Shell says its LNG plans ensure a resilient investment strategy, but some shareholders are not convinced, writes Jon Mainwaring
Investors in Europe's oil majors are still not convinced that the firms' updated strategies — particularly their upstream growth plans — are fit for the energy transition, even if the pace of that transition looks set to slow. Societal sentiment has shifted in recent years to prioritise energy security concerns, but questions remain about the robustness of oil and gas investments and the risk of ending up holding stranded assets in a world in which fossil fuel use declines rapidly.
The 2025 season of oil major annual shareholder meetings resumed this week at London's Heathrow airport — selected by Shell as a venue because of its restrictions on the types of environmental protest allowed there. Despite this provision, Shell still faced a grilling from representatives of organisations as diverse as Christian Climate Action and the Union of Concerned Scientists.
The main focus this year was on Shell's LNG strategy and the thinking behind the LNG outlook report it used to inform its strategy. Ahead of the meeting, think-tank Carbon Tracker compiled a set of questions for shareholders to ask Shell about its LNG plans. It pointed out that Shell's strategy centres heavily on LNG, with an aim to grow LNG sales by 4-5pc/yr through to 2030 and the intention of still being a leading integrated gas and LNG business into the 2040s. This will expose investors to "a significant risk of lower returns, given existing and under-construction LNG capacity meets global demand to 2040 under all [International Energy Agency] transition scenarios", Carbon Tracker says.
Carbon Tracker queried how Shell's LNG growth plans fit with its commitment to become a net zero company by 2050. Given the risk that carbon capture and storage will fail to become commercially and technologically viable at scale, Shell's plans are incompatible with a scenario that sees global temperatures rise by 2.4°C above pre-industrial levels, let alone a 1.5°C warming scenario, it says.
Faced with these questions and a resolution put forward by investor advocacy group the Australasian Centre for Corporate Responsibility (ACCR) seeking more detail about its LNG plans, Shell's board members pointed out that the company uses a variety of scenarios and projections beyond those provided by the IEA.
"We see a phase of continuing growth, particularly in the use of gas and especially in LNG, that we think is appropriate to invest in," Shell chairman Andrew Mackenzie said. Shell's LNG outlook projects 60pc growth in global demand for LNG by 2040, driven largely by economic growth in Asia, emissions reductions in heavy industry and transport, and higher gas demand for power generation because of the expected boom in artificial intelligence data centres.
All in moderation
About 46pc of the projects expected to be sanctioned by Shell are incompatible with a moderate transition in which the world warms by 1.7°C, if business carries on as usual, Carbon Tracker says. This is slightly worse than the think-tank's projections for BP and TotalEnergies. But chief executive Wael Sawan insists that "this is a very resilient investment strategy", because most of the net present value in Shell's projects will be realised before 2040.
ACCR's resolution asking for further details about the LNG strategy failed to be approved at the meeting, but more than a fifth of shareholder votes supported it — a similar proportion to votes cast in favour of climate-connected resolutions at Shell meetings earlier this decade. So while this group of concerned shareholders is not growing, it is also not going away, suggesting Shell needs to improve the communication of its investment case. Shell's board appears to have acknowledged this and has promised to provide more detail about how its LNG business reconciles with its broader strategy and climate commitments within six months.
