Climate Activists and IEA’s LaLa-Land Approach to Push Oil Prices Significantly

After a Dutch court forced Royal Dutch Shell to commit to much more stringent climate change and energy transition strategy, US majors ExxonMobil and Chevron also were defeated in their general shareholders meetings.

The American giants were hit by landmark victories of activist shareholders, as the latter gained seats on the board of ExxonMobil and others. With calls on mainstream oil and gas companies, activists and NGOs are trying not only to speed up energy transition strategies worldwide but also force oil majors to cut their production and emissions. The Dutch court case could be a watershed verdict, as the judge ordered not only Shell to cut emissions more than was proposed by the company, but also stated that Shell is responsible for the emissions of all parties in its value chain, which includes suppliers, buyers and consumers.

This activist onslaught on Big Oil was supported by a bombshell report of the International Energy Agency (IEA), Net Zero by 2050. The former oil and gas focused energy agency of the OECD stated bluntly that the world should stop investing in new oil and gas immediately. As expected, mainstream and activist media took all of these developments as a major watershed issue, the end of oil and gas was proclaimed already by some.

Since this media-genic bloodshed scenario, in which the end of Big Oil was proclaimed, some realism has returned in the market. After a short period of silence, the hydrocarbon giants started to react. In addition to the so-called Seven Sisters (IOCs), OPEC member countries already declared the ongoing IEA strategies as flawed, not relevant and having no impact on their own operations. In a reaction to the press, Saudi energy minister Prince Abdulaziz bin Salman stated “”I would have to express my view that I believe it is a sequel of the La La Land movie”.

He also asked the media “why should I take it seriously?” The Saudi official reacted to the statement by the IEA that to reach Net Zero by 2050 that oil supplies have to shrink by 8% per year, reaching 24 million bpd by 2050, in comparison to around 100 million bpd before COVID-19 hit. The Saudi reaction, supported by other OPEC members and Russia, already is proving to be right. Just shortly after its own report, the IEA needed to come out with a statement that global oil demand is showing high growth potential, hitting soon pre-crisis levels.

It seems that activist shareholders and NGOs still don’t understand the pivotal role of oil and gas in the economy. Without any other options, demand is set to grow, hitting soon 100 million bpd levels again, while no peak yet to be expected. Some could even argue that to force IOCs and other listed oil and gas operators to change their strategies and divest major parts of their business to reach Paris Agreements or the EU 55% emission reduction targets is setting up the hydrocarbon sector for a major shakedown and revamp of national oils. In the end, the next decades oil and gas will be needed, especially to stabilize the immense energy transition being implemented.

Without natural gas especially, formerly supported by the IEA as fuel of choice for the energy transition, the global energy system collapses. A major inherent flaw of activists and NGOs worldwide is that they want companies like Shell, Exxon or BP to commit suicide. By forcing them to sell assets, their specific emissions will be going down, but overall the vacuum created in the market will be filled by others. The “Others” are either private equity companies, which are not listed so no 3rd party influence, or national oils.

The latter, even acknowledged by the IEA, are looking at a very bright future. Removing production of IOCs will be not lost forever, but change into the hands of others. Supply however could be partly hampered, or politically influenced in future. Stability of hydrocarbon markets is needed, not only to commit to a sustainable economic future, but also to have the financial powers to put energy transition powers in place. The Seven Sisters will not be able to implement the major new green investments without having access to capital. Without high revenue levels from oil and gas, no options will be available to commit to lower risky projects such as offshore wind, solar or hydrogen.

In the short to mid-term, instability will be increasing substantially. Major new oil and gas projects, needed to even keep current demand-supply in check, are being threatened. If IOCs are leaving the market even more, consumers and industry will be at the mercy of private equity production parties or geopolitically instigated national oil companies. The latter two’s main strategy will be to maximize revenues, not to maximize production. Further price increases will be the result, which ever new party is owner of the fields and reserves.

For energy transition goals, higher oil prices are not the solution, as margins will attract investments, especially in a financial system looking at a glut of options. Renewables should be opting for higher production while removing demand, the latter would result in lower prices and less market interest. The current move is a Pyrus victory in Lala-land. Demand is growing, prices are still not high enough to constrain economic growth.

