Not just Shell is in the Dock
Updated: Jun 10
May 2021 showed some remarkable developments. Shell had to take a conviction. Other Oil majors needed to accept new people on the Board. Even in Indonesia lawsuits were filed against government. Slowly it gets to the surface: Things change, have to change. All the discussion about these developments are nice reads. So here is another one.
Shell and colleagues have to change to other business models. Most likely they are not shocked by the verdict and regard it as a nuisance. And will appeal. Most commentators regard the verdict excessive, especially on the 45% reduction of Scope 3 emissions. Or regard it as toothless and ineffective. But is that so?
What is Shell doing on climate change? Biggest pillar is their bet is on hydrogen. But this is a very much debated way as the vast majority of hydrogen is produced from natural gas and producing it from Renewable Energy is a waste of energy. But it fits nicely in its present sales portfolio of selling gas. And when governments are willing to pay for CCS, they have a next source of income. They buy a lot of trees to be planted and they can claim a nice carbon offset. It is all “Business as Usual”. Nothing disruptive.
Shifting from one business model to another is often called “Crossing the Valley of Death”. A risky voyage and the best approach is: do it decisively and fast. Shell tried to take over a Dutch utility electricity provider, Eneco, but lost it to Mitsubishi. Investing in wind turbines to make hydrogen is not a way to cut carbon emissions. They just lack the creativity and the imagination to be really disruptive. They do not dare to cut in their own old flesh.
A very sad thing as we need the big players to really get the energy transition done. Shell knows all the places where oil and gas can be found. So, they must also know all the places where lithium brine can be found. Where cobalt, magnesium, silicon, aluminium, bromide etc are. All those commodities needed for the energy transition. How to mine these in a sustainable way, they know as well. Some knowledge they miss can be found elsewhere. To setup large projects is their core competence. Technically, politically and financially. They have the tools but not the mindset.
When you have the commodity, you can build the products with it. Shell can make batteries. Does not have to leave that to CATL. And they know how to distribute. That is another core competence. For instance: inland shipping in NW Europe. Rotterdam is the biggest bunker port in the world. Home match for Shell. Several smaller companies are investing in electrical drives for inland shipping. That technology is mature and fully available. Now it needs a big hammer to drive it through. Shell could, but is wasting time and effort on hydrogen. Distributing energy is a next core competence of Shell. They make petrol and gas available in every remote corner of EU, US and elsewhere. Then they can distribute swappable batteries, small and big, everywhere. Setup the infrastructure. Be aware that inland shipping is huge in NW Europe. It reaches from the mouth of Rhine to the mouth of Danube and all the side rivers and canals. Combine it with on-land transportation infrastructure and a whole new industry is taking shape. But it all requires imagination, creativity and bold action. When your head was stuck in oil for nearly 150 years it may have become too intoxicated.
The first oil major that crosses the Valley will make it. The last ones will perish. When Shell goes for appeal on the verdict they chose for the end of the queue. When they accept the challenge of this ruling, they might have a change to reach new heights and safe ground. Two years ago, at a presentation of the Sky-scenario I stated that Shell was heading for bankruptcy. They are still on track.
It might not be a simple straight forward Insolvency but outside action might be needed. For banks a nice one-liner was created: “To big to fail”. Here is a new one-liner “To big to save”. You do not save an elephant with a jumping sheet. All firemen wounded and the elephant laying smashed on the pavement. The clouds are on the horizon but not yet overhead. But that will come. Maybe one option was just published in the Guardian. Or Shell and cs will be split up in parts with only some kept alive? They have to become very creative and disruptive or become what they have produced so long: A fossil.