Shell’s recent AGM was tumultuous. Shareholders voted overwhelmingly for the company to report on whether its activities were compatible with promised government action on climate change. The firm’s board reportedly faced a sometimes-hostile barrage of questions about its approach to the environment.
The key question shareholders are asking is this: what if the majority of Shell’s proven fossil fuel reserves must stay in the ground in order to avoid a dangerous global temperature increase of more than 2°C? Shell’s proved reserves are the company’s biggest asset against which it borrows money from banks and attracts investments from shareholders.
Most of the oil and gas majors are struggling to find enough new reserves to keep growing in the future. This is why Shell and all other major players in the industry have to go to more extreme lengths to find the fossil fuels that keep our lights on, cars on the road and their profits growing. Controversial and environmentally very suspect investments into Arctic oil drilling, US shale gas and Canadian tar sands have already tarnished the environmental credentials of Shell.
But Shell needs to find more oil and gas to keep its asset base growing and its profit potential intact. So it agreed to buy UK-based oil and gas exploration group BG Group for a staggering £47bn. To quote recent analysis, this “gives Shell a presence in the productive zone off the coast of Brazil, and will ensure that Shell’s own production is maintained over the medium term, taking away the requirement to make large discoveries to offset natural depletion”.
But now an entirely new threat hangs over Shell’s future viability as a leading fossil fuel company. A high-profile campaign has argued that most of the proven reserves by oil and gas majors are “stranded assets” – something Shell has denied in the past. This would render Shell’s acquisition of BG Group and its investments in the Arctic wasted capital.