All right. Let's start. Ladies and gentlemen, good afternoon. My name is Tjerk Huizinga. I'm the EVP of Investor Relations in Shell. I'm very happy to see you here all at the London Stock Exchange. Welcome. We're also delighted we have around 75 people attending in the room virtually. Let me welcome both of you here at our annual ESG event. Thank you for attending, and thank you for interest in our company. Before we start, let me briefly outline there are today no fire alarms. If there is an alarm, we'll therefore need to evacuate the building. The way to do so is through the emergency exits located outside of the conference room. Now I'm gonna be a bit of a stewardess.
You either go to the right here and then to the end, and there is a green light, or you go to the left at the end of the meeting rooms. You'll see these bright green lights. Also like to remind you, take care of each other, so be careful with bags and so people don't stumble over bags in between here everywhere. It's good practice you do that here, but you also do it at home. Don't leave bags hanging around. Let's now start. We've got a very interesting program for you today. We'll begin with a short presentation by László Varró. He will talk about the key conclusions from the Shell Energy Security Scenarios, which we published yesterday.
Before his current job, László has, among other things, studied at Cambridge, and his last role, he was the chief economist of the IEA. He was also part of the core team developing the IEA Net Zero Roadmap. Secondly, we have Ed Daniels, our Strategy, Sustainability, and Corporate Relations Director. He will present the Energy Transition Progress Report, covering the progress we as a company have made since 2022. Ed's career in Shell spans roles in upstream, integrated gas and downstream, as well as in project technology, and he actually brings 30 years of industry knowledge, expertise, and executive leadership with the company. After each session, you'll be able to ask questions in the room or type a question if you're participating virtually.
Please note that we ask you to indicate your name and the company. We also kindly remind you to stay on the subject of the session, and that's also relevant for some of our presenters. We may not be able to address all the questions, but my investor will follow up any unanswered questions. Either here we can take it after the event, or we will take them. We'll call you afterwards. After the two sessions, that's right. After the two sessions, we'll say thank you to the virtual room. We'll introduce a small break for all the attendees here in the room. We also publish all the materials which we actually have shown here today on the website.
After the break, we'll then have an ESG dialogue between our new CEO, Wael Sawan, and Kamal Ahmed. Kamal is a British journalist. He's currently the editor-in-chief of The News Movement, and prior to that, he was the editorial director of the BBC News. We will end the program with some refreshments, allowing everyone to provide some feedback as well as continue the dialogue. One last remark from me here, finding solutions to the challenges of our energy system today requires a lot of collaboration, ongoing dialogue between different stakeholders. Events like today provide us with an opportunity to do just that. We value the direct engagement with our investors, and we recognize that some of you may have different views when it comes to our energy transition strategy and the progress we're making on this front.
I hope, however, today gives you a lot of opportunity to ask questions and share your views, share your thoughts, as well as listen to our insights. With that introduction, let me now hand over to László. He will actually talk about the scenarios. László, go ahead.
Thank you very much, Tjerk. Ladies and gentlemen, my name is László Varró, Shell's VP for Global Business Environment. I'm going to talk to you about our energy security scenarios. Now, I'm not going to read this. I would like to reflect on what a scenario is. What a scenario is not. Scenarios are not predictions. They should not be used as predictions. In fact, if you are interested in the future, the only thing I can guarantee to you, that is going to be different. Scenarios still have value. With our scenarios describe possible and plausible future trends, and they can help people making better decisions. This means they can inform and test the robustness of Shell's strategy. They are very distinct from Shell's business plans.
In short, scenarios are not Shell's strategy. We know that what scenarios are not, so let's look at what they are. The two energy security scenarios have been heavily influenced by recent world events. The recovery from the COVID-19 pandemic, the Russian invasion of Ukraine, rising energy prices and increasing concerns about energy security, and also in the broader context, the impact of Chinese-American relations on the future of globalization. We felt that security is an overarching theme. We identified two very different futures, two very different worlds, which have different interpretations of what security actually means. In Archipelagos, the interpretation of security is conservative. Countries aim to achieve national security through self-interest.
This is a world where security means sticking to the well-known commercial energy infrastructure, producing hydrocarbons domestically, and encouraging imports from geopolitical friends. For example, China rapidly increasing its domestic oil production last year is a signal that points in the direction of such a scenario. Our second scenario, Sky, takes a different approach. The meaning of security is different. In Sky, society regards the current fossil fuel-dominated energy system itself as a security risk. This is a scenario in which society leans forward and aims to achieve energy security through an X-rated transition of the energy system. There are signals that point in this direction as well. For example, many countries, very much including China as well, have recently increased their clean energy investment ambitions, almost irrespective of the political orientation of the government. The Archipelagos scenario extrapolates today's reality and sees what happens.
It is an exploratory scenario. Sky starts with the climate targets, and it is reverse engineers on how to achieve those targets from where we are in 2023. The two targets that were incorporated into the Sky scenario are net zero emissions by 2050 and the temperature stabilization at lower than 1.5 degrees above pre-industrial levels. The Sky 2050 scenario aligns with the objectives of the Paris Agreement, but very importantly, it achieves them by leaving room for economic development and prosperity. Before we look at the similarities between the two otherwise different scenarios, I would like to mention one very important aspect of global inequality. Can we move the slide? The energy use currently is not even close to evenly distributed around the world.
Today, on the map of Central and West Africa, it's possible to draw a circle which has roughly the same population as the United States, and it consumes as much electricity as the circulation pumps of the American swimming pools. This is the extent of energy inequality in the global economy today. Discussions about the future of the energy system very often focus on Europe, the United States, and China. Of course, those are crucially important regions which they play a major role in shaping the future of the energy system. The developing world is often overlooked, even though this will have the biggest impact on energy demand in the future, mainly because the establishment of the modern energy infrastructure in these parts of the world. We already see this unfolding in both scenarios.
