Sustainable Column | Low-carbon signal light turning? Shell Hydrogen to undergo significant layoffs

Shell recently sent layoff notices to 200 employees through an internal memo. As these employees are all part of the Low Carbon Solutions department, it has attracted strong attention in the ESG field.

Considering that the department employs approximately 1,300 people in total, the number of layoffs accounts for 15%.

It is reported that this downsizing mainly targets the hydrogen-powered light mobility business line, and the "executor" is Wael Sawan, who took over as Shell's CEO earlier this year. Sawan had previously stated that he would focus on projects with higher profit margins to maintain oil production levels and increase natural gas production.

Although a Shell spokesperson emphasized that such personnel changes are very common in large companies and reiterated that the company will continue to strive to achieve its goal of "net-zero emissions by 2050," this move still raises concerns in the industry about whether Shell can fulfill its commitments in the hydrogen energy field.

It is worth mentioning that hydrogen is an energy source that provides much higher energy per gram than batteries, which is why Shell was one of the first supporters of hydrogen fuel vehicles. This makes the current significant downsizing even more regrettable.

Huawei Wall Street noted that although Shell's Carbon Capture and Storage (CCUS) and nature-based solutions businesses are also included in the Low Carbon Solutions department, they have not been affected by the layoffs, while the renewable energy business does not belong to this department and is therefore temporarily unaffected.

However, according to foreign media reports, another 130 positions related to low-carbon businesses are undergoing internal review, and it is not yet known which business lines are involved, but it is certain that they will cover a wider range of low-carbon projects.

Controversy Surrounding the New Leader

Since Sawan took office earlier this year, Shell's green energy plan has been a subject of concern. He not only faces strong opposition from environmentalists but also faces strong opposition from his own employees because he openly places shareholder returns at the core of his strategy and refocuses on the oil and gas business.

To quell internal controversies and pressures regarding its clean energy strategy, Sawan held a virtual meeting before the layoffs and issued an invitation internally, encouraging employees in the Low Carbon department to raise questions and comments on the internal forum before the meeting.

According to an earlier report by Bloomberg, an employee responded by writing that recent asset sales "make Shell more aligned with yesterday's company rather than tomorrow's company," pointing the finger at the new leader's "lack of long-term vision."

What is even more worrying is that Thomas Brostrom, Shell's renewable energy executive who was praised as "ambitious," has left this traditional energy superpower. Subsequently, Anne Pearce, the company's Vice President of Human Resources, also moved to wind power giant Vestas. These signals seem to confirm the fact that Shell is shrinking its green business.

Last week, Shell signed a 27-year liquefied natural gas supply agreement with Qatar Petroleum, which further validates Sawan's thinking logic and strategic style. Shell, like many major oil companies, has been criticized for its role in climate change. Shell has also been sued for failing to actively implement the climate goals outlined in the Paris Agreement.

Nine months ago, a group of European institutional investors supported a new lawsuit against Shell's board of directors in London, accusing them of poor climate management. One of the leaders of this lawsuit is the environmental law charity ClientEarth, which is also an active investor in Shell.

According to the climate lawsuit filed by ClientEarth, Shell has failed to achieve the necessary emissions reductions to meet global climate goals. The company is also projected to continue fossil fuel production in the coming decades, which would link it to projects and investments that will become unprofitable as the world transitions to clean energy systems.

"This puts the long-term business viability of the company at risk and threatens efforts to protect the planet, further increasing the company's risks. The future consequences of Shell's flawed climate plan could lead to a sharp decline in the company's value, resulting in job losses and putting shareholders and investors at risk of losing significant amounts of money, including people's pension funds," the lawsuit states.

Two years ago, Shell was ordered to reduce its carbon emissions in a landmark climate case in the Netherlands. Shell's attractive plan aimed to reduce the carbon intensity of its products (measuring greenhouse gas emissions per unit of energy production) by 20% by 2030, 45% by 2035, and 100% by 2050 compared to 2016 levels.

However, third-party assessments have shown that this strategy does not include short- to medium-term targets for reducing the absolute emissions of Shell's products, known as "Scope 3" emissions, which account for over 90% of the company's total emissions.

Furthermore, Shell is one of the oil giants being sued by the state of California in the United States for allegedly deceiving the public on climate change. Although Shell has repeatedly publicly affirmed its climate commitments, the recent downsizing of its low-carbon business division seems to confirm its dilemma in climate strategy.

Why has hydrogen fallen out of favor?

Returning to Shell's layoffs, why is the hydrogen business the first to be affected? Just three years ago, Shell was heavily investing in the construction of hydrogen refueling stations.

At that time, the California Energy Commission allocated nearly $116 million to expand the state's hydrogen infrastructure, and one of the proposed recipients was Shell's subsidiary, Equilon Enterprises (also known as Shell Hydrogen), which received nearly $41 million. Shell's hydrogen plan aimed to add fuel to 48 existing Shell retail stations and upgrade three existing hydrogen stations. At that time, Shell had a total of nine hydrogen stations in California.

Even as recently as last year, Shell announced plans to build Europe's largest 200-megawatt electrolyzer in the Netherlands, specifically for the production of zero-carbon or green hydrogen.

However, there has been a significant reversal in momentum this year. Reports have indicated that Shell failed to secure funding from the $7 billion federal fund allocated for hydrogen development, which was disbursed earlier last month, before the decision to downsize was made. Shell also applied for funding to a hydrogen center in Louisiana, but it did not appear on the list of seven centers that received funding in this round. This may be the direct reason why Shell is cutting its hydrogen business.

Shell has been a supporter of hydrogen fuel vehicles and has invested in building a network of hydrogen fueling stations, including at London Gatwick Airport and several highway service stations. However, these investments have been hindered by insufficient demand, leading to the closure of hydrogen stations. At the same time, more and more customers are choosing electric vehicles, which are also a new energy concept.

Since taking office, Sawan has been committed to increasing the value of the company compared to global competitors. To prove this commitment, he has also increased Shell's dividend by 15% and announced a share buyback of at least $5 billion. However, Shell's competitors in the United States, including ExxonMobil and Chevron, have been actively acquiring other businesses, which may bring greater pressure to Shell and set the tone for cutting underperforming businesses.

However, although this cost-cutting measure is part of Shell's broader strategy to improve profitability, it also highlights the ongoing challenges facing the hydrogen industry, especially in terms of commercial viability and consumer adoption.

After eliminating low-carbon businesses that are not profitable and have uncertain prospects, whether Shell can maintain a sustainable balance between profit and responsibility remains to be seen and will be tested over time.