.Larry Fink, its charismatic boss, has even written to the world’s top 200 companies urging them to cut dividends in order to invest more and prepare for the future.Opposite him, the very powerful Californian fund Vanguard is applauding the increase in returns to shareholders.
To influence the strategy of oil companies, investors are getting organised. 24 shareholder resolutions on climate change were presented at this year’s AGM, compared with 13 in 2022.The average approval rate was 15%, with BOEING and JP MORGAN achieving the highest rates at over 35%.At TOTALENERGIES, the shareholders’ Climate resolution reached 30%.In 2022, the average was 4%.The fact remains that general meetings are not held every day, and a good indicator of this on a day-to-day basis is the share price.The Oil & Gas sector is on a roll.The day Shell announced it was abandoning the Paris Agreements, its share price rose by 2%.
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