Europe's largest oil company, Shell, is set to announce a major expansion of its renewable energy activity and a "new drive into wind power", as it seeks to avoid the "nasty, brutish and short end" that experts predict will be the fate of existing oil major business models over the coming decade.
The move comes only a few months after the UN summit in Paris last December when members made their strongest commitment yet to reduce carbon emissions. The deal will see a renewed push towards green energy by governments as well as calls for more fossil fuels to be left "in the ground".
Shell's decision to invest in renewable energy follows a crash in the oil price over the past two years, with no return to the three-figure highs of 2014 predicted for some time.
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This has led to the Chatham House think-tank stating in a research paper earlier this month that the oil majors are "no longer fit for purpose". The Guardian says the group argues that the only way forward for these behemoths is "diversifying into green energy, drastically reducing their operations or consolidating through mega-mergers".
This month, another research firm, Carbon Tracker Initiative, called on oil majors to "slim down and base their business models around global warming targets".
Shell's new business operation, New Energies, will "bring together existing hydrogen, biofuels and electrical activities but will also be used as a base for a new drive into wind power", according to an internal announcement to company staff reported by The Guardian.
The unit will have $1.7bn of capital investment and annual capital expenditure of $200m. Shell is thought to believe that its new division could become very big – "but not for a decade". The oil giant is seeking to place itself at the forefront of the move into green energies without getting "so far in front [that it] dilutes investor returns".
"It is unlikely Greenpeace and others will be impressed by New Energies, given that the division's annual spending level is less than 1% of the total $30bn Shell pumps into oil and gas," notes the paper.
Shell is also reported to be seeking to spin out a unit housing "non-core" exploration assets, dubbed "Baby Shell", as it seeks to reduce a debt pile that has risen to $70bn with the acquisition of BG Group. The company could seek to list the new entity, the Daily Telegraph says, so that it reduces the size of its balance sheet while retaining exposure in order to benefit from any "sustained oil price recovery".
