Chair’s message
“A large, multinational organisation, like Shell, can combine the pursuit of value with contributing to a better world.”
Russia’s invasion of Ukraine began more than a year ago. In the face of the humanitarian disaster this war created, Shell acted swiftly and decisively to support our own people in both countries, as well as Ukrainians who fled the conflict.
We also played a vital role in helping to safeguard energy supplies as many countries sought alternative sources to Russian oil and gas. Shell moved quickly, redirecting supplies, particularly liquefied natural gas (LNG), to where they were needed.
I am immensely proud of how our people responded to this challenge, especially given the continuing pandemic in some parts of the world, which added to the uncertainties. The tragic earthquakes in Turkey and Syria last month also showed how Shell people step up, this time when faced with a natural disaster. Thankfully none of our staff were hurt, although many of their families were affected. Shell provided fuel to support emergency workers and chemicals to make foam mattresses, and hand sanitiser in the absence of water for washing.
The impact of war in particular has shown how vital it is for Shell to continue to supply secure and affordable energy, while producing what our customers need to make the transition to cleaner energy. Whatever challenges dominate the immediate view, we must stay focused on our role in the energy transition and the need to tackle climate change.
Shareholder value
A large, multinational organisation, like Shell, can combine the pursuit of value with contributing to a better world. Our Powering Progress strategy sets out how we plan to generate value for shareholders while reducing our carbon emissions.
Rewarding shareholders must be a priority for a company wanting to deliver on its long-term strategy. They have put their faith in us and entrusted their money to us. Without their support we lack the remit to do what we must to become a net-zero emissions energy business. In 2022, we used some of our profits to buy back shares and distribute dividends. Importantly, we did this while keeping a strong balance sheet.
We also continued to make the kind of disciplined investments in the energy transition we need to help our customers achieve net zero by providing low- and zero-carbon energy. We completed our acquisition of Denmark’s Nature Energy, Europe’s largest producer of renewable natural gas made from biomass, in February 2023. This will enable us to provide enough renewable natural gas to heat thousands more homes and power thousands more buses. We are also investing in growing our renewable power business. In 2022, we acquired the solar and wind group Sprng Energy, in India.
As one of the world’s largest producers of biofuels, we can help customers reduce their emissions by providing energy that can be used in existing aircraft, cars, trucks, or ships. We are also expanding our electric vehicle charging network around the world to help decarbonise road transport.
CEO succession
Wael Sawan became CEO on January 1, 2023, succeeding Ben van Beurden. In his years at the head of Shell, Ben achieved many great things. In 2016, he made Shell’s largest ever acquisition in buying BG, he led us through the pandemic and the global financial turmoil that followed, and he led the historic move of our headquarters to London. He took the swift decision to start the process of pulling Shell out of Russia. We are grateful to Ben for his leadership through some of the most difficult challenges any CEO could face.
With Wael, Shell is in excellent hands. He has the capability and experience to focus on our strengths, such as the production of oil and gas, and oil products, and do this in ways that are profitable while lowering our emissions. But I believe that he will also drive the transformation of Shell into a business for the future, offering our customers a range of affordable energy, including from low- and zero-carbon sources, from renewables to biofuels and charging for electric vehicles.
When asked to describe Wael, I tell people that he is a man who pursues excellence with relentless efficiency. He has clarity of vision and the conviction that performance rightly comes first. Wael has already acted to simplify the business structure, and allow for faster and better decision-making by combining Integrated Gas with Upstream and placing Renewables and Energy Solutions into our Downstream business. This will create a simpler senior leadership structure, with greater clarity of purpose and accountability.
Shell: aiming for efficiency in the energy transition
Contributing to the energy transition
My visit in September to St Fergus near Aberdeen, on the east coast of Scotland, gave me a glimpse of what Shell is doing to provide energy and take carbon out of the energy system. We pipe gas from the North Sea to St Fergus and process it to help meet the UK’s energy needs.
But St Fergus is also going to be important in helping the UK achieve its net-zero targets. We are part of the Acorn carbon capture and storage (CCS) and hydrogen project, which is using existing oil and gas infrastructure for decarbonisation. We are repurposing our Goldeneye pipeline to carry carbon dioxide (CO2) from our St Fergus gas plant and store it safely beneath the seabed.
Projects like these allow the skills and capability of our people to transfer from fossil fuels exploration and development to activities that help progress the energy transition.
As we develop low- and zero-carbon products, we must also find ways to provide oil products that have a lower net carbon impact. This includes continuing to produce oil-based products that do not require burning in their use, such as lubricants and essential plastics.
At all times, we must do this efficiently and sustainably. We are focusing on chemical recycling where we break down hard-to-recycle plastics into raw materials through a technique called pyrolysis. The pyrolysis oil can then be used as feedstock in our chemical plants, replacing traditional hydrocarbon feedstock.
Aiming for highest return, lowest emissions
We apply firm capital discipline at Shell. We are equally disciplined when it comes to budgeting for carbon. Our carbon management framework (CMF) allocates a carbon budget to the operating plans of our businesses. We began applying this in 2022 and in 2023 we will challenge our businesses even further: return the highest value within a given carbon and capital budget.
This approach is working. We reduced carbon emissions from our operations by 30% by the end of 2022, compared with 2016, our reference year. This is well over halfway towards our target of a 50% reduction by 2030.
Faced with the challenge of providing secure supplies of energy while transforming for a net-zero future, it is more important than ever that Shell act decisively. As Chair, I want the Board to ensure that our governance is always firmly in place and highly effective in guiding the Executive Committee and management to move quickly when opportunity comes.
Society has long enjoyed the benefits of oil and gas. But now the world must find ways to benefit from energy while urgently cutting emissions. This is going to be tough, but it is possible if everyone collaborates to develop and use low- and zero-carbon energy solutions and deploy technologies that capture CO2 and store it underground or remove it directly from the air.
These are exciting times to work in the industry as we explore cleaner ways to keep the world moving. Opportunity surrounds us and I feel the same sense of adventure that I felt as a young geologist when my career began in the North Sea in the 1980s.
The story of Shell is the story of pioneers. We have always been at the forefront of developments, from our first oil discoveries to deep-water exploration, and now to the energy transition. It is this spirit of adventure that will carry us forward.
Sir Andrew Mackenzie
Chair
