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Shell to put profits above clean energy as oil boss signals the speed to green will slow

Shell is set to scrap a target to reduce oil output by 1 to 2 per cent per year, its chief executive will tell investors next week.

The energy group will keep oil output steady or slightly higher for the rest of the decade as part of chief executive Wael Sawan’s efforts to regain investor confidence as the energy firm wrestles with poor returns from renewables while oil and gas profits are booming.

Mr Sawan, who took control of Shell in January with a vow to improve its financial performance as its shares lag rivals, will tell investors in New York this week that oil and gas will remain central to Shell for years to come, insisting that efforts to shift to low-carbon businesses cannot come at the expense of profits.

He is expected to argue that world’s growing demand for fossil fuels has changed the rate and extent to which it can transition to cleaner energy.

Shell produced around 1.5 million barrels per day (bpd) of oil in the first quarter of 2023, down by 20 per cent from 2019 production of 1.9 million bpd. It reported profits of almost £7.7bn ($9.65bn) for the same period amid soaring oil and gas prices.

FILE PHOTO: Wael Sawan, the CEO of Shell, speaks with Daniel Yergin (not pictured), the vice chairman of S&P Global, during the CERAWeek energy conference in Houston, Texas, U.S., March 9, 2023. REUTERS/Callaghan O'Hare/File Photo
Wael Sawan, Shell’s chief executive (Photo: Callaghan O’Hare/Reuters)

Output is now expected to remain flat and could slightly rise by the end of the decade depending on whether new projects meet profit thresholds as well as on the success of exploration activity, particularly in Namibia.

The move is seen as a way of satisfying shareholders who want the company to pay out greater dividends. Returns from oil and gas typically range between 10 to 20 per cent and 5 to 8 per cent for solar and wind projects, experts say.

It will anger climate-focused investors who want to see its record profits used to speed up the transition to renewable energy rather than slow the progress. Last month Shell security staff were forced to protect Mr Sawan and other board members when climate activists tried to rush the podium at its Annual General Meeting.

Security personnel remove a protester during the Fossil Free London demonstration outside the venue of Shell's annual shareholder meeting, at the ExCeL center, in London, Britain May 23, 2023. REUTERS/Toby Melville
Security personnel remove a protester during the Fossil Free London demonstration at Shell’s annual shareholder meeting (Photo: Toby Melville/Reuters)

While expected to stick to Shell’s target of becoming a net-zero emitter by 2050, the executive told investors at that meeting in London that “significant investments in oil and gas are needed just to keep production at a constant level, let alone to meet growing demand”.

Only one in five shareholders voted for a resolution at the agm calling for Shell to set more ambitious targets for cutting greenhouse-gas emissions. The company is planning to appeal a Dutch court ruling which said Shell must increase its climate targets. It may yet face similar legal action in the UK courts

His willingness to slow the speed and nature of Shell’s transition to renewables and green energy future is in marked contrast to Shell’s former boss, Ben van Beurden, who introduced the carbon reduction targets and the energy transition strategy.

The shift away from cuts in oil production at Shell is similar to a move by BP earlier this year.

Shell has already scrapped several projects, including in offshore wind, hydrogen and biofuels, due to projections of weak returns.

It is carrying out a review of its chemicals business which made a loss of $1.4bn last year. It is also selling its European retail energy businesses, which were seen only a few years ago as key to its energy transition.

Shell reported record profits of $40bn (£32bn) last year on the back of strong oil and gas prices.

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