Welcome. Ladies and gentlemen, good afternoon. I'm Tjerk Huysinga, Executive Vice President, Investor Relations in Shell, and I'm very happy to facilitate this event today. It's a pleasure to welcome you all at the Annual ESG update. It's been a long, long time since we've got together in person and I think I'm very happy to see you all here. It is really exciting, and some people might come as well. We've got an interesting agenda planned for all of you. We'll start with a plenary presentation by Ben, our Chief Executive Officer. Then we'll take your questions. Sinead Gorman, our recently appointed Chief Financial Officer, and Ed Daniels, our recently appointed Strategy, Sustainability, and Corporate Relations Director, they will join Ben for the Q&As.
You'll be able to ask questions in the room, and I'm gonna guide you through that, or by typing your questions in the box, and I'll get them here on the screen and sometimes I might read out some of them. Please note that we ask you to indicate your name and company when you type your questions, but it's also useful when you do that here, because I might not know all of you. For any unanswered questions, normally, Investor Relations will aim to follow up with you later on. Ben's plenary presentation and the Q&A session will be streamed online, and we have people joining us via webcast. The plenary speech will be published on our website later on, and the session will be recorded for internal purposes. After the plenary, we'll end our online part of the agenda.
We will then have two fireside chats running in parallel. Ben will talk about the impact of the war in Ukraine on the global energy system in a session hosted by Lydia Rainforth from Barclays. Sinead will address our capital allocation priorities in a session with Martijn Rats from Morgan Stanley. These sessions will then rotate, and after that, we will have some refreshments and an opportunity to say farewell to Jessica Uhl, who served as our CFO for the last five years. With this, let me hand over to Ben van Beurden, Chief Executive Officer of Shell.
Well, thanks very much, Tjerk. Thanks very much, ladies and gentlemen, for being here. It's really great to see you all again. Some of you are, of course, watching us from afar. But of course, quite a few people here in London with us here, and it's absolutely wonderful to see old and new faces back again. Now, last year, we presented our strategy, we called it Powering Progress, and we set out some targets to accelerate the transition of our business towards a net-zero emissions energy business by 2050. Today, what we're going to do is tell you all about the strong progress that we have made in a time of, frankly, great uncertainty in the world.
We're also gonna talk about what this uncertainty really means, hi, Jessica, for the strategy and really what comes next. Let's start with the uncertainty and what does it mean. Of course, the world has changed a lot since last year. The war in Ukraine, frankly, still shocks me every day, as I'm sure it does you as well. I feel revulsion and I feel sadness because it's so tough for our colleagues in Ukraine and frankly speaking, our colleagues in the region. But at the same time, it's also really impressive to see how they are responding to an almost impossible situation. That's why I feel this pride.
I'm proud of every colleague in the Ukraine who continues to go to work every day to keep energy supplies flowing in a country that is dealing with a really frightening conflict, and of course, dealing continuously with fuel shortages as well, which is really important to keep everything going. What impresses me most is how all these men and women are adapting to radically changed circumstances. Now, the war in the Ukraine is, of course, one of the most significant reasons people are having to adapt. In recent years, of course, it hasn't been the only way in which people had to adapt. Think of COVID. Think of the cost of living crisis that we are experiencing in so many countries. Think of climate change, to just name a few.
All of these have forced people, countries, but also businesses to adapt as well. This is also true for Shell as a whole. We have been adapting in response to the war in Ukraine. We are working on our withdrawal from Russian hydrocarbons, including crude, including petroleum products, gas, liquefied natural gas, and we have been seeking to replace these Russian supplies, for example, by adding new gas supplies like we are doing from our Colibri project in Trinidad and Tobago. A part of this natural gas in Trinidad and Tobago goes into LNG exports. Of course, you all know that LNG can help the current worldwide supply crisis because LNG can be shipped to parts of the world where it is needed most, including places that are currently so dependent still, on Russian pipeline gas.
Now, we are already the world's leading supplier of LNG before this crisis started, but we can now use this position of strength to help countries replace supplies, for example, by delivering LNG to a new terminal that is going to be built in the German port of Brunsbüttel. As I said, the world faces the ongoing and the urgent challenge of climate change as well. With all the uncertainty and change going on in the world and the need to adapt. Some of you may ask, is Powering Progress strategy that is going to transform Shell into a net zero emissions energy business by 2050, is that strategy still the right one? Can our strategy actually withstand the fuel shortages that I just referred to, or inflation and the extremely volatile commodity prices that we are seeing?
Can it cut emissions while at the same time also creating shareholder value? Can it deal with a call for secure supply of energy all around the world and make sure that that energy is actually reliable, sustainable and, of course, affordable? Now, I believe it can. I think our strategy is still the right one. The reason for that is actually quite basic, because Powering Progress was always meant to be a strategy that fundamentally changes the company. So it has, in a way, adaptation at the core of its logic. Because Powering Progress is designed to deliver results today, which is, of course, very visible in our quarterly results on a quarter-by-quarter basis. Powering Progress is also designed to continue delivering results by seizing the opportunities that are with us in the energy transition.
