A Conversation with Wael Sawan: CEO of Shell

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This transcript is from a CSIS event hosted on June 4, 2024. Watch the full video here.

John J. Hamre: Good morning, everybody. Welcome. Really delighted to have you all here.

This is going to be, really, an interesting conversation. I’ve had the privilege of talking with Mr. Sawan here for last couple of minutes and, you know, I always look for some nugget, you know, every day that says, wow, this was really a good day. And I got up this morning, and this conversation, and he said something. He said that he heard – I don’t know who said it. I’ll credit Mr. Sawan – pessimism is irresponsible.

And I think that’s really an interesting way to think about how we should be thinking about our own future. You know, pessimism is irresponsible. It’s ceding to other forces things beyond our control. And we have human agency. You know, we should be doing something with that. We’re talented, creative people and we ought to use it for this complex world we’re in. And so pessimism is irresponsible. We’re going to probably talk about a lot of things today that some people are pessimistic about. I don’t know. I’m looking forward to the conversation. (Laughter.) This is going to be fun.

You know, and I was saying to Mr. Sawan that, you know, a modern CEO, and especially an energy CEO, has got the most complicated compass to navigate these days. You got four cardinal points, you know? You have shareholder value. OK, that’s true north. You got to keep that in line. But now we’ve got to talk about energy transition. That’s unavoidable, you know. But how? The timing or the azimuth isn’t in doubt, but pace, quality of it is certainly a question. You get energy security. You know, and if we’ve seen over these last two to three years, that’s a pretty premier thing, when all of a sudden markets become profoundly disturbed and unsettled.

And then, of course, you’ve got the health and integrity of your own company. And how do you have that moving forward. I mean, we’ve got, you know, four cardinal points, and they all point north. You know, this is complex – a complex compass to have to navigate with. He’s doing a brilliant job with it. And we’re really fortunate that he’s here today to share his insights. So I’m going to turn it to you, Joseph, to get the content of this going. My role is ornamental, but I look forward to getting out of the way and then listening to this conversation. Thank you.

Joseph Majkut: Thank you kindly, Dr. Hamre, for the benediction. And thank you, everybody, for joining us here, both those guests livestreaming as well as those who are in the audience. We’ll have an opportunity for audience questions for those in the room in a few minutes, so please think about what your – what questions you have for Mr. Sawan. I’ve got a few that I get to – as the moderator, get to start.

First of all, it’s my job to welcome you to Washington. I’ll admit I’m always a little puzzled. You know, CEOs can choose to go a lot of places. Washington can be a challenging spot. (Laughter.) So that you’re here this week, what are you hoping to learn? What’s the message that you’re bringing to the city?

Wael Sawan: Thanks, Joseph. Firstly, good morning, everyone. Let’s agree at the start, just call me Wael. This “Mr. Sawan” so one makes me feel well beyond my years. (Laughter.) So thank you for that.

I think undoubtedly Washington is the capital of the energy world. Decisions being made here have massive impacts, not just in the U.S. but across the world. We see it, for example, with the LNG decisions being taken here, and how many parts of the world – including where we are based in Europe – the impacts are massive. But also the energy transition. A lot of the capital sits here in D.C., or is influenced by what is decided in D.C. Not to mention energy security. Not to mention geopolitics. And many other realities that we have to contend with on a daily basis. So it’s important to be in D.C.

My message is one of pleading for stability and predictability in the energy system. When we make investments, we make investments with usually as a minimum a 15-, if not 25-, 30-year horizon. These investments are critical to be able to embed the energy system of today, but also to be able to build the energy system of the future, one which we hope will be lower and lower carbon. There is nothing more important than stability and predictability in that context. So that’s one of the discussions that we typically have.

We reflect on – or, at least I try to bring the message around what Europe is looking for at this moment in time, as we have gone through extreme challenges over the last two years with the horrendous invasion of Ukraine by the Russians, which has severed a lot of the inputs of energy that we depended on in Europe. And therefore, the role of the U.S. as a dependable energy supplier is even more pronounced in today’s context than it’s ever been. So those are some of the issues that we touch on, Joseph.

