Three of the UK’s largest local government pension schemes have stepped-up calls for Shell to explain how plans to increase gas production are compatible with a goal to reach net-zero emissions by 2050, and urged the oil major to address the “value at risk” for shareholders from a potential fall in demand.
Investors will vote on May 20 on a shareholder resolution filed by the Merseyside Pension Fund, Greater Manchester Pension Fund and Brunel Pension Partnership, asking the oil major to justify how a target to grow its liquefied natural gas (LNG) business by up to 30 per cent by the end of the decade, compared with 2022 levels, is compatible with emissions reduction targets.
The shareholders have also questioned the “bullish demand forecasts” underpinning Shell’s LNG strategy.
• Shell plans to boost gas production as it focuses on shareholders
The FTSE 100 energy group, which is due to report its first quarter results on Monday, has forecast a rise of 60 per cent in LNG demand by 2040, largely driven by Asia and a shift away from coal as fuel source. However, the shareholders argue the assumption is built on an anticipated level of demand higher than every scenario put out by the International Energy Agency.
Under a new analysis by the Australasian Centre for Corporate Responsibility (ACCR), which has co-filed the resolution, the value of Shell’s liquefied natural gas assets would fall dramatically under a lower price scenario — one which the shareholder advisory body insists is more realistic.
To meet Shell’s demand forecasts, LNG would need to be cost-competitive with renewables, the ACCR has suggested, which would translate to an east Asian LNG price of less than $5 per million British thermal units (MMBtu), compared with $12.9 MMBtu assumed under the base case scenario of Rystad Energy, the oil industry consultancy. That would see the LNG assets’ net present value — a measure that takes into account future expected cashflows — fall by $90 billion and slip into negative territory. The average LNG price for May delivery into north-east Asia at present is about $13.00 MMBtu.
At its capital markets day last month, Shell said it would grow LNG sales at a compound annual rate of between 4 and 5 per cent by 2030, in addition to an existing target to grow liquefaction capacity by 25 to 30 per cent by the same date.
Shareholders are due to vote on a resolution in May over the oil giant’s LNG plans questioning its “bullish demand forecasts”
TANG KE/GETTY IMAGES
Faith Ward, chief responsible investment officer at Brunel Pension Partnership, said the “onus” was on Shell to disclose additional information that would “enable us to appraise the risks associated with the LNG portfolio and determine its compatibility with its climate commitments”.
“The resolution asks are reasonable in the context of their expanding LNG ambitions and provide sufficient flexibility to enable Shell to determine the best course of action,” she added.
At the latest update of its transition strategy last year, Shell watered down a 2030 carbon-reduction target and scrapped a 2035 carbon intensity-reduction objective, citing expectations of strong demand for gas and uncertainty about the energy transition.
It is aiming to reduce its carbon intensity by between 15 and 20 per cent by 2030, a measure that presents emissions as a proportion of all the energy the company sells, which allows Shell to offset carbon produced by oil and gas operations against the less-polluting parts of the business. It has reaffirmed plans to cut emissions to net zero by 2050.
The resolution is supported by Share Action, the campaign group, as well as 100 individual shareholders, the investors said.
A spokesman for Shell said: “Shell’s shareholders have strongly backed our strategy to deliver more value with less emissions at successive AGMs, with the growing role of LNG at the heart of this strategy.
“Shell believes LNG will enable the world to make the most immediate progress in reducing emissions by replacing coal growth in the industrial sector, addressing the intermittency of renewables, and improving energy security, access and affordability.
“We are confident in the future role of LNG in our strategy, as we transform to become a net-zero emissions energy business by 2050.”