It is designed to pursue value, take opportunities to grow and become even more competitive and resilient as we move towards 2050. This means that we are focusing even more than we did on our customers. It means having our staff completing thousands of courses on skills that will be needed for the energy transition as such. It means radically transforming the company's portfolio over the next decades. Now, let me give you some examples of what this adaptation all means in practice. To start, last year, we completed one of the most effective reorganizations in our history. We are now operating in a much smarter way, a much more focused way, and with significantly fewer people. We've also simplified our share structure, and we've moved Shell's headquarters from the Netherlands to the U.K.
These changes really have given us much more flexibility, which will help us deliver more value to our shareholders. Our financial performance over the last few quarters has been consistently strong. This, of course, is an important starting point. The company, of course, must create value for shareholders today. This cannot be the only metric to judge our investment case. Because apart from creating shareholder value, we must also respect nature by recognizing the growing urgency and taking into account, biodiversity and protect biodiversity, to preserve water quality, and to use resources much more efficiently. Also, as a company that is in energy, we must power lives by supplying energy for those who need it most, and by being a diverse and an inclusive organization. In 2021, for example, 47% of all the graduates that we hired were women.
On our board, the ratio is 50/50. All of our employees and our senior leadership, around 30% of them are again women. We are making progress here, but I would also be the first one to admit there is much more to do. We can do better, and we should do better. Another way to judge our investment case is by our readiness for the future, of course, because the world is changing, the energy sector is changing, and most importantly, the type of energy that people are using is changing all the time as well. More and more customers want and need low and zero carbon energy. As more people use this energy, this is also then where the profits of the energy sector will migrate to. Energy companies, just like everyone else in the world, will have to change.
Now, to give you some examples of how our portfolio is changing. Recently, a few weeks ago, we announced the acquisition of Sprng Energy group, which is one of India's leading renewable power platforms. We won bids for offshore wind here in Scotland that will produce enough renewable electricity to power every Scottish household twice over. In fact, today, we have about 50 GW of renewable generation capacity in either operation, under construction, or in the funnel for development. We're also building a comprehensive network of charging points for electric cars. During last year, for example, we grew our worldwide network by about 50% just in one year. In total, we are increasing our spend on low and zero carbon products and services, so the OpEx and CapEx combined, from around a third of our global spend today to about 50% by 2025.
That includes energy products and services. Think of biofuels, hydrogen, power, nature-based solutions, carbon capture, and storage. It also includes convenience retail, and within that, charging for electric vehicles. Then the remainder is in our chemicals and lubricants business, which do not produce energy products, and therefore do not create carbon emissions when they are being used by our customers. Quite the opposite, as a matter of fact. Some of our products are actually carbon negative. Now, we're also making good progress on our expected 1%-2% per year reduction in oil production towards 2030. Now, for some, and maybe even for some of you, this is just not fast enough.
We're not moving fast enough out of hydrocarbons. I believe that Shell has the right base to help the world through an orderly energy transition with a secure supply of energy that maintains supplies of oil and gas where they are needed still. That will also get the company in time to be a net zero emissions company. To that effect, we have set climate targets that we firmly believe are aligned with the more ambitious goal of the Paris Agreement on climate change, which is to limit the increase in the average global temperature rise to 1.5 degrees above pre-industrial levels. Last month, we published a report on how we're actually delivering against these targets.
To start, by the end of 2021, we have reduced the absolute emissions from our operations and the energy that we use to run our operations by 18%. That's 18% compared to 2016, and it's on a net basis. Our target, as you may know, is to achieve -50% compared to 2016 by the end of this decade, and of course, zero by 2050. Now, cutting these absolute emissions from our operations is important. We have another target that is perhaps even more crucial. Of the energy products that we sell to society by 2.5%, and that's also compared to 2016. Net carbon intensity -2.5%. That means that it is within the range of the target that we set 2%-3%.
Now you may say 2%-3% doesn't really sound like a lot. Let me give you some context. Moreover, the reductions will now quickly become much larger. We have set a target of 9%-12% reduction in carbon intensity by 2024, two years from now. Of course, you all know that milestone, all these milestones are actually tied to executive pay of 12,500 people. Carbon intensity is not just crucial for us, it is also important for the world. Let me illustrate that with a simple example that talks about the relevance of intensity. Now you all know, I hope, if you are regular travelers that we sell a lot of aviation fuel. As a matter of fact, I believe we have the largest market share.
Now imagine that we decided to just stop selling this fuel. Imagine that we decided to just stop all our kerosene production, we stopped supplying our customers and just leave this sector altogether. Now, no doubt that would bring down our absolute emissions from aviation to zero. It's not insignificant. Would it actually help the world to come closer to achieving net zero emissions? Would now, because we stopped supplying aviation fuels, would now fewer planes depart from airports? Would you stop traveling? I don't think so. Because if Shell supplied less kerosene, it would not mean that people would fly less, it would simply mean that airlines don't buy less fuel, they would buy it from somebody else, from other fuel companies. The total demand for fossil fuels would not change at all.