As of today, the speed of urbanization in Africa is a city of London in every four months, which is steel, cement, aluminum, energy-intensive commodities. There are 800 million citizens in those villages who are yet to buy their first refrigerator. They can skip a fossil fuel-dominated development pathway altogether and immediately jump to clean energy solutions. To some extent, this is already happening. Right now, there are around 10 million people every year who get their first electricity without being co-connected to a conventional power grid from village solar microgrid solutions. Fantastic. However, in the same village, the first modern cooking solution is an LPG canister. What delivers the bottles of LPG to the village is a diesel truck.
In some, in other very important aspects, leapfrogging is not yet happening. In this sense, the story of our energy scenarios to a large extent is the story of how the continuous growth of the energy system in the developing world is reducing global inequality. In both scenarios, nearly half of the total global energy consumption by mid-century comes from developing Asia and Africa. These countries see the fastest growth of energy demand with rising living standards. Also, this is the part of the world where global population is projected to increase by around 2.5 billion people. It is essential that the world find ways to enable the development of these countries in a way that keeps emissions down. That brings me back to what are the similarities between the scenarios.
One is the rise of electricity, especially the electricity produced by wind and solar. For decades, we have seen the increasing importance of electricity in the energy system. For almost half a century, that was quite predictably electricity growing a 2% market share in the energy system every decade. 20 years ago, electricity was 17% of total energy consumption. 10 years ago, it was 19%. Today, 21%. In every scenario, electricity grows much faster than that, but the speed is different. In the Archipelagos scenario, the use of electricity advances by 5 percentage points every decade, so it gains 5% market share per decade. Whereas in Sky, this number is 10 percentage points. In both scenarios, solar becomes the number one dominant primary energy source. Sky, instead of 2065.
The rise of clean electricity and the increasing electricity consumption gets its initial momentum primarily from the electrification of cars. In the Sky scenario, by 2050, we have an almost complete transition to better electric vehicles in all countries by the early 2050s. In Archipelagos, this is 20 years delayed, primarily because the developing world continues to use internal combustion engine vehicles longer. Electrification goes beyond passenger vehicles. We also see electrification of trucks in road transport. We also see electrification of home heating by heat pumps, and even high-temperature industrial processes. Recently, a pilot project in Finland came to operation, which is using electricity for cement production.
The cement industry has been traditionally regarded as the ultimate hard to abate industry, the preserve of coal and gas, and even in electricity, even in the cement industry, electric solutions are emerging. However, electricity is not the answer of oil or to all questions. That brings me to the second similarity. Can we move this slide? That is the rise of low-carbon fuels. Some parts of the economy cannot easily or affordably switch to electricity. It would be difficult to see a rocket blasting up to space powered by a battery. We can also think about aviation, shipping, the production of steel and chemicals. These applications will continue to need a form of energy that is highly storable, high energy density, and provides the feedstock for chemical processes. In other words, they need hydrocarbons, but without the carbon emissions.
Biofuels achieve that by biological carbon. They will continue to play an important role, but we think that the growth will be faster for hydrogen, which will becomes a part of a significant proportion of the energy system during the 2030s. Both scenarios have a growth of low-carbon fuels, but the speed and the application is somewhat different. In Archipelagos the growth is biggest in the industry sector, whereas in Sky 2050, in addition to industry, we also see a progressive replacement of oil, say, by low-carbon fuels in aviation and shipping. Electricity and low-carbon fuels both grow significantly in both scenarios. They replace large quantities of oil and gas, but not all of it. That brings me to the third similarity between the scenarios.
The amount of oil and gas investment that is needed during the energy transition is subject to a lively debate. The first thing to keep in mind is that oil and gas investment has already been cut down sharply. The current investment level is around one-third below where it was before the Paris Agreement. Global oil and gas demand is actually higher than where the Paris Agreement was set. Various independent studies show that the current investment level in oil and gas is broadly in line with the residual demand during the energy transition, and that takes the growth of low-carbon solutions into consideration. In other words, if the industry simply cuts down oil and gas investment, the only thing that we will achieve is even tighter oil and gas markets. The two scenarios have different pathways for oil and gas.
Archipelagos sees still a bit of growth in oil demand. Gas demand globally flattens even in the Archipelagos scenario, with the need to replace Russian gas and re-replace domestic depletion, the LNG market continues to grow into the 2030s. In the Archipelagos scenario, once demand starts to fall, the decline is relatively slow and gradual. Given the depletion of the current production, the demand trajectory of the Archipelagos scenario would require, at a global level, an increase from the current upstream investment. Now, Sky, which is an energy transition scenario, has a much more pronounced demand decline. In Sky, from the early 2030s, in every single year, global oil demand declines by more than the demand decline that we observed during the 2009 financial crisis.
However, even having a 2,009 every single year is actually less than the geological depletion of existing production if you just simply stop investing. Even in this fast-falling demand, investment in oil and gas would still be necessary to keep the world economy running. In the Sky Scenario, we took radical projections on wind, solar, and electric cars. There is no dispute about that. However, compared to some other pathways, the Sky Scenario is more cautious about voluntary consumer behavior change, so people stopping using their cars, and also more cautious on biofuels and some of the highly capital-intensive technologies like hydropower. Two more things to keep in mind about the decline of fossil fuels. The first that the remaining oil and gas demand mid-century is not necessarily supplied evenly from countries which have oil and gas reserves.
