Shell rejects ‘flawed’ stranded assets notion in letter to shareholders

Royal Dutch Shell has told its shareholders that it rejects the stranded assets/carbon bubble notion, saying the analysis is flawed and “alarmist” – and that climate change risks being trivialized by ‘interest groups’.

The company was responding to shareholders who have quizzed it on the issue recently.

This was kicked off by the Carbon Asset Risk initiative led by US advocacy group Ceres which is backed by investors representing $3trn of assets, which has already elicited responses from Shell’s peer companies such as ExxonMobil.

And it came up at a meeting with SRI investors in London last month which featured Chief Executive Ben van Beurden, and non-executive director (and Bank of America chairman) Chad Holliday.

Shell sets out its position in a detailed 20-page letter signed by its head of investor relations, JJ Traynor.

“While the stranded asset notion may appear to be a strong and thought-through case, it does have some fundamental flaws and there is a danger that some interest groups use it to trivialize the important social issue of rising levels of CO2 in the atmosphere,” Traynor, a former Deutsche Bank oil and gas analyst, writes.

“The methodology has significant gaps, not least the failure to acknowledge the significant projected growth in energy demand, the role of CCS [carbon capture and storage], natural gas, bioenergy and energy efficiency measures.”The document argues that the “sheer size and scale” of the energy system mean that demand for hydrocarbons is likely to continue for the foreseeable future.

“We do not believe that at a minimum any of our proved reserves are at risk from any potential change in regulation from climate change or the ‘carbon bubble’/ ‘stranded assets’ concepts,” the letter goes on to say.

“The methodology has significant gaps”

Shell acknowledges that a “fundamental transition” of the world’s energy system will be needed, but argues that it will “take considerably longer than some alarmist interpretations of the unburnable carbon issues would have the public believe.”

Price drivers would more be likely to be the “traditional fundamentals” of supply & demand and geopolitical factors, and not climate change. Shell argues that much of the carbon bubble analysis does not consider CCS, which it calls a key technology for limiting emissions that can compare well with renewable technologies such as offshore wind and solar. Indeed, it asserts that the era of ‘easy renewables’ is over, given that a lot of windy sites are already developed. The letter coincides with the announcement that the Anglican Church in Aotearoa, New Zealand and Polynesia has pledged to divest from fossil fuel companies.