Now imagine a second scenario with our customers in aviation. We are working to change energy demand. We are working on ways to help increase the use of low-carbon fuels, and therefore decrease the carbon emissions from this aviation sector. On the supply side, because we are selling more sustainable aviation fuels, we can now plan to expand. In Rotterdam's energy fuel, but also renewable diesel made from waste and made from certified sustainable vegetable oils. This sustainable aviation fuel, of course, will not replace all the kerosene in the world in the next few years. It'll take many years, maybe even decades to do. It will start to lower the emission from aviation as a whole. It will bring down the carbon intensity of the energy products that we sell in aggregate.
That is the difference between reducing an intensity of emissions by gradually improving the energy use of an entire sector or letting go of customers in this sector altogether and just leave it to someone else to deal with these customers and those emissions. That is the difference between walking away from a problem or stepping up to be part of the solution. We want to be part of the solution. That's why we are stepping up. That's why we are working with sectors that need help from energy companies like us with expertise and experience to find a path to net-zero emissions and to deliver on the pledges of our customers. Aviation is a really good example of one of these sectors. It's not just aviation.
In the same way, we are working together with our customers in shipping, doing something similar or analogous or heavy-duty road transport or industry or the production of chemicals. We are investing in the technologies that help all these individual sectors find their own path to net zero emissions. That include beyond the biofuels that I just mentioned. Also wind, solar power, hydrogen, carbon capture, and storage, and ways to offset emissions by planting trees and preserving nature. In this way, apart from bringing down our own emissions, we also help customers adapt. That brings me back to our strategy, Powering Progress. Our strategy, as I said, was designed to withstand changing circumstances without losing sight of our targets and our goals. Like I told you, it has adaptation at its core. It factors in the different ways in which energy markets make a difference.
In doing so, our strategy helps us deliver a secure supply of reliable, sustainable, and affordable energy to the world. Now, that's a tall order, but we will not shy away from it. No company can do this in isolation. We will continue to work with our customers, with governments, and with you, our shareholders, and therefore we need your support. Now last year when we set out our Powering Progress strategy, this year we again have an AGM vote, but this year it's about the progress that we have made in the last 12 months. I personally think, as I just pointed out to you, that we have actually made impressive progress. Again, give you some context. According to data from the IEA, the International Energy Agency, almost all activities in the global economy produced more carbon emissions last year compared to 2020.
Just try to think of any sector that succeeded in reducing emissions. Power generation did not. Industry as a whole did not. Transportation did not reduce emissions. Emissions from all these sectors went up in 2021, but at the same time, our emissions came down. The progress in the energy transition made by companies with an integrated energy strategy, like the one that we have, are clearly ahead of what we see in most sectors using energy. I'm encouraged to see that some large institutional investors and shareholders, like the ones that we also have in this room and are listening in, have started to recognize the importance of having an integrated energy strategy as well. On that particular basis, I ask our shareholders to support our Energy Transition Progress Report during our AGM.
When I mention the AGM, I also need to say something about Follow This. The Follow This resolution calls for targets that would conflict with the Shell strategy that so many of you actually agree with the Shell strategy. In fact, I believe this resolution could be harmful to that strategy. Now, the formal notice of meeting goes into great detail what we mean here. Let me just give you a few examples to illustrate it here. The Follow This resolution proposes targets that go much further than even the most progressive pathways set to net zero for our sector. For instance, the pathway of the IPCC and the pathway of the International Energy Agency. What's more, these IPCC and IEA pathways include actions that would mean that we would have to abandon our customers and shrink our business.
That's, of course, fundamentally different to Shell's energy transition strategy, as you hopefully took away from the example that I gave on aviation. Reduce the emissions from aviation. We believe that a dramatic change in demand for energy is just as critical as the required changes to supply for the energy transition to take place and to succeed. This then means both supply and demand, working together with governments, working together with society, and crucially, working together with our customers, where the demand is all based. In short, the Follow This resolution is simply unrealistic. It would not help reduce the world's energy, or carbon emissions, and it is not in the best interest of you, our shareholders. In fact, the Follow This resolution opposes our strategy.
Voting in favor of Resolution 20, the Follow This resolution, and Resolution 21 at the same time, actually sends a clear what you really want us as a company to do. During the AGM, we ask to vote in support for the progress that we have made in the last 12 months, and to not vote for a change in our strategy by pursuing misguided targets for our company, as suggested by Follow This. Because I believe we have made significant progress. We are reinforcing Shell as an energy business that delivers a secure supply of energy in places where it is needed most. We are changing into a business that will achieve net zero emissions in line with the Paris Agreement, and we are strengthening Shell as a business that generates value today, but also value into the future.
I hope, I really hope we can count on your support again. Thank you very much.
Thanks, Ben. A couple of logistical points. First of all, you might wonder, what's this QR code? You cannot get actually the slides with the QR code. So, don't worry to use it. We will now start the Q&A session. Sinead, our CFO, and Ed Daniels will do the Q&A together with Ben. We have people online and in the room. I'd like to ask you if you want to be on camera, which some of you might want, you have to stand up. If not, you can sit down, but you have to put up your hand. Then you can get the mic from Priscilla. She will run around. Then you can get the question and when you have the microphone.
