Shell blames energy crisis on policy failures, eyes opportunity outside Europe

Shell on July 28 blamed an inhospitable investment environment as part of the reason for production weakness in its Q2 results, but said there were opportunities to invest around the world, in both energy transition and oil and gas, including in the US, Kazakhstan, Suriname and Namibia.

Shell reported a 13% drop in Q2 upstream production compared with a year earlier to 1.92 million b/d of oil equivalent, including a 15% drop in oil output to 1.33 million b/d.

In addition, its separate 'integrated gas' unit, which focuses on LNG, reported a 5% output drop to 944,000 boe/d.

It said third-quarter upstream production would be at similar or lower levels, in a range of 1.75 million-1.95 million boe/d, with production in integrated gas also lower at 890,000-940,000 boe/d.

Part of the weakness is due to maintenance, as well as the loss of Shell's Russia business, including the Salym project.

CEO Ben van Beurden said Shell was working to alleviate near-term European shortages, including with the Pierce gas 'blow-down' project in the North Sea, which is due on stream in the autumn, and the recent decision to develop the Jackdaw field, which could account for 6% of UK gas output.

The Colibri field in Trinidad and Tobago, which came on stream in March, would also help boost regional LNG supply, he said, adding that Shell had import capacity at six European LNG terminals, with a memorandum of understanding also signed for the planned Brunsbuttel terminal in Germany.

However, while Shell is investing in renewables, Europe's energy problems lie in underinvestment and a lack of measures to reduce demand, van Beurden said, highlighting apparent policy inconsistency and also repeating criticism of a recent UK energy profits tax, which provides no relief for energy transition spending. In contrast, he welcomed moves by the US Biden administration toward possible new offshore leasing.

Undersupply "is a global problem and also a problem that has come about by policy decisions [by governments]. The industry has significantly underinvested collectively, whether it's international publicly listed oil companies or national oil companies — over the last years we have invested to the tune of a trillion dollars less than we would have done in normal circumstances," van Beurden said in a call with journalists.

While part of the supply problem relates to pandemic bottlenecks, "part of it is also because there is a lot of expectation and pressure for us to move away from an oil and gas-dominated system... If that happens, which has happened, but at the same time there have been insufficient policies to also deal with the demand for oil and gas, we of course get the tightness that we get."

He went on to quash speculation Shell could revisit the deepwater Cambo oil project in UK waters, which the company dropped last year amid environmental protest. Despite current price incentives, "it's a long-term project — scope for delays and everything else will remain. We have better things to do with our money to be perfectly honest," van Beurden said.

Upstream opportunity

However, Shell sees upstream investment opportunities elsewhere, van Beurden said, naming several countries, all outside OPEC, including "frontier" areas such as Namibia and Suriname.

"Europe has no problem with consuming oil and gas, it is just producing it that is the issue here," van Beurden said. "We will increasingly look at other parts of the world where there is actually support for that type of development, Kazakhstan being one of them, but other areas like the US Gulf of Mexico, where we have a number of new projects coming on stream this year. And we are continuing to invest going forward, also in places like Brazil. We continue to invest in places like Oman, and of course we are looking at one or two new frontier areas where we still believe there is a lot of potential," he said.

On Kazakhstan, chief financial officer Sinead Gorman said Shell assets were producing "very, very well" following recent maintenance at the giant Kashagan field, and that the company remained committed despite recent issues that have raised fears for the CPC export pipeline.

"They've managed to get on stream and hit production levels that we have not seen for many, many quarters. However, it's about making sure that we get production to where it is needed. The CPC pipeline is up, it is running, it is moving through at the moment, but we are also looking, and using many alternative routes to market and that is very key," Gorman said.

On the downstream, van Beurden said Shell was reducing gas intake at its European refineries as a "self-help" conservation measure, noting the potential to use gases from oil, and saying that throughput was not impacted by such measures.

Shell forecast its third quarter refinery throughput would rise to a range of 90-98% of capacity from 84% in the second quarter.

"Already we have reduced the gas intake for our refinery in Rotterdam by about 40% and we're working to do even more. We've halved the gas consumption in our large chemicals complex in the Netherlands as well. In Germany we have reduced the natural gas intake in our [Rheinland] energy and chemicals plant by 70%," he said.

"The way we effectively do it is to run our refineries... in both Germany and the Netherlands in such a way that you produce more gases in cracking processes and everything else and then we use basically gas that has been produced out of the oil intake to fire some of these furnaces."