Dr. Majkut: Incredible. I mean, a lot to cover there in the context of this conversation. But it’s important to note, you took over as CEO of Shell last year, January ’23. I’ve been reading a lot of your letters, the annual report, the Pathway to Net Zero Report, published in March of this year. A lot of your communication is focusing on value and less emissions. I’d love for you to explain kind of, you know, as a large, integrated international company, how you – I mean, that seems to be the way you’re balancing two of the cardinal directions that Dr. Hamre is talking about. Can you tell us a little bit more about how in the context of last year and a half, Shell’s made strategic decision making, trying to meet those two goals?

Mr. Sawan: I think you characterized it really well. I mean, the tagline for us is more value with less emissions. And, of course, our reality is much more complex than four words. But we try to distill it so that we can actually create a north star for the organization to be able to navigate towards. And so how do I think about more value with less emissions? I think on the more value side, it’s critical to recognize that both in conventional oil and gas developments, as well as in the energy transition, we need to be able to see returns on the investments we make to be able to continue to earn the right to make those big capital investments that we need to make.

Shell invests around 22 (billion dollars) to $25 billion a year at the moment. That’s a lot of money to be able to steward on behalf of shareholders. And we need to be able to have established the trust that deserves the sort of capital that we attract. And so we continue to invest. In particular, we see a big growth opportunity for LNG, which straddles both more value and less emissions because of the opportunities that LNG brings in particular within areas like Asia, which is massive growth in LNG demand. But also that LNG is typically replacing coal. So significant emissions reductions as a result of that

We’re looking to hold our liquids production, our oil production, flat as we continue to see a growth in oil, but up to a certain point, likely in the 2030s, where we might see a plateau by that stage. And then at the heart of our transformation is what I would call our downstream renewables business. And there, we are fundamentally rewiring the entire infrastructure we have to be able to serve what will be lower carbon demand, is what we believe, from our customers. Important to recognize that will move at different paces in different places. So Europe is moving slightly ahead of other areas, China is moving in a positive direction in certain areas. So we’re having to modulate, depending on the specific location that we operate in.

Dr. Majkut: Yeah. You know, it’s very interesting. I’ve been reading a lot over the last few weeks. There’s this question of, you know, sort of – there’s, like, a big question: Can capitalism solve climate change? But underlying that is tension – is a tension we’ve heard a lot from – I’m hearing from you, we’ve heard it from your peers. And that is, if you’re going to make investments in pure play renewables or other things, you just don’t make enough money.

You know, is that a policy solution to be solved, in your view? Or is that industry kind of figuring out what business models are going to work? When I look at the enormous amount of capital we need to see to go into clean energy, writ large, to meet climate targets, you know, do we have the right incentives in place? Do we have a public policy framework in place? And how does that relate to the stability that you were talking about at the very start? Tough question, I hope.

Mr. Sawan: Look, no, I mean, I’d start with, what’s the – what’s the simplest pathway to stay on track? And I think COP-28 identified that. COP-28 talks about tripling the deployment of renewable generation, doubling energy efficiency, and getting us to near-zero methane emissions by 2030. In what is an incredibly complex space. I think the simplicity of those three headlines allows us to mobilize, hopefully, multiple governments and private capital to be able to achieve those trends.

Let me start with the last one. On near-zero methane emissions, we have all the technologies. And methane is an incredibly valuable molecule. So why waste it? So there’s enough of an incentive to be able to capture the methane. And while the technology is there, and has continued to evolve, I think that should be low hanging fruit. Let me jump to the first one, tripling of renewable generation deployment. Depending where you are, China is actually well on track, if not ahead of the curve.

Dr. Majkut: Doing it for all us sinners almost, right?

Mr. Sawan: That’s right. That’s right. So over 50 percent of renewable generation deployment that happened in 2023 was in China. India is really moving along nicely at the moment. What you find is, of course, as you drive forward in industry, such as, for example, offshore wind, you also have challenges like supply chain challenges that we are experiencing at the moment. So this will not be a linear trajectory, nor will it be an exponential one. You’re going to go through ups and downs. But I think we can crack the tripling of renewable generation.