As I said before, please say your name and firm because that will be useful. If you're joining us online, please type your questions in the box on your screen and indicate again your name and company when
It's very intensive, you know, energy intensive in terms of emissions. There's a whole spectrum of ESG. You know, one of the issues I wanted to focus on is looking at things actually from the other side, that you look at the industry, the lack of investment that's gone into oil and gas over the last five years or so, you know, the cutbacks in CapEx. You know, it's in terms of oil and gas at the moment. You know, it's creating problems all around the world in terms of energy poverty.
You know, you're seeing it in even in the developed countries, but you've got people in the developing countries that have got to make a choice between, you know, switching away from actually dirtier fuels to the cleaner fuels. You know, you've got the economic consequences as well. You know, my question really is, you know, how much are you thinking about the consequences of your actions of not investing enough in energy, when, you know, we're clearly gonna need a lot of fossil fuels in over the coming decades?
Yeah, it's a good question. It's very topical. Let me start and then see whether my colleagues want to add to it. I think, first of all, you're absolutely right, huh? There is a significant reduction in investment in oil and gas in the last few years.
As a matter of fact, when I was speaking with Fatih Birol some time ago, and we talked about the IEA net zero emissions scenario that came out a year ago, we both sort of said, "Well, you know, a year on with this strategy or this scenario, we are roughly 2.5 years behind already, because we've been traveling in the opposite direction." As a matter of fact, the only thing that we agreed on was on track with the IEA net zero scenario was the investment levels in oil and gas. That's exactly the problem.
The industry, in terms of investing, has done its piece, not necessarily because we took serious note of the scenario, but simply also because of pandemic, because of all sorts of other pressures where we felt cash preservation and the direction of the company needs to bring us to another place. I would imagine it will take some time for people to step up again investment in oil and gas. It doesn't mean, by the way, that we are investing less in energy. We're just investing in different energy. If I want to look at a provision of secure, affordable, and reliable energy in India, I'd much rather see what we can do with solar rather than to see, can we bring more kerosene and diesel to India or can we invest in India upstream?
Wouldn't that be a great idea? I think all together, our investment levels on energy as such are still intact. It's just that the portfolio is changing quite significantly. We need to make sure that indeed all that investment that we direct to these newer energy forms is also relatively evenly spread around the world. If we want to talk about reducing fuel poverty or energy poverty, not just in Northwest Europe but also in India, Africa, and other parts of the world, we better make sure that some of our strategy very clearly focuses on investing in these areas as well. I'd like to contend that we are still investing as much in energy as before. It's just a different form, and I believe it is also a form that is strategically more advantaged in the future.
All right. Next question, Martin. He goes there.
Yeah. Hi. Hello. It's Martijn from Morgan Stanley. I just wanna build on that question. One of the things that sort of struck me over the last couple of days, it fits in the same context, to be honest, is that the German government is now looking for LNG supplies to fill the regas terminals that they have announced to build. Both from sort of interactions that the German government has had with U.S. providers, as well as with the Qatari government, it's very clear that there's a clear mismatch in terms of the duration over which the German government is willing to commit to take supply, to you know, to be a source of demand versus what the suppliers are looking in terms of the duration of supply.
I mean, like, the suppliers are willing to sign 20-year contracts, and the Germans are basically looking for a five year contract, sort of. I was wondering if you had any observations on how that gap between short-term and long-term can be bridged. Is there something in specifically the LNG system or the wider energy system that allows us to have short-term energy security while still having long-term energy transition?
Yeah, I can take that question as well, but then I think after that, we're going to switch it around a bit. You're absolutely right. Yeah. I think this will take a little bit of a time, Martijn, to settle out. Of course, people say, "Well, you know, this year is a bit tough, so can you please build a few new energy plants for us in the summer and then deliver some gas to us over the winter? And then maybe next year we don't need it anymore." That obviously is not realistic on multiple levels, and I don't think that's the way it's gonna play out.
If we need to replace 120 million tons worth of gas currently coming from Russia into Europe, I'm not sure whether all of it will have to be replaced, but if we want to start replacing it, and some of it with other gas, we will have lasting supplies into the continent. Now does it all need to come in long-term contracts? I don't think so. As a matter of fact, you know, we got the largest LNG player in the world, we don't have everything signed up for long-term contracts. For starters, a third is short-term contracts, quite often spot or, you know, one or a few cargoes at a time. Many of our long-term contracts are 10 years, five years.
Another thing is the strength of a company like us, which is a portfolio company when it comes to supply and demand, we can mix and match. We can just say, "Fine, we're gonna layer in a few relatively short-term contracts," because we don't necessarily need that one contract from Germany to underpin a new LNG plant in country X. It will just come from our portfolio. It has been our strength all along, and we're going to use that strength, of course, also now in dealing with the transient, the security situations that we're having in Europe. I think, Martijn, it's too early to just say, this is how it will play out. Having engaged with the German government myself quite intensively over the last few weeks, deep down, they realize that as well. This is not a one-year problem.
Perhaps one small point, Martijn, would be I think governments around Europe in particular have to realize that if they want to get the competitive supplies of energy, I think renewables are gonna be a fundamental part of that. They're gonna have to start to debottleneck and think through the timescales between concept and reality of renewable supply, whether that's solar or wind or otherwise, because at the moment, I think they're just far too long. We need help from governments in order to debottleneck and make much faster those sort of approvals and permissions for new facilities.
