Amidst the difficulties brought on by Covid-19 and the growing concern for the health of our beloved planet, Royal Dutch Shell is preparing for the switch to renewables.
(Source: Investing.com)
Cutting costs like trees
Shell recently launched what it calls the “project Reshape”, an operation meant to reduce costs in various divisions in order to facilitate the switch to renewable energy production. The company aims to save between 30% and 40% of its cost in 3 different sectors, among which are gas and oil production. This will give Shell the cash it needs to maneuverer with the various new and growing green energy trends.
Shell will let go of some departments, including non-essential management layers. This operation was already carried forward when they acquired BG Group in 2016. Between 2014 and 2017, the company already succeeded in cutting $7 billion costs – 15% of total costs –, in many sections such as production, manufacturing, sales, distribution, marketing, research and development.
Time pressure and competition
Renewable energies are the fastest growing energy source. It is no less than half of the global energy growth, with a share in primary energy increasing from 4% in 2019 to 15% in 2040.
Companies like Shell, BP and Total are very aware that their business model will not do anymore, at least not “as is”, and that they will need to adapt in order to stay competitive, both in markets and in the public's eyes. “We had a great model but is it right for the future? There will be differences, this is not just about structure but culture and about the type of company we want to be,” said an anonymous senior Shell source.
All of the mentioned companies have planned to strongly reduce their carbon emissions and that of their customers in the coming years.
Covid-19, the master of plans disruption (or not?)
Before the world-shaking events of Covid-19, Shell even had the plan to reduce their emission to zero in 2050. Far from demolishing their plan – unlike your vacation plans in the Maldives, my dear reader – the pandemic forced Shell to accelerate its plan to cut costs. So far they have successfully cut expenditures by $5 billion to $20 billion this year alone.
Corona also accelerated the company’s technology adaptation: not only did digitalization solve communication tasks but also cut expenses such as traveling. They also increased the roll out of machine learning in refineries, which had the merit of greatly diminishing maintenance time and minimizing outages. Shell also plans to reduce its number of oil refineries from 17 to 10, three of which shall already be considered a done deal.
Shell started using drones and robots during the pandemic and is reaching far better results than usual. The X07 vessel combined with its satellite allowed Shell’s staff to take measurements in the sea without breaking lockdown. The operation was conducted faster and with more precision than if carried out by workers in person. “This is the new normal, not a temporary fix,” says Michael Kaldenbach, Shell’s Digital Realities Leader. “We can work more safely and efficiently.” The pandemic forced innovation on them – as on many companies – and might, in the long term, be one great accelerator for efficiency, and thus, cost-cutting as well.
Concluding remarks
"We are undergoing a strategic review of the organization, which intends to ensure we are set up to thrive throughout the energy transition and be a simpler organization, which is also cost competitive. We are looking at a range of options and scenarios at this time, which are being carefully evaluated," a spokeswoman for Shell said in a statement.
We will have to stay alert in the coming months to see how the company develops, and which of them will profile themselves as leaders of the growing green energy market. Costs will be cut, both in unnecessary staff and redundant management layers, but also through the technology transformation.
Sources:
https://www.bp.com/en/global/corporate/what-we-do/alternative-energy.html
https://economictimes.indiatimes.com/news/international/business/shell-launches-major-cost-cutting-drive-to-prepare-for-energy-transition/articleshow/78229214.cms
https://www.investing.com/news/stock-market-news/exclusive-shell-launches-major-costcutting-drive-to-prepare-for-energy-transition-2301437
https://www.theguardian.com/business/2020/mar/23/shell-plans-to-slash-9bn-from-spending-in-wake-of-coronavirus
https://www.bbc.com/news/topics/c8nq32jwnelt/royal-dutch-shell
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