In his maiden trip to India, Royal Dutch Shell CEO Ben Van Beurden says the world’s largest non-state-owned oil company by sales is as much focused on clean energy and renewable power as is it on oil retail and liquefied natural gas (LNG). Having led the company through a transformative $50-billion takeover of BG in 2015, Van Beurden told Arijit Barman in an interview that he believes India finally has what it takes to become one of its top five markets globally. He also touched upon gas markets and hubs and making Shell more reliant on non-crude energy sources like clean power. Edited excerpts:
The way Shell has decarbonised its portfolio, are we to assume that you feel the age of oil may be coming to an end?
If you look at the energy mix from a demand and consumption perspective, currently the world consumes about 18% of its energy in the form of electricity. That means there is still a very large percentage of energy consumed in the form of fossil fuels, oil, gas and coal. But if you look into the future, we see that mix continuing to change. Does it mean oil will disappear? No. It won’t. Oil will peak in demand and it will gradually slow down. Gas will at some point of time perhaps also peak. But that will be, if it happens, much later. But the key thing is energy will grow and the fastestgrowing part of it is going to be electricity.
But oil prices have doubled in the last two years. What’s happening?
The fluctuation is first of all due to the fact that people who actually make the price are finding it hard to see the fundamentals of the market. At the moment, it’s sentiment driven, it is driven by a tremendous amount of liquidity in the market – money looking for any form of yield. It is speculative money and everything else. So I think oil prices in the long and the very long run will be driven byfundamentals. But in the near term they will be driven by all sorts of other forces.
Where is crude likely to eventually settle?
It will settle somewhere between $30 and $130. It will probably test the barriers at both ends. The oil price that we are seeing at the moment is not bad. It is probably sort of a mid-point of a range that we will see. The real dynamics of supply and demand – on top of that superimposed the dynamics of sentiment – will actually create the boundaries. And you know for our company every $10 swing in oil price movement is about $6 billion in cash every year. So if it can hover between $40 a barrel or $50 maybe, you can imagine how much variation we have in our cash flows. Challenge is, how do I move away or how do I build another business that is not oil price sensitive but is more focused on fundamentals of the economy like petrochemicals, like power and natural gas, which has a degree of detachment already from oil prices.
Despite Shell’s long association with India, you are relatively low profile in this country. What’s your game plan?
Our ambitions in India are much higher than our current position. But our current position is not a position of insignificance or weakness.
Everything that we have grown in India, we have grown from scratch. We have built our gas position here, we’ve built our products position here – retail, lubricants. But also crucially we’ve built tremendous technical and other capability in this country.
But what will be the principal three-four legs of the business in India?
On the products side, it will be retail and lubricants. We will have a very strong natural gas leg and the biofuels leg, which is going to be part of that retail leg as well. And then we will be growing a power leg in this as well. If the opportunities are really good, we can also look at upstream in the country. That is of course very much a global play for us.
India is thinking of developing a gas hub. What will it take to make it work?
Number one is access to infrastructure. Unless the pipelines and maybe also in some cases the terminals are open access and are freely available with flexible business
models, this structure will not work. Secondly, there has to be transaction density in the trading exchange itself. I mean if you take a look at the electricity exchange, we would all argue that 5% is insufficient to really create a trading (centre). There should be a minimum volume. Finally, there have to be financial instruments that back all of this.
What is the plan for growth at Hazira?
The immediate next step we are working on is making it a hub for transportation That’s a new segment in the market. Trucking or having goods transported with LNG is a sensible and growing segment for competitiveness and environmental reasons. But the question is going to be – how do we link up customers that we can develop with the infrastructure that
we have? So the key question for me still is how are we going to get access to infrastructure and that will determine what is going to happen with Hazira . We will have to have the infrastructure access first. Can we see other access points in the Indian gas markets beyond Gujarat? Possibly yes. But again it will depend on access.
There are 100 city gas contracts coming up in next few months. Will Shell be bidding?
I think it is not a strategic segment for us.
From wind farms to solar parks to hydrogen for cars, Shell is at the forefront of renewable energy. But you are absent from India so far…
We haven’t done an acquisition in India, which doesn’t mean that we haven’t tried. The focus is definitely going to be North America and Europe for this integrated play but also India. But you will see us at some point in time, you will see us make the move. I think the
challenge is that at the end of the day the power sector market in India has not fully opened up in the way that frankly we wanted to or we expected to, right? And let’s be honest about it, we have an electricity act dated back to 2003, which actually talks about tremendous transformation which has not happened.
So what needs to be done?
It’s separation of carriage and carrier. It is about open access place. We have to understand how storage plays into this one and what form of storage. And how do you actually price something like that? We haven’t resolved any of that. But at least the government is taking note of that and is making the changes.