Analyst Note| Allen Good, CFA |
After providing a glimpse last autumn, Shell has elaborated and expanded on its latest strategic plan to adapt to the energy transition and achieve its target of a net-zero portfolio by 2050. Like peers with similar targets and goals, Shell plans to grow its marketing retail operations and reduce oil production over time, but unlike peers, Shell refrained from offering an explicit renewable generation capacity target. Given the competitiveness of the segment and the potential for lower returns as more firms enter the segment, this is likely prudent. Instead it plans to focus more on the customer, which is where Shell believes the value will be in the energy transition, as opposed to the asset. Instead of producing large amounts of renewable power, it will work with customers who want to secure low-carbon solutions for their businesses. This will result in Shell producing some renewable power as well as expanding further into low-carbon fuels such as hydrogen and biofuels while leveraging its trading operations to secure additional supplies. Management believes participating along the entire low-carbon energy spectrum will prove difficult to replicate and produce a competitive advantage. It calls this solution power-as-a-service, looking to capitalize on the other “as-a-service” businesses the market is currently fond of.