Political conditions, policy decisions, have a major impact on supply, and consequently also the investment needs elsewhere. Some countries are more attractive for oil and gas investment than others. The resources which can be produced at a low cost with a low carbon intensity and with a consistent policy support will have the advantage, whereas in other countries, the reserves could very well stay underground forever. That is the second point to make, that investments in new oil and gas reserves in our scenarios will continue to be needed.
The demand for oil and gas is not going to stay stagnant. Even in the Sky scenario, which sees a significant and fast drop in worldwide oil and gas demand, with a much higher investment level in clean energy than what we observe today, there is a need to maintain investment in oil and gas fields to maintain the reliable and affordable energy supply as the world negotiates the energy transition. The overall headline from these two scenarios is rather positive. The world is heading towards net zero emissions. There's a big question of the speed that we get there. Sky 2050 is get there mid-century because this is how we mathematically designed the scenario. In Archipelagos is gets there after the end of the century. Beneath that headline, there are some huge challenges, also some reassuring signs.
Start with the reassuring signs first. The climate science debate up until recently was considering three, four degrees genuine disaster scenarios. The world no longer appears to be on that course, even under the conservative assumptions of the Archipelagos scenario. However, given the exceptional tightness of the global carbon budget, even in the Sky 2050 scenario, the temperature increase temporarily overshoots the 1.5 degree target. Consequently, Sky is a scenario which spends some time above 1.5 degree mid-century, and then moves back to below 1.5 degree through carbon removal. This means that the world will need to remove carbon dioxide from the atmosphere. That can be done by storing carbon dioxide in the land. These are the nature-based solutions: stopping deforestation, adding to forests, and protecting nature, and modernizing agriculture.
Moreover, in the Sky scenario, the direct air capture technology, which is right now moving from the laboratory to venture capital, is emerging as a multibillion-dollar new industry. That was a lot of information for you to take in, and I'm sure that we will have a lovely discussion. Let me just reiterate with three important takeaways. One is that in both scenarios, the various parts of the globe have different regional responses to the energy system. Countries try to find their own way. Overall, the path towards a balanced energy transition lies open. Second, both scenarios see a rising importance of electricity and also a significant growth of hydrogen and low carbon fuels.
Third, even though oil and gas eventually declines in both scenarios, they remain crucial for the world economy and investments in field development continue to be necessary. Now let me move to the Q&A. I'm happy to pass the floor for you. Thank you.
Yeah. We're gonna start with Q&A. We're gonna start here, and then we're gonna try to go online, and we have about 10 minutes. Let's start with Martijn.
All right. I'm going to ask two questions.
You have to say who you are.
Okay. It's Martijn Rats, Morgan Stanley. I wanted to ask two questions. The one builds on the comment on direct air capture, that you just mentioned.
Yeah.
I read your scenarios this morning. I noticed that in one of the two scenarios, direct air capture becomes this third-largest energy-consuming sector, more than buildings, more than transport. It becomes enormous in its own energy consumption in its own right. I was wondering if you could say a few more things about that. The other one, I find it relatively encouraging to see a slide on synthetic fuels, which I know that some of your colleagues have been very involved in, but I've always often felt that it never quite got the attention in the Shell presentation that it perhaps deserved. In the past, often there was a number of about $800 a barrel associated with synthetic fuels.
I was wondering if that number had come down and whether for synthetic fuels there is a trajectory towards a price per barrel that is, you know, more in the realm of the prices that we're used to.
Sure. Thank you. The two questions are nicely connected. First on direct air capture. The scientific base of the technology is well understood. In fact, direct air capture has been applied for decades in nuclear submarines, where it is used to keep the air breathable in the submarine. Even the basic engineering is applied. Of course, in a military submarine, the cost, the energy efficiency of the process is not a primary consideration for the navy. That technology has to improve in energy efficiency, and it also has to, the capital costs have to come down.
This is something which, on which innovation is ongoing. It is also true that when you try to capture that 400 parts per million carbon in the air, the laws of thermodynamics tells you that will always be an energy-intensive process, even after all the innovation. Consequently there's a very significant energy input to direct air capture. A very promising innovation area is low temperature direct air capture processes which can use waste heat. All across the energy system there is a lot of waste heat in energy facilities and industrial facilities, and very often the problem is how to get rid of them. On synthetic fuels, we don't see a meaningful role for synthetic fuels in road transport.
Cars go electric, full stop. Trucks, two-thirds electric, one-third hydrogen with biofuels playing a blissful role. Synthetic fuels, the great advantage is that they provide a material which can be used in existing aircraft and existing ships without any modification. This is where probably they have a future. There the energy intensity of the process is very significant, because you start with electricity to produce green hydrogen. The rule of thumb is that 1 bpd synthetic fuel capacity is four football fields of solar panels. Essentially to reduce the costs, you need massive amounts of dirt cheap renewable electricity. We are talking about Namibia, Oman, Western Australia, the places where there is land, there is sunshine, there is wind.
Also if you can utilize already existing assets for the assets, that also massively improves the cost efficiency.
All right. Let's go to Amy. Go ahead.
Hello. It's Amy Wong from Credit Suisse. Thank you very much for your presentation. I'd like to pick up on your comments about leapfrogging and to some degree dispatchable energy is what you're referring to.
Yeah.
While you say it's probably for more for emerging markets, I would argue, make the observation that even for some developed markets, the amount of investment you have to put in transmission and distribution to upgrade them, you may as well so use some dispatchable energy. In that scenario, what is the role of big energy, big generation as the, you know, world is going towards dispatchable energy? Thank you.