The one that we’re not seeing a huge amount of progress on is doubling energy efficiency. And that’s the choices you and I make, Joseph. That’s choices we all make. That’s the choices companies make. And what we are not yet seeing is a significant inflection point in that space. That’s, by the way, not to say the burden of responsibility sits with others. This is a collective responsibility. I do think you need to be able to have appropriate incentives. And so for those who are sort of asking whether capitalism is going to crack it, I think capitalism is at the essence of how you’re going to be able to allow the markets to create the appropriate incentives for the outcomes to materialize.

But you might need to be able to nudge it with things like the Inflation Reduction Act or the EU Fit for 55, because you’re competing against what is a very strong incumbency for coal, oil, and gas. And that’s not because of – sometimes it’s sort of characterized as the interest of a few. Oil and gas are energy dense, easy to be able to transport, high-value molecules. And that’s why they have achieved what they have achieved in the energy system. So to be able to counter the forces of gravity, you’re going to have to create new forces.

And that’s where some of the support that governments are putting in place hopefully will catalyze some of those movements. And over time as you build up the scale, as we’ve seen in solar and wind, you will be able to establish value pools that are investable for companies all around the world.

So I’m hopeful. It’s just a question of making sure that we follow through on the promises, and that we have the stamina to be able to do this for many more years to come.

Dr. Majkut: And what role do you see for learning? I mean, one of the things that – you know, as a think tank, our charge is sort of trying to figure out, as the government is making interventions, what’s working, what’s not, how do you make adjustments? How does that – how does that process look like on the firm side?

Mr. Sawan: I think you’ve hit the nail on the head with – the term “learning” I think is the biggest thing that we, from a cultural perspective in Shell, believe is going to help us navigate the coming 20-30 years. The previous chapter of Shell around oil and gas exclusively, we had established a certain set of expectations, a certain set of assumptions, which allowed us to do what we have done for 20-30 years. But today, we’re going into uncharted territory in certain areas. And we need to be able to, as we call it, pivot, try some things, prove. And on the basis of what we prove and what we don’t prove, we pivot again. So pivot, prove, pivot.

At the heart of that is a learning culture, what we call a “learning mindset” in the organization. One that allows us – one that, not even allows us – demands that we challenge our own paradigms. One that forces us to look at the different technologies that are out there. One that requires us to be very close and proximate to our customers to understand what is driving their energy needs. One that requires us to be very close to governments, because government policy will influence which technologies might take off and which might not.

Dr. Majkut: And that can be heterogeneous around the world.

Mr. Sawan: Absolutely.

Dr. Majkut: That must be – that must be both fascinating and then – and then firms like yours are going to drive learning across borders, I think, in ways that are underappreciated.

Mr. Sawan: That’s right. So I think there’s some – there’s a lot of difference across countries. But there are some strands which I believe are consistent. One, maybe the biggest one, is the volatility in the energy system, in my mind, will only grow. Driven by, one, the intermittency of renewables. As you move to a more and more intermittent grid, you’re going to have the volatility. When the sun is shining versus when the sun is not shining, when the wind is blowing versus when it’s not blowing.

Battery technology is really improving, but we can still capture maybe two hours of storage, not a lot more. But then you have geopolitical trends that we see. You have other discontinuities that we see, such as the Red Sea realities at the moment. And that is going to create a more volatile energy system. And therefore, there is going to be a premium for flex, for the ability to be able to have some stability through what will be a volatile system.

Dr. Majkut: So perfect setup for the next area I wanted to talk about, which is the – sort of the profound uncertainty in what the future of the energy system looks like. If you look at forecasts that come from very credible groups kind of designing scenarios in different ways, and analysts can argue about how they do that, but you look at natural gas consumption in 2050 globally. And the range in credible estimates of the size of the gas – of size of global gas consumption is larger than today’s gas consumption, right? It’s just, I mean, remarkable uncertainty to have to invest against.