With oil prices at $70-80 per barrels, supply will be available but now regulated by out-of-reach parties for activists. Setting up IOCs to fall is reaping higher oil prices and continuing investments, whatever Western financials are stating. Current Green Washing accusations will now be based on upward pressure on US Dollar (Greenback) levels. Activists are clearly unknowingly pushing the world to higher prices, with geopolitically constrained supply options.

Shell to Step Up Energy Transition After Landmark Court Ruling

By Ron Bousso

Shell plans to appeal the May 26 court ruling that ordered it to reduce greenhouse gas emissions by 45% by 2030 from 2019 levels, significantly faster than its current plans.

But the court ruling applies immediately and cannot be suspended before the appeal, van Beurden said in a LinkedIn post https://www.linkedin.com/pulse/spirit-shell-rise-challenge-ben-van-beurden.

“For Shell, this ruling does not mean a change, but rather an acceleration of our strategy,” van Beurden said.

Shell shares were up 0.8% at 1346 GMT compared with a 0.4% gain in the broader European energy index.

Earlier this year, Shell set out one of the sector’s most ambitious climate strategies. It has a target to cut the carbon intensity of its products by at least 6% by 2023, by 20% by 2030, by 45% by 2035 and by 100% by 2050 from 2016 levels.

“Now we will seek ways to reduce emissions even further in a way that remains purposeful and profitable. That is likely to mean taking some bold but measured steps over the coming years.”

The court ruling called for Shell to cut its absolute carbon emissions, a move van Beurden had previously rejected because it would force Shell to scale back its oil and gas business, which account for the vast majority of its revenue.

Shell currently plans to increase its spending on renewables and low carbon technologies to up to 25% of its overall budget by 2025.

Analysts have said the ruling could lead to a 12% decline in the company’s energy output, including a sharp drop in oil and gas sales.

The court case came shortly after the International Energy Agency said in a report that investments in new fossil fuel projects should stop immediately in order to meet U.N.-backed targets aimed at limiting global warming.

Shell, which is the world’s top oil and gas trader, has said its carbon emissions peaked in 2018, while its oil output peaked in 2019 and was set to drop by 1% to 2% per year.

The ruling by the court in The Hague, where Shell is headquartered, could trigger action against energy companies around the world.

But van Beurden repeated his call for governments and companies to tackle oil and gas consumption around the world, and not only supply.

“Imagine Shell decided to stop selling petrol and diesel today. This would certainly cut Shell’s carbon emissions. But it would not help the world one bit. Demand for fuel would not change. People would fill up their cars and delivery trucks at other service stations,” van Beurden said.

“A court ordering one energy company to reduce its emissions – and the emissions of its customers – is not the answer,” he added.

(Reporting by Ron Bousso, editing by Louise Heavens, Kim Coghill and Elaine Hardcastle)

Dutch Court Orders Shell to Deepen Carbon Cuts in Landmark Case

By Bart H. Meijer

At a court room in The Hague, judge Larisa Alwin read out a ruling which ordered Shell to reduce its planet warming carbon emissions by 45% by 2030 from 2019 levels.

“The court orders Royal Dutch Shell, by means of its corporate policy, to reduce its C02 emissions by 45% by 2030 with respect to the level of 2019 for the Shell group and the suppliers and customers of the group,” Alwin said.

Shell currently has a target to reduce the carbon intensity of its products by at least 6% by 2023, by 20% by 2030, by 45% by 2035 and by 100% by 2050 compared with 2016 levels.

But the court said that Shell’s climate policy was “not concrete and is full of conditions…that’s not enough.”

“The conclusion of the court is therefore that Shell is in danger of violating its obligation to reduce. And the court will therefore issue an order upon RDS,” the judge said.

The court ordered Shell to reduce its absolute levels of carbon emissions, while Shell’s intensity-based targets could allow the company to grow its output in theory.

The lawsuit, which was filed by seven groups including Greenpeace and Friends of the Earth Netherlands, marks a first in which environmentalists have turned to the courts to try to force a major energy firm to change strategy.

It was filed in April 2019 on behalf of more than 17,000 Dutch citizens who say Shell is threatening human rights as it continues to invest billions in the production of fossil fuels.

“This is a huge win, for us and for anyone affected by climate change”, Friends of the Earth Netherlands director Donald Pols told Reuters.

“It is historic, it is the first time a court has decided that a major polluter has to cut its emissions,” Pols added after the verdict, which Shell can appeal.