All right. Just for people online, we haven't got any questions online at this moment, which is fine, but you can type in the box and, then we'll use your questions. Who wants to have another question here in the room? In the back there.
Hello. Maybe switching away from the near-term oil and gas prices to something more of a strategic question. Amy Wong from Credit Suisse. Sorry. Some of you guys and your peers are looking at the energy transition and using it as an opportunity to kind of reimagine how services are delivered, and you talk a little bit about carbon capture as a service, for example. The way we kinda see that happening is you probably want to have the supply along a lot of things along that value chain. If I think about the capture, the transportation, the storage along that value chain, where will Shell stop investing along that value chain? Or will you be present in all those areas?
Yeah. Thanks, Amy. Ed.
Yeah. Thank you. Thank you, Amy, for the question. I think just big picture, CCS, CCUS, I think is a fundamental part of the decarbonization of the energy system. I think we're gonna have to have very significant investments of that across the entire industry. If we look at ourselves, I think we put a target of 25 million tons in, into the medium term, for ourselves and have the investments behind that. If I look at the end-to-end value chain of CCUS, I think we have some core technologies that we've developed on the capture side. I think it makes a lot of sense to do that in large hubs. That's one of the areas we're thinking about is large industrial hubs that would need carbon capture, but also potentially need power, potentially need hydrogen.
You could see how that could become a sort of an ecosystem of provision of energy and the taking away of waste from industrial customers. Also, given our experiences in subsurface, I think we can work across that entire value chain from the capture, the compression, the transportation, and then the subsurface storage. I think for us, we have a role to play in all of them. Will we play in every single segment in every single part of the world? I can't guarantee that, but certainly it's an aspiration we have, and I think a good business that we could develop in CCS in its entirety.
Okay. Maurizio.
Thank you. Maurizio Carulli from Carbon Tracker. Ben, a question for you, if I may. You have said that Shell is planning to decrease the oil production by 1%-2% more or less, and by 2030. You haven't mentioned anything on gas in terms of more quantitative targets, and I assume because you think that gas has a role in the transition. It's possible to have a bit more of color about how long do you think will be this transition role for gas and when this will expire?
Yeah. Thanks, Maurizio. It's indeed 1%-2% per year.
Per year.
Yeah, not by 2022.
Yes, absolutely.
Annually.
No.
I'm sure you've just wanted to correct.
Yes.
Because it's people could misinterpret.
Thank you.
Of course, we have done an awful lot more than just 1%-2% in the last year, yeah. Selling the Permian is a significant step down in production levels as well, both oil and gas for that matter. You're right. We put that metric out there for oil production. For gas, we said, "Well, you know, with this declining production, gas will increasingly become a bigger part of the mix on a percentage basis." Yeah. We haven't really said will we grow our gas business or not. I think we probably, you know, it will probably be flattish for some time to come. Of course, you have to bear in mind that gas demand, particularly LNG demand, because that is what I'm referring to here, is growing all the time. It is.
It has been growing consistently through ups and downs at about 4% per year. There's no reason to believe in today's environment that we're going to see any decrease in that 4% per year. As a matter of fact, I think that's probably conservative given where we are today geopolitically. Of course, gas has better carbon credentials than oil and definitely than coal, provided you're a responsible operator, which we are. Therefore, we think that gas will have quite a bit of running room. Now, how long? It depends a little bit on your scenario, but even the IEA scenarios talk about gas all the way beyond 2050, of course. Now, with gas, you have to be careful, Maurizio, because it is a much longer life infrastructure that you are building. Yeah.
Whereas for instance, our deep water business, which is the core of our upstream, will decline at 50% per year. Gas doesn't. Therefore you build infrastructure that may be around for a long time to come. Therefore, whatever gas facilities we build need to be first quartile carbon. That is what we have very firmly committed to as well. I think therefore that gas will have a longer running room. Ultimately, over time, I can also see that this LNG business in combination, of course, with carbon capture and storage or other mitigation measures.
Okay. I've got a question online, so let me first go online, and then I'll come into the room again. It's from Olivier Eugène from AXA. His question is regarding natural gas and methane emissions. How can you help the entire value chain and beyond your own operations to reduce leaks?
We can do. We're obviously a party to a number of different arrangements with governments, also with other companies in the methane protocols, et cetera. I think the best thing that we can do is be a thoroughly best operator in the industry, demonstrate our credentials. I think 0.06% is the current number that we've got in terms of our leakage rate, which is pretty much up there in the value chain.
All right. We're gonna go in the room again. Biraj, and then we'll go to Lucas.
Lucas.
Hi there. Biraj Borkhataria from Royal Bank of Canada. Last week you hosted an energy transition event, and one of the comments you made, Ed, was that Shell has moved away from the in step with society rhetoric, which in thinking about feels quite significant. I'm just trying to understand how you have a customer-focused strategy where you're selling, you know, 5-6% of the world's energy that is not necessarily aligned with society over time. Can you help me kind of circle those two things together?
