Shell & Total Still Investing Much More in Fossil Fuels Than RE: IEEFA

While Shell and Total are shifting towards RE technologies, around 90 percent of their capital continues to be spent on fossil fuels, finds a new report

While Shell and Total are shifting towards renewable energy (RE) technologies, around 90 percent of their capital continues to be spent on fossil fuels, finds a new report from the Institute for Energy Economics and Financial Analysis (IEEFA). To reach their own stated targets, IEEFA estimates that Shell and Total each need to shift at least USD 10 billion per annum (or 50 percent of total capital expenditure) from oil and gas exploration and invest in accelerating their renewable strategies.

Ranking among the most significant contributors to the build-up of greenhouse gases, report author Clark Butler said both Shell and Total are well short of their publicised sustainable energy targets without a major shift of investment from fossil fuel assets to renewable energy.

“Total is unlikely to meet its 2025 goal of 25 gigawatts of installed renewable energy on its current trajectory,” says Butler. “And Shell’s immediate plan to spend USD 6 billion on renewable energy generation by the end of 2020 will also fail.”

The report adds that Total, the world’s fourth-largest oil and gas company, has pledged to be net-zero in Europe (only) by 2050 and to reduce its carbon emissions intensity by 60 percent or more by 2050. Similarly, Shell plans to reduce its net carbon footprint by 65 percent by 2050.

“It is difficult to see how either company will achieve the massive transformation in carbon intensity they aim for without a fundamental shift away from oil and gas investment,” said Butler.

“Shell and Total together are responsible for more carbon emissions than Germany, the world’s sixth-largest emitter. It is impossible for them to be net-zero unless they invest more in zero-emission energy and less in fossil fuels. At the very least Total and Shell need to direct more than half of their capital investment each year to zero-carbon investment if they are to reduce their carbon intensity in line with their own stated targets. This will at least tip the balance of investment in favour of renewables over fossil fuels and will scale them up towards renewable competitors like NextEra and Iberdrola.”

Butler says Total is almost halfway to its 2025 objective of 25 GW and has successfully acquired large-scale renewable infrastructure development capacity.

“No other major oil company is growing renewables this fast,” he said. “But Total’s announcement last week of USD 15 billion of debt financing dwarves its investment this year in zero-carbon energy. Shell is in an even worse position. It will need to increase its current level of activity by orders of magnitude to meet its renewables capital investment target of USD 2-3 billion per year from 2021.”

Further the report adds that in contrast, the supermajors’ renewable competitors are way ahead of the curve.

Spain’s largest energy group, Iberdrola, told the market it would invest EUR 32 billion in renewables between 2018 and 2022. At its February 2019 shareholder update, that amount was increased to EUR 34 billion.

The report notes that Iberdrola’s share price performance over the last two years (up 53 percent) compared to Total (down 35 percent) and Shell (down 52 percent) confirms the market’s confidence in its strategy.

“In many ways, Iberdrola is the energy company Total and Shell say they want to become,” said Butler. “An investor might well ask, why invest in Shell or Total to gain exposure to renewable energy when I could invest in NextEra, Ørsted or Iberdrola, given these firms are far more advanced in the transition?

“Investors may avoid the supermajors altogether unless they demonstrate serious progress towards their stated goals,” he concluded.