Shell, which is the world’s top oil and gas trader, has said its carbon emissions peaked in 2018 and that its oil output peaked in 2019 and was set to decline by 1% to 2% per year.

However, the Anglo-Dutch company’s spending will remain tilted towards oil and gas in the near future.

A rapid reduction would effectively force the firm to quickly move away from oil and gas.

Shell, which plans to achieve net zero carbon emissions by 2050 or sooner, said ahead of the ruling that court action will not accelerate the world’s transition away from fossil fuels.

(Reporting by Bart Meijer; Writing by Ron Bousso and Shadia Nasralla; Editing by Elaine Hardcastle and Alexander Smith)

FTSE 100 Rises on Commodity Stocks, Jobs Data Boost; Oxford Biomedica Jumps

By Devik Jain

The blue-chip index rose 0.5%, with precious and base metal miners adding more than 1% each, as they benefited from higher metal and gold prices. [MET/L] [GOL/]

Oil majors BP and Royal Dutch Shell, and banking stocks also rose, providing the biggest boost to the index.

The domestically focussed mid-cap FTSE 250 index climbed 0.7%.

Britain’s unemployment rate fell again, to 4.8% between January and March, and hiring rose further in April, according to data that showed employers gearing up for the easing of curbs.

“It is a general return to a bit of risk-on in the markets out there. We have some data out of the UK and several countries in Europe easing their restrictions have contributed to a general sense that the reopening is underway and that will boost cyclical stocks in particular,” said Simona Gambarini, a markets economist at Capital Economics.

The FTSE 100 has gained nearly 9.4% year-to-date as investors flocked to energy, materials and banking stocks that are seen benefiting the most from a stronger economic recovery due to speedy COVID-19 vaccinations and government support.

Fund managers loaded up on UK stocks and cut exposure to technology stocks as rising inflation and “taper tantrum” fears leave growth stocks vulnerable to pullbacks, Bank of America’s May fund manager survey released on Tuesday found.

Among other stocks, Oxford Biomedica gained 6% after it doubled the revenue expectation from its COVID-19 vaccine supply deal with drugmaker AstraZeneca.

Imperial Brands rose 2.1% after the tobacco company reiterated its full-year outlook.

Mobile operator Vodafone Group slipped 6.9% on reporting a 1.2% drop in annual adjusted earnings, as COVID-19 hit roaming revenue and handset sales.

(Reporting by Devik Jain in Bengaluru; editing by Uttaresh.V)

Europe’s Oil Majors Leave Pandemic Blues Behind

By Shadia Nasralla

Last year’s demand collapse forced BP, Royal Dutch Shell and Equinor to slash their dividends and preserve cash as they to try to transform themselves into companies that can thrive in a low-carbon world.

With benchmark oil prices recovering from an April 2020 low of $16 a barrel to about $67 a barrel this month, most of the companies managed to drive profits back above levels seen before the coronavirus pandemic first struck.

BP’s first-quarter headline profit figure of $2.6 billion exceeded its first-quarter profit of $2.4 billion in 2019 and was more than 200% higher than in 2020.

France’s Total reported headline profits of $3 billion in the first three months of 2021, up 69% from last year and 9% above the first quarter of 2019.

Norway’s Equinor, meanwhile, came in with a first-quarter profit of $5.5 billion on Thursday, also exceeding its pre-pandemic profit of $4.2 billion.

Shell’s first-quarter profit climbed 13% from last year to $3.2 billion though that was still below 2019’s $5.3 billion.

But despite recovering profits, payouts were still below pre-pandemic levels with the exception of Total, which had kept its dividend steady throughout the pandemic.

“(Total’s) dividends are held flat but the buyback question will now arise given the sub 20% gearing (debt-to-equity ratio),” Bernstein analysts said.

While Shell has increased its dividend twice in the past six months, the 17.35 cents it paid per share in the first quarter was below the 47 cents it paid out before the pandemic.

Shell, which is set to increase its dividend by 4% next year, has flagged share buybacks once its debt falls to $65 billion which Barclays and Bernstein say is possible this year.

Equinor also raised its payout to 15 cents per share, but again this was short of 2019’s 26 cents per share.

“The suggestion is that capital is being preserved to allow for an acceleration of new energy investment,” Citi said.