Sure. We definitely see a very important decentralization of consumer relationships, contractual structures, and the provision of flexibility. An energy system where flexibility is provided by 10 gas turbines is very different from an energy system where flexibility is provided by 1 million parking electric cars. Advanced digitization unlocks these new flexibility sources. However, for the production of primary energy, we see a massive role of large scale facilities because of the sheer quantities that will be needed. Take the European example. Europe has roughly 100 million family homes which are suitable for a solar panel. By all means, let's put a solar panel on top of each and every one of them.
That will be around 600 TWh . The various transition models estimate that Europe will need around 5,000-6,000 TWh in a zero carbon electrified energy system. That means that after you get 600 from the rooftops, you still need massive scale deployment of offshore wind and also deployment of nuclear in countries where this is an acceptable option.
All right. I think I have a question now online, and then I'll go back into the room. Alex Cosson from Kendrion is asking the following question, László. Can you explain to what extent your Sky scenario aligns or differs from the IEA Net Zero scenario, as the IEA scenario is based on both economic and technologies considerations to have the most relevant decarbonization trajectory. Can you explain if your Sky scenario is different, and to what extent you're different, including technologies and/or economic factors in your modeling? A long question with no stops.
Yes. Yes.
Apologies from me, but you know, you know the drill.
Yes, yes. I spent half a year of my life working on the IEA Net Zero Roadmap, and it's a brilliant piece of work, and I'm very proud of that. One thing to keep in mind is that any 1.5 climate stabilization scenario has to be challenging because it's a daunting task. Any 1.5 scenario has to rely on assumptions which are outside the comfort zone. Sky, the IEA Net Zero have nearly identical assumptions on the role of electrification, so in terms of electric cars, wind, solar, where in the Sky scenario we were more cautious about voluntary consumer behavioral change.
Basically, Shell is serving around 50 million consumers every day, and we use quite advanced data analytics of analyzing how consumers behave in real life. Also, compared to the IEA Net Zero Roadmap, we applied more cautious assumptions on the ramp up of hydropower and the ramp up of biofuels because in both technologies we see obstacles. Now, at the same time, the Sky scenario's assumptions on carbon removal are more challenging than the IEA Net Zero Roadmap's roadmap. I would be very hesitant to say that one of them is right and one of them is wrong. These are basically somewhat different ways of looking at the world. The core solution space, energy efficiency, wind, solar, electrification is identical.
All right. We're gonna do one more here in the room, and then we're gonna go Maurizio
Thank you very much. It's Maurizio Carulli from Carbon Tracker. Two questions, if I may. The first one is on biofuels. Can you give us a sense of the difference of combusting, of the emissions, once the biofuel is combusted with respect to the normal fuel? For example, how less CO2 would be emitted combusting a sustainable aviation fuel versus the traditional kerosene, for example. Or biodiesel versus normal diesel. This is the first question. The second question is a bit more technical one, but I hope you can help a bit. On the capture or removal of CO2, i.e., the CCS and the DAC.
There is broad, how you say, scientific converging about the fact that not emitting or capturing CO2 emissions has a positive effect on the climate. I mean, reducing the progressive global warming. At least, I'm not a scientist, but for the little that I've read, there isn't so much widespread uniformation of conclusions at scientific level about the fact that removing emissions that are already there in the atmosphere, for example, via DAC, has actually a positive effect onto the global warming. Since Shell has, you know, a number of scientists, can you share with us a bit their point of view on the subject?
Sure.
Long question, short answer.
Yes.
Sorry.
First, biofuels, Legally speaking, the Greenhouse Gas Protocol regards biofuels as zero carbon, because theoretically, the carbon is removed by the plants through photosynthesis, which is then burned. In real life, there are very legitimate concerns about the sustainability of bioenergy use. That basically, that basically gives you two insights for, for a bioenergy strategy. One, that a bioenergy strategy has to, has to very strongly focus on innovation and using advanced technologies which enable us to use, sustainable waste-based feedstocks. The second is that the limited bioenergy resource should be concentrated in applications where it is genuinely mission-critical, these, like shipping and aviation. For the second question, it is right, there is a scientific uncertainty over whether over what happens exactly of when you remove carbon after an overshoot.
Unavoidably, because nobody has tried that before. Now, it is perfectly right that the best thing is not to emit the carbon dioxide at all. The innovation and investment work on carbon removal is not a substitute for efforts to deploy clean energy and reduce emissions. It's a complement, because the already existing capital stock in the global economy is already 1.6. Consequently, if we don't do anything else, carbon removal will have to be applied to deal with the existing capital stock.
We're gonna stop it here. Thank you very much. I know it's all a bit fast, but we have a very fast schedule here, and we'll have lots of moments to ask questions later. Last of all, thanks a lot. We now go to the second session, and we move our focus on the Energy Transition Progress Report. Thank you. Yeah. And Ed will talk to us about the progress we've made in 2022 on our targets to become a net zero energy business by 2050. Welcome. You're ready on the stage.
Great. Thank you, Tjerk. Well, here I am indeed. It's great to see you, a number of you, online indeed, and welcome to you. Of course, really great to see people in 3D for a change, here in the room. This is the second year that we've published the Energy Transition Progress Report. It measures the progress we made in 2022 against our target of becoming a net zero emissions energy business by 2050. We set that target back in 2021 as part of our energy transition strategy. The results for 2022 are good. The advisory vote at the 23 annual general meeting will be about this progress. Before I go any further, though, I wanna say one thing about strategy. Many people have asked us, if we're gonna change it.
