Shell’s LNG strategy update – fundamental flaws remain

ACCR is commenting on Shell’s LNG Portfolio – Strategic Spotlight, which comes as a result of over a fifth of shareholders supporting a shareholder resolution co-filed by ACCR and institutional investors last year.

The resolution asked Shell to justify the assumptions behind its LNG growth strategy and explain how it’s consistent with the company’s climate commitments.

It was filed by Brunel Pension Partnership, Greater Manchester Pension Fund and Merseyside Pension Fund, which have combined assets under management of US$86 billion.

Nick Mazan, Oil & Gas Strategy Lead, ACCR, said:

“While Shell has produced a more sophisticated document than its previous LNG Outlooks and also made some important concessions, including that LNG utilisation may fall during periods of low price, it continues with fundamental flaws that we’ve seen in Shell’s previous LNG disclosures.

“It does not explain how LNG will outcompete other sources of energy – like renewables – which are cheaper and faster growing. For example, outcompeting renewables for electricity would require gas to be priced below $5/MBtu, but all of Shell's new projects cost more than that.

“Industrial demand remains a central component to Shell’s view of natural gas demand growth. Despite this being an area of engagement for investors, it's disappointing not to see a stronger focus on this apparent driver of demand, and instead a focus on more marginal demand drivers such as buildings and transport.

“In terms of financial resilience, Shell invests in infrastructure that will produce LNG for decades. Yet it is only disclosing LNG contracting information to 2029. Its most aggressive low-cost sensitivity still only applies low costs from 2036 - leaving a gap from 2030 to 2035 where Shell says little about the resilience of its portfolio.

“Shell fails to see that LNG is a risk to energy security. There have been two major geopolitical crises this decade that have caused LNG price spikes and exposed LNG as an unreliable energy source in consumers’ eyes. Shell has not explained how LNG’s reputation as an expensive fuel can be rehabilitated.

“Shell continues to see LNG as its largest contribution to the energy transition, however, given the relative emissions of LNG, it remains unclear how this is compatible with its 2050 net zero ambition.”