Over the decades, Shell (SHEL) has transitioned from oil to natural gas and we are starting to see the benefits of that now. We are now seeing SHEL breaking out of its shell from a non-renewables company to a fully integrated energy supplier, including renewables. This shift has allowed SHEL to become a leader in renewable energy and make inroads in aviation operations.
Three experts provide further insight on SHEL’s position in the energy sector and potential market opportunities in Asian and Africa. Read the full transcripts here at Stream by AlphaSense with a 14-day free trial.
Advantages as an Integrated Energy Company
SHEL has integrated as a holistic energy company and has begun moving towards renewable energy.
SHEL’s holistic energy approach has become its biggest differentiator
“Also, they’re taking that into how do I effectively use natural gas and how do I then bring in an aspect of renewables from that. The key thing they’re also trying to see is Shell has also started looking at it more as an energy company, not as an oil and gas company. I think that’s a big differentiator between Exxon and Shell from that point. I’m not saying, I think Exxon’s strategy is ‘we’re an oil and gas company.’ Shell, so ‘we’re an energy company.’ I think you’re starting to see a little bit of differentiation between the two from that. With that energy company, they’re starting to do some investments very much into wind and other renewables from that point.
You’re also starting to see them go actually into consumer energy at this point. You’re really starting to see an expansion to what I would call a very, almost holistic energy company, not just an integrated oil company, but a holistic energy company from that, utilizing their resources in natural gas and oil as a part of that foundation to generate that from a point.
I think they’re moving in the right direction. I think it’s starting to prove that the strategy has been proven out. I would say the market hasn’t been as happy with them as with, say, ExxonMobil from that. I’m looking at share prices. I think over the next few years, you’ll probably see that start turning around quite significantly. I do think you probably will see more of a return on Shell than you will in ExxonMobil from that.”
Becoming an integrated oil company has given SHEL an advantage
“I think if I look at Shell, it’s common to probably some of the European IOCs like BP, etc. as well. I think less so for the American ones like ExxonMobil, etc., because they have less pressure perhaps from an external perspective on ESG. I think from a Shell perspective, a big advantage is, of course, being an integrated oil company. It does almost provide diversification from a risk perspective. Even in the low oil price environment, we had a trading business initially benefiting from the volatility, etc. It de-risks the entire business case if you have some experience across the value chain.”
SHEL is at the forefront of cleaner renewables economy
“Shell’s a very good company. I think they’re taking a great strategic approach right now because of the transition in the world. It’s going to take years. I’m not saying it’s going to happen overnight. This transition from a very focused oil and gas economy to a more, I’ll call it cleaner renewable economy from that point, I think Shell is very much on the forefront of doing that. They transitioned over the last decade from a very oil-centric base to a much more natural gas-centric base from that.
You’re actually starting to see benefits of that now because of the transition more to natural gas. I think the current geopolitical situation is proving that strategy out with more importation of LNG into the European continent, things like that. You’re starting to see natural gas prices picking up, so you’re going to see that.”
SHEL is in a great spot to invest in wind and solar energy
“When you build it to scale and you look at the entire renewable energy infrastructure, so if you’re everywhere, if you’re in EV, if you’re in solar, if you’re in wind, if you’re in electric battery charging and those types of things. If you expand in all of those areas, you can actually create a conglomerate or an integrated company which has a heavy focus on renewables. That is not something that’s going to happen in the next three to five years…
There’s a lot that Shell have invested in strategically that will continue to give us money, at least for the next decade, decade and a half, and then allows us to focus more on responsible extraction, more efficient extraction techniques, making sure that we have a scope 1 and 2 emissions in order and moving more towards wind and solar where we possibly can.”
Inroads in Aviation Operations
SHEL’s receptive management is moving fast in aviation and remote pilot assistance.
SHEL sets its own standard in safety regulations for aviation
“[Management was] very receptive [to long term planning], they’re very bright people. You have to make your case, and you should do it in numbers so that they can understand it. One of the big drivers for oil and gas companies is they are really keen that everybody goes home safely. Safety, actually, is a big deal. In aviation, if you go for the minimum regulatory standard, you will probably kill 30-40 people a year. It’s just not good enough.
The regulators in helicopters don’t really, I know they care, they don’t care nearly as much as a fixed-wing. You take an Airbus A380 with 560 people on it. They really care whether that crashes. The way that’s dealt with is that oil and gas companies like Shell set their own standard.”
SHEL would be a first mover in remote pilot assistance
“The remote pilot assistance technology is not far away from being able to do that now. It hasn’t been able to do it, but Shell would be a first mover.
If they decided that they were going to run a seismic campaign and it was somewhere where the terrain vehicles couldn’t move the equipment and people, they would first look to see whether technology could in fact provide them with a solution or whether they would then have to go to a more traditional solution like a helicopter. They do move fast. Wherever they’ve got a problem, it’s the role of the global category manager to provide them with that technological solution that is the most cost-effective and safest way of doing the job they want to do.
I find that the people you deal with within the Shell business units of which there are, as I say, some 30 of them are actually very receptive to that and will quite often challenge you.
[Shell] will move fast in technology. They’re looking very closely at moving equipment out to platforms that they need from shoreside and using drone technology. If a widget is needed urgently, stick it on our drone and fly it out to where it’s needed. The technological maturity, and in fact, the regulators aren’t up to that yet, but they will be one day. It is moving along in the right direction.“
Adapting to Foreign Market Conditions
SHEL has a strategic approach to breaking into foreign markets and is looking to move towards Africa and Asia against its competitors.
SHEL is very adaptable in different local market conditions
“Point number two is the Shell perspective. Shell is having a different brand in Europe and in the case of the US. You probably are well familiar with Pennzoil, which is actually a Shell brand operational in the U.S. That’s why Shell is very much adjusting to the local market condition. You have a very similar situation also in Asia where Shell has adopted its offering to the actual standard market conditions.
Again, we need to take a step back and take a little more strategic view on this one. Diesel itself or fuels themselves, they are commodities. It’s basically transactional cents per liter game in that case. If you would like to compete like for like. In reality, Shell’s approach was always different. That’s why Shell is so strong not only in the global key account space, but in general with the global players. Those partnerships are much more than fuels. That’s what Shell was positioning as one of the players that is actually able to deliver a comprehensive energy solution, not just fuel.”
Africa has a market opportunity and investments are moving towards Asia
“We need to move down to Africa, where by far the biggest player will be Total, and that’s coming from history. It’s a French consortium French company which used to have colonies in Africa, and that is something they have stained up. Total has invested last year also in the African continent. You can see their market penetration, their presence, their visibility, the amount of refineries and blending plans they have on that continent is by far superior to other international oil companies. I’m not mentioning here the local players and the local company.
Moving to Asia, everybody is at the moment battling on India and China. Those are the future market growth. The potential is still there, although there are few major and very strong local players like PetroChina. The investments are at the moment, if you probably look from the investment perspective, all of them Exxon, Chevron, Shell, BP are investing at the moment in Asia.”
Overall, SHEL is in a great position to invest in renewable energies like wind and solar. SHEL has emphasized safety regulations into the aviation space and is now looking towards Africa and Asia for future energy opportunities.
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