BP’s 3.8 pence per share first-quarter dividend was about half of what it paid in 2019. However, it is starting share buybacks which analysts expect to increase in the third quarter.

“BP should be able to buy back at least $10 billion between 2021 and 2025,” said analysts at Jefferies.

Spain’s Repsol reported a 5.4% rise in first-quarter adjusted net profit to 471 million euros, though this was 24% below earnings in the first three months of 2019.

It decided in November to cut its 2021 and 2022 cash payouts to 0.60 euro from 1 euro per share, but said share buybacks could push returns above 1 euro per share by 2025.

(Reporting by Shadia Nasralla; Additional reporting by Nerijus Adomaitis, Isla Binnie and Benjamin Mallet; Editing by David Clarke and Elaine Hardcastle)

Shell Raises Its Dividend as Profits Surge

By Ron Bousso and Shadia Nasralla

LONDON (Reuters) -Royal Dutch Shell’s profits leapt to $3.23 billion in the first three months of the year and the energy company raised its dividend as planned but warned that the outlook remained uncertain due to the coronavirus pandemic.

Shell’s adjusted earnings were above an average analyst forecast of $3.125 billion and also ahead of earnings of $2.9 billion last year, boosted by assets sales as well as higher oil and liquefied natural gas (LNG) prices, it said on Thursday.

Sales of oil and gas assets in countries including Nigeria, Canada and Egypt added $1.4 billion to first-quarter profits.

Shell’s London-listed shares were up 1.2% at 0736 GMT, outperforming a 1% gain for the broader European energy index.

“The quarter proves without doubt that Shell’s earnings power is intact,” Bernstein analyst Oswald Clint said in a note.

Shell said its fuel sales fell 13% in the first quarter due to further lockdown measures and the impact of a Texas storm in February, saying there was still “significant uncertainty” over the outlook for demand in the second quarter.

The Anglo-Dutch company raised its dividend by 4% as planned, the second increase since its slashed its payout by two-thirds at the start of last year due to the coronavirus pandemic.

Shell’s cash flow from operations, a key performance metric, rose to $8.3 billion from $6.3 billion, helping to reduce its debt to $71.3 billion.

Shell wants to get its net debt below $65 billion before starting to repurchase shares, part of its strategy to shift to low-carbon energy in the coming decades.

Norway’s Equinor also raised its dividend and posted a rise in first-quarter profits on Thursday.

Shell’s oil and gas trading operations, the world’s largest, did not boost revenue significantly in the quarter, unlike rival BP which reported “exceptional” revenue on Tuesday from its natural gas trading business.

Shell said its LNG trading was significantly below average in the quarter as a result of credit provisions following the storm in Texas, which triggered a massive state power failure and left millions of people without light, heat and water.

Shell’s fuel sales fell in the first quarter to 4.16 million barrels per day (bpd) but were expected to rise to an average of 4.5 million bpd in the second quarter.

Oil and gas production at Shell’s upstream operations fell 9% from a year ago to 2.46 million barrels of oil equivalent per day (boed) due to maintenance and disposals.

Output was forecast to decline again to 2.25 million boed in the second quarter due to lower seasonal gas demand and further asset sales.

(Reporting by Ron Bousso; Editing by David Clarke)

Shell Expects at Best Steady Fuel Sales for First Quarter

By Shadia Nasralla

Shell said it saw refined oil product sales at 3.7-4.7 million barrels per day (bpd) for the first quarter compared with just under 4.8 million bpd in the last quarter of 2020.

Shell’s refining margins have improved to around $2.6 per barrel in the quarter from $1.6 in the previous quarter.

In liquefied natural gas business (LNG) trading, where it is a global leader, Shell said it expected results to be “significantly below average”.

Shell sees its first-quarter LNG production at 7.8-8.4 million tonnes, compared with 8.2 million in the previous quarter.

Total upstream production was expected to rise to 2.4-2.48 million barrel of oil equivalent from 2.37 million in the fourth quarter of 2020.

An extreme cold snap in Texas is expected to have shrunk its output by 10,000-20,000 bpd and to shave up to $200 million from its adjusted first-quarter earnings, due to be reported on April 29.

Benchmark crude prices in the first quarter rose around 24% and were trading near $63 a barrel on Wednesday.

(Reporting by Shadia Nasralla; Editing by Andrew Heavens)