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As Shell spends less while fulfilling its powering progress strategy, the company is exiting some areas but planning to grow in others.
“We’re pulling back on our capital in an effort to really get very focused and disciplined,” Shell USA President Gretchen Watkins said Nov. 7.
Under its new CEO Wael Sawan, the London-headquartered energy company has lowered its capex outlook to $23 billion to $25 billion for 2023, planning to spend about $3 billion to $4 billion less through 2024. Overall opex is expected to fall as well, down by $2 billion to $3 billion by year-end 2025, Watkins said during the Reuters Energy Transition North America conference in Houston.
The shift comes as the company aims to please investors, returning about $23 billion to shareholders so far this year, and strives to profitably decarbonize. Energy companies are being challenged to meet global energy needs while reducing emissions and growing profit—a tall order for some when uncertainties are added to the mix.
For Shell, the road ahead means concentrating on areas where it has a competitive advantage.
“Focus means we’re going to start doing some things. … It [also] means we’re going to stop doing some things,” Watkins said, noting Shell has divested out of Pakistan. The company said Nov. 1 it agreed to sell its 77.42% majority interest in Shell Pakistan Ltd. to Wafi Energy LLC. It is also exiting the retail power market in Europe. “So, you’ll see us make those sorts of decisions to really make sure we got a portfolio that is able to perform.”
Accounting for about a third of Shell’s capital spend, the U.S. will continue to see significant amounts of capital from the company, Watkins said. She pointed out how the Inflation Reduction Act incentives, specifically tax credits, enabled the company to see through new lenses the economics of technologies such as carbon capture and renewable fuels.
Finding competitive advantages
As a longtime producer and marketer of jet fuel, Shell sees opportunity to scale up sustainable aviation fuel (SAF) in the U.S., Watkins said, calling aviation an area where Shell has competitive advantage. The company is eyeing certain pilot technologies that would allow it to advance SAF, she said.
“SAF is not being produced at scale anywhere in the U.S. or really in the world yet, but there’s a lot of work going on to be able to scale that up,” Watkins said. “We’re optimistic that we’ll be part of that and are working closely with our customers. … It’s not something you can say if we build it, they will come. We actually need to really collaborate on that.”
SAF, made from non-petroleum feedstock such as municipal waste and plant oils, have similar physical and chemical properties as jet fuel but with a much lower carbon footprint. It can also be blended with jet fuel. The U.S. aims to produce 3 billion gallons of sustainable fuel per year by 2030, reducing aviation emissions by 20%, and up to 35 billion gallons per year by 2050. SAF is currently used at two major airports, according to the U.S. Government Accountability Office, but accounts for less than 0.1% of the jet fuel used by major airlines. Costs are among the barriers.
Data from the International Air Transport Association (IATA) shows only 0.24 megatonnes of SAF was produced globally in 2022. Despite the higher cost compared to conventional jet fuel, airlines purchased all of the SAF supply, IATA said in a report.
Demand continues to rise as airlines work to reduce emissions. United Airlines, for example, has said it plans to use 10 million gallons of SAF this year, about triple the amount it used in 2022.
“Within a competitive market framework, increased production levels and expansion of the feedstock mix should exert downward pressure on SAF prices, progressively closing the gap to fossil-based jet fuel and easing the financial burden on airlines,” IATA said.
Earlier this year, Shell said it signed a multiyear offtake agreement for SAF with U.S.-based Montana Renewables, the largest producer of SAF in North America, to meet supply agreements with Delta Airlines, Alaska Airlines and JetBlue at Los Angeles International Airport.
Shell is also a founding investor of LanzaJet Inc., a Chicago-headquartered sustainable fuels tech company and producer. The LanzaTech spinoff is nearing the 2024 startup of its Freedom Pines Fuels, which will be the world’s first alcohol-to-jet SAF production facility. The facility in Georgia will produce 10 million gallons of SAF and renewable diesel per year from ethanol.
Continuing oil, gas investment
While Shell sees competitive advantage in SAF, carbon capture and hydrogen given its presence in industrial areas such as Louisiana, the company maintains oil and gas will still be needed to meet energy needs.
“We are going to be continuing to invest in hydrocarbons,” Watkins said, calling the Gulf of Mexico (GoM) one of Shell’s foundational businesses. “We’re the largest operator in the U.S. Gulf of Mexico. You will see us continue to invest significant amounts of capital over the coming years.”
Shell brought its Vito floating production facility in the GoM onstream earlier this year, producing about 100,000 boe/d. The Shell-operated Whale, a nearly identical development underway in the GoM, is scheduled to start producing oil in 2024.
“We’ve really mastered, I would say, sort of a low-cost way of operating in the Gulf of Mexico,” Watkins said. “But the other really important thing about the Gulf is that the hydrocarbons that come on shore and are consumed by Americans are the lowest carbon footprint of any hydrocarbons we can have.”
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