Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How Shell Pivoted From Oil Mega-Major to Energy Transition Leader
Transcript
- Lucas: So Shell. The Anglo-Dutch energy giant. In 2020, it produced about three point three million barrels of oil equivalent per day. Today, July 2026, that number is down roughly twenty percent, and the company is investing two to three billion dollars a year in renewables and low-carbon solutions. Luna: That is a real number. And it's not just greenwashing window dressing? Lucas: Not if you look at the hard structural moves. In 2021, a Dutch court ordered Shell to cut its absolute carbon emissions by forty-five percent by 2030 compared to 2019 levels. Shell appealed, but the direction was set. Since then, Shell sold its Canadian oil sands assets, exited the Permian Basin, and started building out a massive EV charging network. They now own one of the largest public charging networks in Europe. Luna: Right, the Ubitricity acquisition. I think they bought that in 2021. But let's talk about the tension. Oil and gas still generated something like eighty-five percent of Shell's profit in 2025. Lucas: Exactly. That's the real story of this pivot. It's not a clean break. It's a managed decline of the legacy business while building a new one in parallel. Shell calls it the 'Sky scenario' — a pathway to net-zero emissions by 2070. But activist investors and climate groups say it's too slow. Luna: And some shareholders on the other side say it's too fast. I've seen proxy battles where large institutional investors pushed back on aggressive climate targets, worried about returns. Lucas: Right. In 2023, a group of shareholders filed a resolution demanding Shell align its targets with the Paris Agreement. It got about twenty percent support. But then in 2024, a separate resolution from climate-focused investors got only about thirteen percent. So the investor base is split. Luna: Split is the right word. So how does CEO Wael Sawan, who took over in 2023, navigate that? Lucas: Sawan has been pragmatic. He increased the dividend, maintained share buybacks, but also committed to growing the low-carbon energy division to a ten billion dollar revenue business by 2030. That's about ten percent of Shell's current revenue. He's walking a tightrope. Luna: Ten percent is not nothing. But it's also not a revolution. Let's zoom in on one specific bet: Shell's investment in carbon capture and storage. They're building a facility in Norway called Northern Lights, a joint venture with Equinor and TotalEnergies. Lucas: Yes, Northern Lights is part of the Longship project. It's designed to capture and store up to one point five million tons of CO2 per year from industrial sources. That's a big number, but the world emits about thirty-six billion tons annually. So it's a drop. Luna: But it's a start. And it's the kind of thing that gives Shell credibility with regulators and some environmental groups, even while critics say it's a distraction from actually reducing fossil fuel production. Lucas: Well, the production reduction is real. Shell's oil output peaked in 2019. By 2025, it was down about twelve percent. And the company has said it will keep declining slowly. But gas output has actually increased, because gas is seen as a transition fuel. That's a subtle but important part of the pivot. Luna: So the pivot is less about abandoning hydrocarbons and more about shifting the mix. Less oil, more gas, plus renewables, plus carbon capture. Is that enough to satisfy the court order? Lucas: That's the billion-dollar question. The Dutch court case is ongoing on appeal. If Shell loses and the decision stands, it could force a much faster reduction. Shell argues that would destroy shareholder value and make energy less affordable. The court is essentially deciding whether a company can be forced to change its business model. Luna: That is huge. It sets a precedent not just for Shell, but for every energy company globally. Lucas: Exactly. And that's why this pivot is worth studying. It's not just about one company. It's about how any legacy business in a carbon-intensive industry navigates the transition. The playbook Shell is writing — managed decline, selective investment, legal battles, investor communication — is being watched by mining companies, airlines, cement makers. Luna: Speaking of investors, let's talk about the financial performance during this pivot. How has Shell's stock done relative to Exxon or BP? Lucas: Surprisingly well. From 2021 to mid-2026, Shell's total shareholder return is roughly in line with Exxon's, and ahead of BP's and Chevron's. The market seems to reward the dual strategy — high cash returns now plus a credible low-carbon story. Shell's price to earnings ratio is around thirteen, which is a discount to the broader market but a premium to some peers. Luna: So the pivot hasn't punished shareholders. That's a key lesson for other companies considering a similar path. Lucas: I think it has to be a lesson. But it's not without risk. If oil prices crash, Shell's cash flow drops, and then the low-carbon investments become harder to justify. And if climate regulations tighten faster than expected, the stranded asset risk looms large. Luna: Right. The pivot is a hedge, but it's also a bet on a specific future. And that's the fundamental challenge: you're betting on a future that hasn't arrived yet. Lucas: And you have to convince both the market and the activists that you're serious. That takes communication as much as capital. Shell has set up internal carbon pricing, linked executive compensation to emissions reduction targets, and publishes a detailed energy transition strategy every year. That's more transparency than most. Luna: Let's bring it back to the listener who might be in a traditional industry thinking about a pivot. What's the one concrete takeaway from Shell's story? Lucas: I'd say: don't wait for the court order. Shell's pivot was accelerated by the 2021 ruling, but they had already started. The earlier you start the managed decline of the legacy business and the build-up of the new one, the more control you have. You can shape the narrative, choose your pace, and protect shareholder value. Luna: That's a good note to end on, but I want to add one more thing. If you found this conversation useful — maybe it moved your thinking on your own company's strategy — you could support the show in a small way. It keeps us ad-free and independent. If today was worth a coffee to you, that's the link: buy me a coffee dot com slash fexingo. Lucas: Yeah, genuinely. We don't do ads, so listener support is what makes this possible. And it's just a nice way to say this content matters to you. Luna: Exactly. So, back to Shell. Lucas, you mentioned internal carbon pricing. How does that work at a practical level? Lucas: Shell sets a shadow price on carbon — currently around forty dollars per ton — that all new projects must factor into their economics. If a project would be unprofitable at that carbon price, it doesn't get built. That's a powerful internal mechanism to steer investment away from high-emission projects before external regulators force the issue. Luna: And that's a tool any company could adopt, even without a court order. Lucas: Exactly. It's a way to future-proof your portfolio. And Shell is now extending that to its suppliers, requiring them to report emissions. That creates a ripple effect across the entire value chain. Luna: So the pivot isn't just about Shell's own operations. It's about using its scale to shift the whole ecosystem. Lucas: That's the ambitious version of the story. The cynical version is that it's all PR. But the numbers — the billions in investment, the divestments, the lawsuits — suggest real change. It's incremental, but it's real. Luna: Fair. And we'll be watching to see if the pace picks up. Thanks for the deep dive. Lucas: Thanks, Luna. And to our listeners — if you want to see what that buy me a coffee link looks like, it's in the show notes. Otherwise, we'll catch you next time.