Sorry, say it last. Customer?
Yeah, you have a customer-centric transition strategy.
Yep.
You wanna bring the customers with you.
Yep.
You're saying your strategy is not necessarily going to be in line with society. How do I square that?
Yep. Go for it, Ben.
You know, I think that one of the reasons we're out of step with society is that we're not in step with society today. You know, if you look at the investments that we're making in carbon capture and storage, look at the 820,000 tons investment that we're making in the biofuels facility in Pernis. The demand for biojet fuel out there is pretty limited. If you look at the investments that we're doing in the hydrogen electrolyzer in China, in Germany, in the Netherlands that we've got planned, this is significantly ahead of society.
Now, in the long term, of course, unless there is a meeting between demand requirements of our customers and supply, of course, there is going to be a challenge to meet the expectations that are laid out in terms of the Paris Agreement. We have wording in the energy transition report that talks to that need for supply and demand to work collaboratively. We felt that putting consistently and always putting that caveat of in step with society was belying the truth of us being. Biraj, there's also a psychological element or reason for this, really. I think I'm sure that you have heard from investors as well, saying, "right. That's the opt-out clause, isn't it? So if society doesn't collaborate, Shell is gonna hang back." It's just going to say, "Oh, sorry, it wasn't us.
It was society that didn't want to cooperate." As a matter of fact, that's not, as Ed said, the way it works, but I also want to give a different signal. We will push this envelope as fast as we can, even if we are only 5% of the world's energy product supply or 1% or less of oil and gas production. We will push the envelope. And we believe there is actually sufficient room to do so. The fact that we can very profitably, if you remember our Q3 results or Q1 results, very profitably bring down our emissions when the rest of the world is actually increasing, means that the strategy also work when you're not in step with society, but ahead of society.
All right, we're gonna go in the room. First now to Lucas, and then we'll go to you, Chris.
Thanks very much, and forgive me if I don't stand up. I'm Lucas Herrmann at Exane BNP Paribas. Maybe it ties in with that last point, Ben, but standards, standardization, science-backed, you know, definitions. I mean, one of the features for me as an analyst, I'm sure for most of the people in this room and probably for yourselves, is that comparison across company is verging on impossible because the consistency of definition doesn't seem very great. You have a net carbon intensity, sorry, which is 20% higher than TotalEnergies'. I cannot understand that. Well, I can understand it, but it doesn't make sense given the nature of the businesses. The questions are several-fold, and then unfortunately, there's another one. The first is science-backed targets. You know, where are we? You sit on the panel. You know, how are things moving?
Can you talk a little bit about the conflict that you seem to have between yourselves, Climate Action 100+, TCFD, et cetera, on, you know, the standards that or the numbers that you put out and how they see them? That's question one. Completely unrelated, because this is an ESG day, I want to ask you about Nigeria. And just, you know, progress, where are we? Again, it's important, it's important for Nigeria, but it's important for investors as well, because rightly or wrongly, it's given a great big, well, red mark rather than black mark, et cetera. Our presence there is anyway. What's happening? What's progress? How should we think about Shell's departure, should we say, from the onshore?
Yeah.
Thank you.
Fair enough. You wanna take the Nigeria question, and then I will talk about standards.
Happy to take both, sure.
Yeah. Why don't you go on Nigeria first?
Nigeria first. Indeed, Lucas. I think what we've made very clear is that from our perspective, our strategy is now that we are very keen to remain in deep water and in terms of the gas side of things, but the onshore business just doesn't align with how we wish to operate and how we feel is the right. Take a step back and just look at the leaks that we had last year. I think it's fair to say, 92% of them, to be very precise, were actually due to sabotage and illegal activities at the end of the day, and that's just not sustainable. That's not the way we wish to operate at the end of the day. In the meantime, we're still having to keep on going, keep on operating, making sure that we keep the standards high.
I think a good example of that would be in addition, you know, we've remediated more than 180 sites last year alone. Beyond that, actually trying to stop some of the sabotage that's going on at the same time. You know, we ended up putting cages over a huge number of the wellheads. We stand behind what our strategy is. We're looking to exit, we're in the process, and we hope to give you some updates quite soon on that.
The first question on the science-based targets and standards and everything else. I think, Lucas, what you have to bear in mind, I think we were the first ones to really think about this deeply. I remember, after the Paris Agreement in 2016, we spent almost a year thinking through, what does Paris compliance or alignment with Paris really means for a company like us? I think we came up with what I thought at the time was a pretty comprehensive viewpoint, which is if society needs to get to a certain carbon intensity or carbon footprint, then we, as a key player in society, need to mirror that, maybe even drive it.
That's how we came up with talking about a carbon footprint methodology, which we developed, which I can tell you is actually quite an extensive way of looking at your business. It just so happens that we had been doing this work already for years before that to try and find out where the carbon goes. We had conventions and definitions and even the beginnings of accounting methods to actually account for carbon. In 2017, we were ready to come out and say, "We are going to reduce the net carbon footprint of our business by X by 2050," at the time we said.
