Royal Dutch Shell
Industryweek 27230 Shell 0

Shell Braces for Change by Expanding Its Foothold in Electricity

Jan. 13, 2018
"The era of oil and gas and petrochemicals is not over, but the era of electric transport is also coming in. The world is changing and if our customers’ needs are changing, we have to change with them,” said Shell CEO Ben van Beurden.

Royal Dutch Shell Plc is taking small steps toward a future dominated by electric cars, renewable energy and carbon constraints, demonstrating its intent not to remain solely an oil and gas company.

The energy giant agreed last month to purchase First Utility Ltd., the U.K.’s seventh-largest power provider. Its offshore-wind partnership with Eneco may expand further, with newspaper Telegraaf reporting on Friday that Shell is considering buying the Dutch utility outright.

Big Oil entering the heavily regulated European power market isn’t a natural fit today. Yet it makes sense for a future in which consumers want charging points alongside gasoline pumps at fueling stations, and iPhone apps and smart home devices generate vast amounts of energy-use data that itself becomes a valuable commodity.

“We’re on the cusp of a potentially rather fundamental reorganization of the way that consumers purchase and get access to electricity,” said Rick Wheatley, an executive vice president at Xynteo Ltd., which advises oil companies including Shell on long-term sustainable planning. The oil industry is realizing “that things may begin to move much faster” in renewables and the electrification of transport, he said.

New Markets

Shell’s steps toward selling electricity have so far have been modest in comparison to its vast fossil fuels business. The company pumped 1.85 million barrels of oil and 10.47 billion cubic feet of natural gas every day in the third quarter, more than enough to supply the whole of the U.K. In contrast, First Utility has no generation of its own, instead buying power wholesale from a Shell unit, and supplies just 3% of the country’s residential energy market.

In October, Shell announced it was buying NewMotion, Europe’s largest electric-vehicle charging provider. In late November it reached an agreement with IONITY -- a Munich-based venture between BMW Group, Daimler AG, Ford Motor Co. and Volkswagen AG -- to start charging stations in 10 European nations.

Eneco, which pointedly shuns fossil fuels on the home page of its website, has a portfolio of sustainable energy projects across northwestern Europe. A Shell spokeswoman declined to comment on whether it was considering bidding for the Rotterdam-based utility or the company’s broader plans in the power sector.

Large oil companies are keen to make small investments now as a way to minimize the difficulty of gaining entry to new markets later on, said Richard Chatterton, an oil analyst at Bloomberg New Energy Finance.

“They don’t want to have any potential new opportunity out of their reach,” Chatterton said. These investments “are all about making sure they’re positioned well to take a hold of future opportunities when they become clear.”

Changing Customers

BNEF estimates global power demand will surge 58% by 2040, compared with 2016 levels, with $10.2 trillion of investment needed in the sector. The research group forecasts that during the same period the growth of electric vehicles will displace about 8 million barrels of oil a day -- equivalent to the production of Iran and Iraq today.

CEO Ben van Beurden, in a post on Shell’s website earlier this month, said he thinks constantly about preparing for a world where fossil fuels are less dominant. He intends to use the New Energies unit, with a budget of as much as $2 billion a year, to ensure Shell remains “a company of the future.”

“The era of oil and gas and petrochemicals is not over, but the era of electric transport is also coming in,” van Beurden said. “The world is changing and if our customers’ needs are changing, we have to change with them.”

By Kelly Gilblom and Anna Hirtenstein

Popular Sponsored Recommendations

Powering Up Productivity: The Transformative Power of AP Automation in Manufacturing

Oct. 25, 2023
Discover how AP Automation is revolutionizing the manufacturing industry, driving efficiency, cost savings, and security. In today's world, automation is the key to staying competitive...

Navigating Disruption: A Leader’s Guide to Strategy Under Uncertainty

Nov. 1, 2023
AI, sustainability, digital--industrials are facing disruptive forces that are redefining what it takes to win. What got your company where it is today won’t get you where you...

Modern Edge Computing Accelerates Smart Manufacturing Initiatives for Discrete Manufacturers

Oct. 22, 2023
Discover how Edge Computing platforms are a requisite for discrete manufacturers to solve production challenges, accelerate digitalization, and establish a reliable infrastructure...

How to Build Zero-Cost On-Site Solar and Storage Projects

Nov. 25, 2023
The Inflation Reduction Act offers tax credits, incentives, and financing that enable no-cost projects. In Enel’s eBook, discover the critical role that incentives play in your...

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!