Contribution of Concern for LNG Expansion by Shell During Annual General Meeting Highlighted by Sizable Investor Group
Investors have raised significant concerns about Shell's strategy to expand its liquefied natural gas (LNG) business by 20-30% by 2030, as this expansion appears misaligned with global climate commitments emphasizing reduced fossil fuel consumption.
The concerns culminated in a shareholder climate resolution co-filed by institutional investors and supported by more than 20% of Shell's shareholders, questioning how Shell reconciles its LNG growth plan with its climate promises.
Despite this pushback, Shell remains committed to aggressively growing its LNG sales by 4-5% annually through 2030. This commitment is demonstrated by the recent launch of exports from the LNG Canada project, in which Shell holds a 40% stake. Shell expects global LNG demand to increase by about 60% by 2040, particularly driven by Asian markets, and plans to add 12 million tons per year of LNG capacity by the end of this decade.
The potential implications of investor concerns and the climate resolution include increased pressure on Shell to provide greater transparency and justification for how its LNG growth aligns with the International Energy Agency (IEA) net-zero path and global climate targets. Heightened scrutiny of Shell’s strategic priorities from shareholders is also possible, leading to more demands for shifts toward renewable energy investments or more stringent emissions reduction targets.
A potential divide between investor expectations for Shell's climate alignment versus Shell’s commercial ambition to expand LNG as a transitional fuel responding to global energy demand is also a possibility. This tension reflects a broader industry challenge: balancing near-term energy market realities and demand for LNG with the urgent need to comply with climate commitments to limit global warming, which generally calls for a decline in fossil fuel use.
Notably, Shell's chair, Sir Andrew Mackenzie, urges shareholders not to back the LNG resolution, warning that in the absence of LNG, the world will burn more coal and renewables will be deployed more slowly. However, investors question the ability of LNG to act as a transition fuel and challenge Shell on its rising emissions despite its duty to cut emissions.
The outcome of this dialogue between Shell and its investors will be closely watched as a bellwether for how major energy companies navigate the energy transition. The AGM did not see interruptions from climate campaigners due to being held in Heathrow, a protest exclusion zone.
The International Energy Agency predicts that global LNG demand will peak by 2030, which further fuels the debate about Shell's LNG expansion strategy. Xander Urbach of MN enquires about Shell's 2035 decarbonisation targets, while Nick Mazan, company strategy UK Lead for the ACCR, said shareholders have sent a strong signal to Shell that the quality of its LNG disclosures is out of step with the size of the bet it is taking on LNG.
Sandra Stewart, chief executive of the Greater Manchester Pension Fund, commented that Shell's LNG strategy should provide information allowing investors to evaluate its long-term value and climate commitments. Stewart also stated that the resolution has brought attention to overoptimistic LNG demand forecasts across the sector.
Silvia van Weveren, engagement specialist at Robeco, shares that the manager has backed the LNG resolution. Vaishnavi Ravishankar, head of Stewardship at Brunel Pension Partnership, expresses concern about the disconnect between Shell's LNG expansion and its Paris-alignment ambition. Doug McMurdo, chair of the Local Authority Pension Fund Forum, questions Shell's claim that LNG is a low-carbon fuel.
Wael Sawan, Shell's CEO, expresses his conviction in the ability to support the growth of LNG and decarbonize it over time through carbon capture and sequestration and the development of liquid synthetic gas. Sjoukje van Oosterhout challenges Shell on its rising emissions despite its duty to cut emissions. Milieudefensie, a Dutch campaign group, plans to take Shell to court again over its alleged failure to decarbonize.
Shell also plans to grow top-line production in its integrated gas business by 1% annually. The company predicts that global demand for LNG will rise by 60% through to 2040.
- The shareholder climate resolution submitted by institutional investors has raised questions about how Shell justifies its LNG growth plan, which contradicts its climate promises, in the context of environmental science and the urgent need to combat climate-change.
- The debate over Shell's LNG expansion strategy has led to increased pressure for Shell to provide more transparency and align its business goals with the International Energy Agency's (IEA) net-zero path and global climate targets, reflecting a need for investing in renewable energy.
- In the face of investor concerns and the climate resolution, industry experts and pension fund managers have challenged Shell's claims regarding LNG as a transition fuel, questioning its carbon footprint and emission reduction targets, and raising concerns about the accuracy of LNG demand forecasts.