The first thing that we did after making that announcement, and actually in this room here, I remember, I invited all my peer CEOs to The Hague at the time and said, "This is what we want to do. We don't think it's a competitive differentiator. We all need to go this way one way or other. So come to The Hague, and we'll talk about what we've done. We can share the models, we can share the accounting methodologies, we can share all the scientific peer reviews that we have been doing on this and everything else." They all came. Yeah. Some said, "Well, this is not for us." And some said, "Oh, this is interesting. I will derive my own version of it," and you can guess who is who.
Since then, of course, we have seen a certain degree of proliferation also in the definitions. Like, you know, do you include all the products that you sell or only the products that you get out of the ground? Do you include trading or not? Where exactly do you draw the envelope? How do you do the sums? Do you do them in BTUs or megajoules? It may all sound silly, but of course, it is hugely confusing. I'm sure that Maurizio can attest to that as well. I do think therefore, that we have to go through a harmonization process, which we are talking about amongst the certainly the European CEOs.
Ideally, of course, there's an industry standard for this that actually gets taken away from us, and where people just say, "This is the way how you do the sums." Again, our methodology is completely transparent, available, and everything else. We are working on for now for almost seven years. It revolves, evolves every year still. Tougher one, because not only do you have to have a methodology for measuring, you have to have a methodology for figuring out what is a target. The same is actually true with Climate Action 100+ and the targets there. I think in some areas, we just have a fundamental disagreement. For instance, I do not believe for a supplier of energy, it's all about just reducing the absolute Scope three emissions. I just pointed it out. Yeah.
I think if you want to measure progress in a company like us, it's not just how much that you get out of oil and gas, but also how much that you replace it by something else. That is a ratio that we are talking about here. I don't think we are at the Science Based Targets community at that level of discussion yet. That will take some time. Climate Action 100+ very clearly wants to talk about how much CapEx do you invest. That's the proxy for progress. I say, well, that is a leading indicator perhaps, but it's much better to look at the outcome and just look at how much did you reduce your carbon intensity. We are still, in my mind, in the foothills of the discussion.
I do agree with the speed of this discussion going really fast. We need to try and catch up with where the sentiment in society is, because otherwise we will lose many commentators and observers who just say, "It's all gobbledygook," and it may actually be done so on purpose and which is absolutely not the case.
Just a quick bit, if I may, which is, I mean, SBTi has got a new chief executive recently appointed. I spoke to him last week. He's doing the rounds, trying to understand the landscape. They've been trying to figure out a target for five years on the oil and gas industry. They haven't quite got there yet. My encouragement would be, we really need them to get there.
Yeah.
I know there's some fundamentalist thinking in there that we don't quite agree with about, you know, to offset supply in our industry or not, et cetera.
We published in the next couple of weeks, and there's a lot of detail in there as well. Have a look at that. We'll go to Chris now, and then we probably have time for one more question, but then we need to wrap up. We'll go to you, Oswald. Chris, go ahead.
Thanks. Thanks very much. Christopher Kuplent from Bank of America. Building on that topic you just mentioned at that meeting in The Hague, Ben, there seems to be a bit of a transatlantic gap opening up in terms of treatment relative to some of your competition that is not as, well, gregarious in disclosing and certainly also in targeting. Thank you.
I just hear a number of questions in there. If you find a few more, Sinead, answer them as well. I think, first of all, the transatlantic divide that people like to often talk about, I don't think it's widening actually. I think it's gasoline and gas and diesel and everything else. How do we square all of that with our growth in this sector? Well, as a matter of fact, we do not indiscriminately grow the sales of oil and gas products. As a matter of fact, we have set ourselves a carbon budget, which will come down to zero. 1.7 gigatons is the peak. We are systematically ramping that down.
We are very clear that we need to high grade our sales portfolio to those products where we get the biggest cash bang for the carbon buck.
Yeah.
That means that certain businesses, yeah, we will get out of. We just say, "Well, this is just not worth our while", because the carbon footprint that it brings doesn't justify us or cannot be supported by the cash that it generates. I'd much rather get out of heavy duty marine fuel to make room in my carbon budget to do clean LNG that may be needed for the world to decarbonize. Take your aviation business. Why wouldn't I get rid of my aviation business? Well, as a matter of fact, I think it's gonna be a strategic control point, because the 1,000 airports that we have are going to be the control point for introducing sustainable aviation fuels, together with the refineries that we have, where we build these facilities.
You hold on to the carbon footprint infrastructure that you have where it is of strategic value, but you let go of the sort of stack it high and sell it low type of business that everybody else can do. Now, is it shifting the carbon burden elsewhere? Yeah, maybe you could argue that. As a result of it, we are pioneering and we are building out the energy business of the future. Because if I tell our marketing teams, "You know, next year you get a little bit less carbon budget, but I expect you to make more cash with it", that will unleash the creativity that we need in the energy industry to change society. That's exactly what our strategy is all about.
Move to last question now, Oswald.
I think Sinead wanted to add something as well.
Oh, right.
