Why Oil Giant Shell May Go The Kodak Way!

Slow and Steady Won’t Win The Race

Oil and gas giant Shell which had sold off its solar energy division in the last decade is planning a slow return once again. The prospects for oil and gas over the long term is not that great with the rapid evolution of solar, wind and EV technologies. The main demand drivers for oil are dying down and there are no new demand drivers. With “low carbon” theme gaining traction and more and more energy applications using solar or a mix of solar plus storage, the long trend for oil and gas is declining. Now even the large oil and gas majors are realizing the new reality. Shell has acknowledged that oil may stay at the $40 level for a long time and is preparing for it.

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Solar Vs Fossil Fuel generation

The company has formed a new energy division to look into renewable energy, EVs etc. as it looks to find new revenue sources. The company plans to invest a whopping $1 billion every year into new technologies and fuels such as biofuels and hydrogen. The company thinks that the prospects of oil for shipping and aviation will remain for a long time even if the main demand category of vehicles will decline in the future.

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BP was another giant which had sold off its large solar panel manufacturing division as the Chinese gained ascendancy. However, the company may again be forced to look into how to make a play in the “energy transformation” story that is rapidly changing the staid energy industry all over the world. Shell has also bought a stake in a Singapore based solar energy developer which is developing rooftop solar and utility scale solar power plants in the island country.

Shell plans to get into newer energy slowly as it does not want to burn its fingers since the company thinks that the solar energy area is not very profitable, which is true. However, given the massive advances in scale and processes made by the incumbents, Shell has lost any chance of getting into this area. If it waits too long, it will go the Kodak way!

“We want to be part of shaping the future … in the face of growing environmental challenges,” said Van Beurden (CEO – Shell). “We believe our current strategy provides much greater scope to play a wider role in that energy transition (to a lower carbon future).”

“Its not going to happen overnight … We will have to adapt to a more diverse portfolio to reduce carbon,” he added, saying it would take time to develop and insisting “we are not the opposition” to renewables.

Source: Guardian