A Closer Look At Royal Dutch Shell’s Energy Transition Strategy

Earlier in May, Royal Dutch Shell (NYSE: RDS.A) highlighted the energy transition strategy to transform its offerings consistent with the net-zero emission targets. In 2020, the company’s revenues declined by 47% (y-o-y) to $183 billion resulting in a net loss of $21 billion. Thus, the company reported $34 billion of cash from operations which assisted $17 billion of capital expenses and $9.4 billion of dividends & stock repurchases. Per the new strategy, Shell is targeting a higher share of capital expenditure toward its growth and transition businesses instead of the conventional upstream business. As the company progresses toward net debt of less than $65 billion, the cash capital expenditure is slated to increase from $22 billion to $27 billion. Trefis highlights the historical trends in Royal Dutch Shell’s Revenues across segments in an interactive dashboard analysis.

Growth Pillar: Includes the Marketing and Renewable Energy Businesses

By 2025, the company is targeting to introduce 15,000 convenience stores, expand the retail service station portfolio, and set up more than 500,000 EV charging points. Interestingly, the company has introduced Shell Café in the Netherlands and Russia. The growth pillar’s strategy is to introduce new revenue streams, maintain market share in resilient sectors, expand the customer base, and acquire expertise toward decarbonizing mobility and other sectors. Also, the company is targeting a double-digit market share of the clean hydrogen market by 2035. These businesses are expected to receive 30% of the capital spending budget as net debt drops below $65 billion.

Transition Pillar: Includes Integrated Gas and Chemicals Segments

The transition portfolio is expected to receive the highest share, 35-40%, of the capital allocation budget as it contributes nearly 60% of earnings. For the Integrated Gas segment, the company is targeting a 20% share of the LNG market by 2030, a 20% reduction in operating expenses by 2022, and expansion of LNG capacity by 7 mtpa (million tonnes per annum) in the next four years. The Chemicals segments will be focusing on expanding sustainable product offerings and processing around 1 mtpa of plastic waste by 2025.