Let me be really clear with all of you here and today. There is no change to our target of becoming a net zero emissions energy business by 2050. We also continue to believe that our targets are Paris-aligned. With that, let me tell you a little bit more about the progress that we've made in 2022. We reduced our Scope 1 and Scope 2 emissions, the emissions that we emit from our own operations, by 30% at the end of 2022, compared with 2016 on a net basis. That's more than halfway to the target that we've set ourselves of 50% by 2030.
Also, at the end of 2022, the net carbon intensity of the energy products we sold had fallen by 3.8% compared to 2016, which is well within the 3%-4% target that we set ourselves and is consistent with the goals of the Paris Agreement. Our analysis, using data from the IEA, the International Energy Agency, shows that the net carbon intensity of the global energy system fell about 2% around the same time. I'll talk more about carbon intensity, but in a moment. Overall, we've met our emissions targets for a second year running. Building on 2021, we've added another year of strong progress in 2022, but there's a bit more to it than just the numbers.
In our last report, which we looked at our progress, from 21, investors, you, told us in detail what they thought of it, and the vast majority of you supported it. 80% of shareholders who voted welcomed the progress we have made. Others indeed had concerns. We listened to those, and we found basically three big questions addressed to us. Number one, should Shell invest more in renewables? Number two, is Shell's strategy in line with the Paris Agreement? Number three, why doesn't Shell strategy include an absolute Scope 3 target? Today, I'd like to take those questions head-on and reinforce why we believe we have the right strategy. To answer the first question on capital allocation, I think it's important to look at the events of the past year, and László touched on many of these in his remarks.
2022 showed us just how finely balanced the energy system is between supply and demand. The war in Ukraine disrupted the world energy system, and we saw what can happen when that balance is upset. In the eight months following the Ukraine invasion by Russia cut gas exports to Europe by around 80%. Gas became harder to get hold of, and gas prices went up. What's the result? Some countries in Southeast Asia and in Europe, in fact, turned to coal as the energy source, and coal consumption hit a record high in 2022. On average, as I'm sure you all know, coal emits about 50% more carbon emissions than gas when producing electricity and about a third more when producing heat. More coal instead of gas means more carbon emissions.
It's also important to realize that global available gas dropped by about 2.5% since the Russia-Ukraine war. Just imagine replacing not just that 2.5%, but almost all of the world's current supply of energy, and you get a sense of how hard it will be to get to a world of net zero emissions, the world that we've described to you in some of our scenarios. Indeed, the world increasingly needs low carbon energy to tackle climate change and air pollution. People also need a secure supply of energy and an affordable supply of energy, and the many social and economic benefits that come from that. Enabling the supply of this energy requires huge investments, both in oil and gas and in low carbon energy. Last year, we invested in both, which brings me back to capital allocation.
We're one of the biggest investors in the world in low carbon energy solutions. In 2022, we invested $8.2 billion in low carbon energy and non-energy products, around a third of our total cash capital expenditure of $25 billion. Excuse me. Of that, we invested about $4.3 billion in low carbon energy solutions, and this includes significant investments in solar, in wind, in biofuels, in hydrogen, and charging for electric vehicles, EVs. Our single biggest investment was the $1.6 billion dollar acquisition of Sprng Energy in India, a solar and wind platform. It added about 2.3 GW of renewable generation capacity with the potential to add 7.5 more in the future.
Not included in 2022, because we only just completed the transaction, was the $2 billion purchase of Nature Energy, which makes us the largest producer of renewable natural gas in Europe. The remaining $3.9 billion was invested in non-energy products such as chemicals, lubricants, and convenience retailing. The remaining two-thirds of our capital in 2022 was spent on sustaining and maintaining supplies of oil and gas that the world needs today for a safe, secure energy system. These investments are necessary, and like László pointed out in discussing our energy security scenario, continued investments in oil and gas are needed because of natural production decline, up to 15% in some cases, and the continued demand the world has for quite a long time to come, as you saw from the scenarios.
That brings me to the second question that investors pose to us about our progress. Are we aligned with the Paris Agreement? We believe that we are. I have to point out that there is no established and agreed standard measure as to whether carbon reduction targets, or supply of energy are aligned with the temperature limit goals of the Paris Climate Agreement. In absence of such a broadly accepted standard, and we wish there was one, we have developed our own approach at Shell for demonstrating Paris alignment by setting a carbon intensity target within a pathway derived from the 1.5 degree scenario from the Intergovernmental Panel on Climate Change, the IPCC.
Our target is to reduce the net carbon intensity of energy products we sell by 20% by 2030, and by 45% by 2035, and by 100% by 2050, covering Scope 1, Scope 2, and Scope 3 emissions. As I've already said, Shell's reduced the net carbon intensity of the energy products it sells by 3.8% since 2016. Yes, we believe that this target is aligned with the Paris Agreement, and that brings me to the last question. Why don't we include absolute Scope 3 targets? Our Scope 3 emissions are dependent on customers and how they use the energy products we sell, so it's dependent on demand as well as supply. We don't control customer emissions.
With these emissions, which we report as Scope 3 emissions, can go down in two ways. First, we stop selling products to our customers, which is not strategy, but corporate self-harming or corporate self-destruction. Secondly, if our customers increasingly buy energy products with lower emissions, that's probably the right way of going about that. That is what a central part of our strategy, to sell more energy products with low carbon emissions to help both Shell and our customers meet their climate targets. Think of things like biofuels and EV charging, both of which are two important growth areas for us. I already told you about our net carbon intensity. We've reduced the net carbon intensity of our energy products faster than compared with the global energy system. These net intensity targets fit alongside our overall target of becoming a net zero emissions energy business by 2050.
