Anglo-Dutch oil company and lubricant maker Shell is launching a review to look at reducing its oil and gas production costs, possibly by as much as 40%. The cost-cutting exercise will then enable it to diversify more into renewable energy.
If Shell’s move towards renewables and power generation, where margins are typically slimmer than for gas and oil production, succeeds, it will need to reduce spending in other areas. This is especially true given that other oil majors will also be competing for market shares. Total and BP have already announced plans to become broad-energy majors, much like Norway’s Equinor, but others may well follow suit.
In a statement, a Shell spokesperson said to Reuters:
“We are undergoing a strategic review of the organisation, which intends to ensure we are set up to thrive throughout the energy transition and be a simpler organisation, which is also cost competitive. We are looking at a range of options and scenarios at this time, which are being carefully evaluated.”
Reuters also quotes an anonymous source from Shell as saying the company is looking to recreate its image of how it sees itself in the future, and this may involve a cultural shift, in addition to structural changes.
Shell will look specifically at how it can lower costs in its upstream and liquefied natural gas divisions, likely through reduced investment in new projects and reducing overall operation. As part of this, it may choose to focus its production on a limited number of hubs, such as the North Sea.