No, I think I was going towards the, just the marketing side of things. Just to add a little bit on that, Chris. When you talk about our marketing business, there's quite a range in there. Of course, there's the convenience retail, as you know. You've got the EV charging, but also the biofuels element. Fundamentally, am I comfortable as we move towards that? Well, yeah. We've got IRR targets that we've put in place which were very, very focused with 15%-25% there. Actually, what's interesting is we've moved towards that, sort of that trade-off. We would have always had a capital budget for these businesses in the past, and they would have, of course, had to focus in on what value they could get. Now where we're going to, of course, is they also have a carbon budget.
That carbon to value trade-off has to come in and has to play there. Of course, if you take a step back from that, it doesn't mean that we'll just, you know, success will not be optimal.
You know, thoughts or proposals around how that's working. Secondly, you talked about collaborations. I think 50 big collaborations, I think you've spoken about. These are companies at the leading edge of trying to get to the same place you're trying to get to. And again, I just wanna hear some stories of success there, 'cause I remember, Ben, you telling us on the whole hydrogen initiative pace as you were ready to move out. With this 50 select group of companies, how aligned are you? Are you both moving at the same pace? Are we gonna get there? Thank you.
Thanks, Oswald. Why don't you take the second question first, Ed Daniels.
Yeah.
You wanna talk about incentives and money?
Yep.
Yeah.
Always.
Ben mentioned the sort of sectoral approach that we have. We think about this very much in terms of the companies that we try and do. We try and look at an entire sector. Aviation would be one example where we would work not just with an engine manufacturer or just with an airline. We're working with that entire ecosystem of airports, airlines, engine manufacturers, airframe manufacturers, but then also with the governments who are providing the policy frameworks that go around that. That one seems to be working pretty well. Clean Skies is the name of it, and we're sort of quite an active participant there. To perhaps take it down a level to one that you mentioned, which is trucking.
There's two or three very significant truck manufacturers that we're having very detailed conversations with because their challenge to us is okay, if I bring the hydrogen trucks into Europe, and we build them, and I put 30,000 trucks a year on the road by the late 2020s, will there be hydrogen infrastructure there for us to go and refuel? Can I drive from, you know, from, I don't know, from Glasgow to Paris, or can I drive from Glasgow to Helsinki on a hydrogen truck and being able to refuel? The commitment we're making is, yes, we will build the infrastructure, but then you need to look us in the eye and promise us there will be the trucks.
Those sorts of collaborative conversations are starting to unlock the chicken and egg situation that you have in a number of different industries, number of different sectors of how decarbonization is practically gonna happen. That little bit goes back to the sort of redirecting of in step with society, because those things are certainly ahead of where society's at today.
Also to your first question, it's that wonderful dilemma of how do you incentivize people properly while getting the right outcome you want for the shareholders, the customers, and of course, all of the different stakeholders. As you know, you mentioned particularly the sort of fact that we have the Long-term Incentive Plan, with some 20% of that is related to the energy transition. Of course, that has played out in the last year in the payout in terms of the fact that we've been able to, in 2021, reduce our carbon intensity by 2%-3%, 2.5% in our case, as we deliver on it. What interests me even more is the fact it's not just you know, the top of the house that's being incentivized.
Because, yes, that can make a difference, it can have the right conversations, but does it really change the ways of working? What we're actually doing now is actually playing it through the whole of the Shell scorecard. What you see in it as well is that this 15% that's related to the energy transition is divided into sort of three pieces. One of which is about making sure that we collaborate with customers to decarbonize and do that through the EV charge points. One is the absolute carbon emissions reduction, which is quite straightforward. And then the third one is actually about changing the mix of the product. Making sure that we, and the percentage of marketing's earnings actually changes. That means that every single person in the organization is completely behind this. It's not just the top of the house.
That is beginning to change the ways of working along with the capital and carbon committees I discussed with Chris earlier. It's flowing through very well. More to come on it, but you're beginning to see it filter all the way down as well.
Also very important on the scorecard that Sinead mentioned. This is an annual bonus scorecard, right? Of course, cash is the very important metric on there, as you would imagine. A lot of people in the company just think, "Well, yeah, cash, yeah, sure," but a lot of it is dependent on geopolitics, isn't it? Therefore, the other components of the scorecard, safety, sure, everybody felt responsibility for safety. Many of the other metrics were asset-related metrics, utilization of our facilities, the amount of flaring in our facilities, do we deliver our projects on time and on schedule, and on budget and everything else. A very large part of our company, those facing our customers, of course, could not relate to any of that. Except for the cash, of course.
Yeah. To have a much more balanced scorecard where the energy transition, changing the product portfolio, building out the network for EV charging, all of a sudden is also in their domain, actually makes this a much better engagement tool as well. It's not just a matter of, you know, if you work a little bit harder on this particular metric, you get a little bit more money. It is easier to explain what we are trying to do as a company because people see it back in every quarter's dialogue that we have with the entire organization.
All right. I'm going to stop it now. We're okay? Thank you for your questions and for joining the call today. It concludes the virtual part of the event. For our guests in the room now, we'll have a short break before we start the two fireside chats. Please note the color of your lanyard. This is what's around your neck. Not everyone knows this. If your color is yellow, please go to the Duke Suite. If your color is red, please go to the Baron Room, and our colleagues from IR will guide you with directions. Thanks a lot, and see you in a second.