Achieving net zero emissions by 2050 is the same as achieving a 100% reduction in net carbon intensity. This is why we focus so much on working with our customers, and this is where we can make a real difference to Scope 3 emissions while remaining financially strong. We believe our net carbon intensity target is the best way to measure and transform how we are changing the product mix to help our customers decarbonize sector by sector. What does this all tell us? This report shows, let me underline this, that our plans are in the interest of the planet, of our customers, and of our shareholders. We're determined to achieve our target to be a net zero emissions business by 2050, and we're equally determined to do this in a profitable way.
We believe we've got the right strategy to do that. That brings me to the Follow This resolution. I'm afraid their resolution would slow our progress and not support it. We believe it to be bad for the energy transition and bad for our shareholders. Let me start with the Follow This resolution in this way. They call for an absolute Scope 3 emission target for 2030. This does not help the climate. In fact, it threatens the energy balance. As I've pointed out, the world's energy system has become so reliant on fossil fuels, it can't untangle itself overnight.
If we're forced to cut our supply to meet the Follow This resolution without a reduction in demand, without fundamental change in demand or readily available affordable alternatives for oil and gas, our customers will simply buy their energy from other suppliers. Total worldwide emissions would not go down. The world needs a combination of solar, wind, biofuels and hydrogen, for example, to gradually replace oil and gas. Of course, the capital stock that can use and consume those forms of energy. We want to continue to provide the energy the world needs today while working with customers and governments to change the way energy is consumed tomorrow. We support a balanced change. Our strategy is evenly paced. It helps the transition to happen in a balanced way.
Moving at the wrong pace could add more shocks to a finely balanced system, which will be bad for the energy transition, as we saw in the gas supply-demand balance in 2022, where an affordable energy source was removed too suddenly, prompting a switch back to coal in some parts of the world. Secondly, the Follow This resolution does not allow us to help our customers 'cause it doesn't have a way to deal with the sectors that can't move as quickly as others. Take air travel as the example. Planes that are being built now will still be in use for decades yet to come. Technology and fuel supplies will take time to catch up. As many of you know already, in the Netherlands, Shell is building one of Europe's biggest biofuels facilities.
When we've built it, the facility will be among the largest in Europe to produce renewable diesel and sustainable aviation fuel. Many more biofuels facilities of this size will be needed, and building them will just take time. Our experience in working with industries like aviation means that we understand the challenges, the obstacles they face and are best placed to overcome with meaningful solutions to overcome. In this resolution, Follow This does not factor in the specific complications that we see sector by sector across the world. Beyond not helping the climate and not helping our customers, Follow This, this resolution is also against good governance. Despite its aims, it is unclear, it is generic and will result in confusion in our company. The resolution is unhelpful in another important way. It does not help our shareholders.
To be successful, we must provide the energy the world needs now and in the future, purposefully and profitably, and our success has to have a real and positive impact on the energy transition. Our strategy aims just to do that. To sum up, the Follow This resolution is unhelpful for the climate, it's unhelpful for our customers, it's unhelpful in the stage of good governance, and it is against the interests of our shareholders. At Shell, we're more than two years into a strategy that we consider to be comprehensive, flexible, which now has been tested through some of the toughest years many in the industry have lived through. Follow This hasn't got a viable alternative we believe are in line with the 1.5 degree goal of the Paris Agreement.
Our strategy supports a balanced energy transition while accelerating the shift to low and zero carbon energy. During the AGM, we ask you to support us in the progress that we've made in the last 12 months and not to vote for changing our strategy and pursuing misguided, unrealistic targets for our company, which Follow This has suggested. I very much hope we can count on your support as we go forward. Thank you very much indeed for your attention to my formal remarks. I think we now step into a time when we can jump into some Q&A.
Yeah.
Sure.
We're gonna go to Q&A right now, and then we're gonna take it from there. Where'd you start? Yeah. There's a mic there.
Andres van der Linden, PGGM Investments.
Hi.
My congratulations on reaching 30% already for Scope 1 and Scope 2. I guess my question is a simple one. Why not hit your target earlier? What stands in the way of achieving the Scope 1 and Scope 2 target before it comes up?
I mean, it's not trivial. I mean, there are sort of real investments that we've got to make to electrify some of activities. There's contracts you need to renegotiate to buy clean electricity. There's assets that we need to physically build in order to do that. It's not that we're sort of sitting on our laurels waiting for 2030 to come around and then suddenly drawing a big switch. This is a long-term plan. It's been a 10-year plan in the making. I think we've got all of the milestones in place. We're very excited that we can actually show you a plan for 2030 of 50%, I think acceleration would be counterproductive.
Sorry, a quick follow-up. How much does your Scope 1 and Scope 2 target rely on divestments going forward?
I mean, going forward, relatively limited. I mean, I think there are divestments in what we've got to thus far, but I think going forward, it does have some, but it's as much to do with genuine investments and genuine choices that we make in decarbonizing our activities.
Okay. Thanks.
All right. Let's go here to Lydia, and then we go back into the room there. First pass here to Lydia, and then we go there.
Lydia at the front.
Lydia at the front.
You can't miss out Lydia.
Yeah.
Hi. It's Lydia Rainforth from Barclays. Can I just ask you about the concept of Scope 4 emissions or avoided emissions?
Mm. Mm.
What you think about that? I actually have lots more questions, but I'll leave it at that one.
Yeah.
This is the case.
I mean, I think a number of companies have got at this, and so I kind of allude to it in the remarks of saying, "Well, look, if you, if you invest in LNG and you supply it, and then you displace coal, that's Scope 4." I think the struggles with a number of external commentators in even coping with some of our Scope 3 methodology is so hard. I think it is very difficult, but I do genuinely believe we need to talk more loudly about the avoided emissions that we're providing, because I think it's very real. It's very, very real that we are supplying LNG to the world that is displacing coal, which is making the world a better place.
