Shell looks forward to Nord Stream 2

Anglo-Dutch Shell CEO Ben van Beurden is looking forward to the start of Russian gas flows through the 55bn m³/yr Nord Stream 2 pipeline following the "sensible" agreement between Washington and Berlin, he told journalists on a Q2 2021 results call.

Europe needs substantial amounts of gas and pipeline gas is the lowest carbon kind, the company head said. He said the company would also start seeing repayment of its loan to Gazprom. Fellow financier OMV had linked the start of gas flows expected later this year with the start of repayments. However, Gazprom is not expected to be able to use all the capacity in both lines following an adverse European court ruling on the OPAL line earlier this month.

Carbon, and how to reduce it, featured prominently in his comments as the company is, like its European majors, carefully timing its reduction of fossil fuel production and rise in green fuel production while preserving the dividend as far as possible. A big source of the company's emissions are in refineries, and Shell is closing or repurposing some of those.

Upstream emissions however are a very small proportion so asset sales would not make much difference. The company in any case did not comment on any plans to reduce its footprint in the US Permian. Elsewhere its shale production in Canada is dedicated to LNG Canada and Argentina is seen as an "up and coming" region – although the country is importing LNG once more.

He was taken to task in a question for investing more on conventional than renewable energy lately but he said that was "legacy" spending and any rises in capital expenditure would mostly go on future growth projects, meaning those compatible with the EU's net zero carbon emissions goals.

Among these are its major electrolyser plans in Germany where the initial 10-MW project could increase tenfold; and its network of hydrogen filling-stations that is already being rolled out across Europe. It is also investing in two carbon capture and storage projects (CCS), one in the UK and one in Canada.

Both hydrogen and CCS however need very high levels of government support and finance ministers are beginning to worry about the promises that prime ministers make in order to win green votes while national finances are still reeling from COVID-19 mitigation measures. A case in point is the UK's Rishi Sunak, reportedly. 

In connection with that, he said that if COP26 was to be judged a success, then it would have to enact Article 6 of the United Nations-sponsored 2015 Paris Agreement. This would take the principle of the existing European Union's emissions trading scheme and extend it worldwide, allowing countries that were 'long' on certificates – because they were emitting less than allowed – to sell them to those that were 'short'.

But Shell still has some new fossil fuel projects to come in Europe, such as the Cambo field in the UK Atlantic Margin. He defended that saying that although it might look wrong, while UK needed oil and gas, it was better that it be produced at home, as far as possible. Symbolic gestures that mean more imports "obviously will not serve the climate," he said.

And in the US Gulf of Mexico, Shell has just taken the final investment decision on the Whale oil and gas field, with a mouthwatering rate of return above 25%. Not many renewable projects can offer that.

Coincidentally his presentation was in the week that Europe's most liquid spot markets – the Dutch Title Transfer Facility and the UK National Balancing Point – after a long, steady climb this year reached record prices for month-ahead gas in the summer: €40/MWh and £1.00/therm respectively – and with little sign of relief on the way for consumers.

While a lot of the focus has been on Gazprom for failing to book interruptible capacity in Ukraine and hence deliver more gas and capture high prices, a lot of gas is also being kept off the market intentionally by the Dutch government. The cap on Groningen production for this and the next gas year is a fraction of the recommended limit set by the state mining inspectorate. Shell is an equal shareholder in the Groningen field operator NAM, with US ExxonMobil.