Even if we don't get it into the greenhouse gas sort of protocols or into the Science Based Targets initiative, I'd really like to see that a much more loud conversation in the world.
You're gonna go first in the back there, and then.
See you.
I mean, gonna go to Michele, and then we're gonna go around here again. All right. Yeah. Get the whole floor.
Hi. This is Kevin Paul from Ruffer.
Hello, Kevin.
Hi. Have you done much work to figure out how your investment decisions shape the behavior of your customers? It strikes me that there's some endogeneity in the scenarios and in the way you talk about calibrating supply with demand.
Mm.
How far do you think your investment signals to your customers how fast they should also make their transition? Thank you.
I mean, it's a great question, and with not a simple and trivial answer to it. There are a number of companies that have gone out there with low and no carbon offerings to customers and asked for $0.01 a liter or $1 a ton or whatever difference. Customers tend to be, by and large, very rational, economically, and a little bit less favorable in putting the money hand in their pocket. Now, we do have a number of customers who feel, B2B customers, who feel from a brand and a reputation perspective, they want to be associated with low and no carbon solutions. Indeed, those are profitable, interesting sectors for us.
My concern is that if you take something like aviation fuel as the example, sort of SAF, Sustainable Aviation Fuel, is 2x to 3x the cost of standard aviation fuel. No matter how altruistic, you know, a number of airlines would be, you know, to do that and become uncompetitive in what is a highly competitive industry is very hard for them. That would repeat across many customer segments. I think the real answer here is around policy and government legislation, rather than sort of hoping and praying that consumers will choose to put or businesses will choose to put their hands in their pocket. You know, we are making investments in the energy system that is well in advance of the changes that we're seeing in our, in our customers.
The scale of the biofuels facility that I mentioned to you, the scale of the hydrogen electrolyzer in the Netherlands, I mean, we will have, we will use all of that capacity in captive supply because we don't have, you know. There are no hydrogen trucks on the road basically in Europe for us to sell it to. It's a good question, but I think that the challenge is we need legislation and policy, or incentives, if you take the Inflation Reduction Act as your example, in order to drive that change of behavior.
Thanks. We're gonna go to Michele, and then we're gonna go to Chris.
Okay.
Michele Della Vigna from Goldman Sachs.
Hi, Michele.
Ed, I wanted to ask you a question on profitability, actually.
Mm. Mm.
Going back to your point on consumer choice.
Yeah.
It's more likely that that change will be made if it is profitable, and that largely depends on policy.
Yeah.
You've mentioned the Inflation Reduction Act.
Mm-hmm.
which is probably the most impactful legislation ever-
Yeah.
from a profitability perspective.
Yeah.
Coming back to your low carbon investment.
Mm.
I was wondering, is it possible to look back and rank the five or six key technologies you were talking about in terms of profitability that we've seen so far?
Mm-hmm.
Where you see the biggest positive changes.
Mm.
in the coming years, given the positive momentum we're seeing from a regulatory perspective?
Let me start with, you know, we look at our sort of financial framework. Of course, we need to reward our investors. We need to pay down debt, and then we have capital allocation. It's our duty to our shareholders to allocate that capital in a way that gives attractive value creation for our, for our shareholders, short, medium, and long term. I am nervous about saying to you, "I tell you what, biofuels is a brilliant investment today. EV charging, brilliant investment today, and we're gonna put..." you know, we see more challenging returns in, say, offshore wind.
I'm nervous about saying that to you because we're in a period of massive upheaval and change, and my sense is we need to balance an investment strategy for the long-term value creation, which is why we do scenarios. Is that we have a sense of how will these businesses evolve? Where will the profit pools lie, not only today, but in the future? Of course, we're not gonna invest the farm on things that are unprofitable today, but I think you need to have sufficient start-up capital going into a number of different businesses so that you're ready when the uptick happens and the profitability is there, we stand poised to be able to double down on investments in those particular clean energy areas.
Can we go to Chris? I know there's lots of questions. First here, Chris.
Thanks. Christopher Kuplent from Bank of America.
Yeah.
Ed, may I challenge you on your, first answer, i.e., is it enough?
Mm.
you've highlighted what you've achieved in 2022.
Yeah.
It might well be the right answer that what you've done in 2022 is right what you're going to do in 2023 to 2030. Can you give us a little bit more tangible, perhaps, answers why what you've achieved in 2022 is good enough to get where you want to be in 2030? I appreciate, we're waiting for.
Scope 1 and Scope 2.
Yeah. That was the first-
On Scope 1 and Scope 2.
Scope 1 and Scope 2.
I appreciate we're waiting for a while, sitting here on the sidelines.
Mm.
in June to tell us a lot more about the future. I wanted to throw in one more challenge.
Mm.
-which is value over volume. We've all benefited from that over the last ten years, focusing on different-
Yeah.
metrics than just volumes. What we haven't heard from you is there are a number of volume targets you have, 560 TWh .
Mm-hmm.
have 1 million tons of hydrogen, of carbon capture, et cetera.
Yeah.
How much do you care about those in achieving these targets that you've outlined?
Yeah. To your first point on, you know, this debate could go on all day, right? We have got a plan that says we will reduce by 50% our Scope 1 and Scope 2 emissions by 20... By any stretch of the imagination, by any competitive benchmark, that's pretty aggressive. Actually, I stand here quite proud of that number. I feel really good about it. There's a lot of people in Shell who are working incredibly hard on capital investment, on operational effectiveness, on negotiating contracts. There's a number of components that go into that to make that 50% possible, and I think 30% is a highly credible sort of waypoint in that journey. You know, of course, do we want it to be more? Absolutely, yes.
these things will take time, and I think that is at the aggressive end of something that personally, I'm extremely proud of, and I know that generally in Shell that we are. Your second question was? I should've written this down.
Volumes.
Volume. Volume. Let me be really clear, it came up about 3x in my remarks. What is driving and guiding us is the profitability of our company. Long-term creation of value for our shareholders is driving us. You know, I'm not gonna sort of prejudge what we say in June. You can be rest assured we are working through for all of our targets to make sure that when we come back to you in June, we've got an integrated and comprehensive story that shows the entirety of our business from upstream oil and gas through to electrons and hydrogen. We will give you, where appropriate, refresh targets at that stage.
We're on a tight schedule, Oswald, and then I'll have one more, and we'll go to you. First, Oswald. Here. Here's Oswald.
Oh, sorry.
No, no, go there.
Two. Two microphones.
Yeah, sorry.
Only your own question, two microphones, right.
It's a high-level question, and it's, Ed, thank you. You said the, you know, the strategy is flexible.
Mm.
There's no change to strategy. In László's report this morning, Archipelagos talks about, the business model of the future could be something more like the power alliances of the nineteenth century and chasing India, and everyone's chasing competitively India, for example. Back to Michele's question on profitability. You know, as you sit here and think about that scenario, which could happen.
Mm.
You know, is the strategy going really flexible enough to navigate the, the wide spectrum of outcomes that are presented here this morning?
If you look at our company's history, our company's history starts, you know, in many ways in the Middle East and shipping kerosene through the Suez Canal and, you know, the Marcus Samuel tankers. We've been innovating and developing our business models and our technology ever since. My sense, if you look at our business and where we have customer relationships around the world, I think that we are second to none in our positioning, whether it's in Southeast Asia, in India, in Latin America, in North America, in Western Europe. I think we're positioned extremely well to be close to customers and understand sector by sector their decarbonization needs and where the rent will be, and we will be poised and ready to double down on investments where that profitability lies.
I don't see any other competitor in the broad energy space that's got the capabilities and the understanding at that frontline customer level than we do. I feel, you know, perhaps that's a real competitive advantage that we perhaps don't talk about enough, in how we're positioned for what is going to be potentially a dramatically different energy system to the one that we stand and observe today.
We're gonna go to you, and that's the last question.
No, we're gonna have this.
Oh, Irene.
One more. Irene, I can't miss Irene.
We go here first.
Yeah.
Go ahead.
Thank you. Elena Georgiou from Aviva Investors.
Hi.
Two quick questions, if I may. The first one on Nature Energy.
Mm-hmm
... you touched on. Could you just walk us through the economics a little bit, especially what kind of prices of biogas you expect from the project. The second one, just regarding Scope 3, appreciate your comments around the challenges there. You know, in order to facilitate the Scope 3 reductions, there will need to be quite a significant production mix by 2050. Can you talk a little bit about what you expect that to be for the energy mix.
Mm
... and what the implications will be.
Yeah
... on margins, if possible?
Just in the interest of time, on Nature Energy, we're gonna do that in the break. I'm not gonna do that in the big room, 'cause that's quite a long conversation. On Scope 3, the challenge on Scope 3 is, as you all know, it's about the products we sell, it's about the mix of products we sell. And the reason we use intensity is because it takes into account the reduction in oil and gas or hydrocarbon-based sales, so the balance between oil and gas. You know our production, our sales targets on oil and on gas. It also takes into account the increasing sales of low and no carbon energy.
What we see is, and you saw it in both the scenarios that László presented, is a change in the mix. You see a reduction in hydrocarbon sales over an extended period of time, and then a quite a significant increase in the low carbon sales. Sort of almost like diluting the effect of hydrocarbons. You know, we feel confident in looking at the outlook that we have, that that takes us to a world of net zero emissions, albeit, as László said, with the requirement for removal technologies through the entire period. I'm sure I've completely answered your question.
Last question only from Irene.
Last question, Irene.
because we really need to wrap up. One question, Irene.
Thank you. Irene Himona, Société Générale. Thank you very much. Congratulations on progress made to becoming a multi-energy company. That is my question. If you can remind us, please, how or why it makes sense for Shell to become a very large convenience retailer and food retailer, which is what you're trying to achieve downstream?
Mm-hmm.
Thank you.
We have, I think, built our company, which again, back to my point on competitive strength, on serving the needs of customers. When we look at our sort of mobility business, the needs of our customers are, obviously they start with refueling, and then, of course, all the attendant needs come around it. When you get into a world of EV and EV charging, you find yourself in a space where customers are with you for a little bit longer than they used to be in terms of gasoline and diesel refueling. You've got further opportunities for cross-selling. My sense is we just do that extremely well. I mean, we have been working this model for the last 30 years. We do it extremely effectively.
I think that it provides really attractive return on capital employed in our businesses. It's of course, it started as an adjunct to our fuels business, but has grown to be something that I would consider to be a long-term competitive strength for us.
All right. We're gonna stop here. Thanks a lot, Ed, for this session, and thanks for all the questions which you had.
Thanks for online by the way.
Yeah. Thanks online as well. It concludes the second session of today. If there are further questions, either we can ask them, you can ask them now later on in the break, or if you're online, send us an email, and then the IR team will pick them up. This concludes the overall session, and especially virtually. Thanks everyone to be here on the virtual call. Thanks. For everyone in the room here, we will now continue with a quick break. Coffee and other refreshments are available outside. Please make sure you're back here at 4:20 P.M., so it's pretty sharp. Then we'll have the...