LNG, I think, will play a big role in that world. Shell is a large player in LNG. And, as you know, the status of the U.S., as now the largest exporter, is causing some political challenges here in Washington, with export pause. There’s questions about, you know, the U.S.’s responsibilities with respect to upstream emissions, downstream emissions. I’d love to hear your thoughts on how Shell is seeing LNG in the context of the age of transition, and in particular where you see growing – growth in the marketplace. And then your thoughts on emissions abatement in that space as well.

Mr. Sawan: Let’s start by acknowledging and agreeing with what you said, which is the range of forecasts is a wide one. If I’m honest with you, you know, we do a lot of scenario planning in Shell.

Dr. Majkut: You invented it.

Mr. Sawan: We invented it a long, long time ago. (Laughter.) And what you find is while it’s a fantastic intellectual exercise, as you get to the real world and you are seeing the level of change and the level of discontinuities we see, one has to have the humility to recognize that it’s tough to predict two, three years out these days, let alone 26 years out. And therefore we have to be able to, indeed, have a forward-looking view, while also keeping resilience and optionality as different things evolve over time and we need to be able to respond to them.

On LNG, we see LNG playing a critical role in the transition. So today, LNG makes up around 12 to 13 percent of the overall gas that’s sold. We see that getting to around 20-plus percent in the next couple of decades. And why is that? A few reasons. One is, if we are to truly move towards the lower carbon energy system of the future, the largest growth trajectory for energy demand is in Asia. And the biggest source of fossil fuel that is underpinning that at the moment is coal. And gas, LNG, is a great substitute to be able to achieve both the outcomes that coal can help you achieve – from a stability of the grid perspective, from the ability to be able to flex up and down – but can do so with half of the overall emissions that coal brings. So that’s one big demand center.

Secondly, there’s a number of countries which have built infrastructure on the basis of domestic gas consumption and domestic gas production at the time that are running out of gas. You look at Thailand. You look at Indonesia. You look at Vietnam. You look at the Philippines. And more and more you look at Europe. Those are countries that have the infrastructure for gas. So they have a choice. Do they fundamentally remove the capital stock, which is in the trillions of dollars, that they have put in place? Or do they import gas to be able to keep the lights on and to be able to drive their industrial demand? That, in our view, is going to be a huge amount of demand for LNG as you move gas from locations which have it to the locations that used to have it and continue to need it today.

And so for those reasons, and a lot more, not to mention the stability that gas brings to many of these intermittent renewable generation sources, we think LNG has a big role to play.

Dr. Majkut: And so this is mostly a power sector, maybe some industry?

Mr. Sawan: I would actually say it’s more industry than power.

Dr. Majkut: OK.

Mr. Sawan: Though it has a role to play in power. But a lot of the demand that’s coming through in Asia at the moment is industrial demand – heating more so than just electricity.

Dr. Majkut: Ah, got it.

Mr. Sawan: And so that’s where we see LNG playing a big, big role.

To your other – to the other element of your question around abatement and the like, we need to be able to ensure that we get to that near-zero methane emissions by 2030. And that’s across the entire value chain. And so, starting with the facility itself that is producing the LNG, we need to look at options to either sequester the LNG, like we’re doing in Qatar, for example, with these new announced projects – North Field East and North Field South – where we have carbon capture and sequestration to be able to significantly reduce the CO2 emissions.

Dr. Majkut: So this is the CO2 – you know, like, you’re running a liquefaction facility, takes a lot of energy to compress the gas, and then that energy, when you generate it, emits CO2. Is that the – and you’re capturing that?

Mr. Sawan: And you capture the CO2 and you sequester.

Dr. Majkut: Yeah.

Mr. Sawan: Or you can go to our LNG Canada example, where we are actually using hydro as our energy source to be able to drive the turbines and everything to do with that. So rather than using a fossil fuel, we use a hydro in the context of Canada. So there are ways to be able to continue to reduce the footprint of the supply side. You then look at the shipping part of it, and more and more that technology is evolving to allow us to minimize methane losses as we are traveling. And then finally, at the consumption part of it, where we would hope with time many of the users of gas can start to look at how they can potentially decarbonize through, for example, the carbon capture and storage at that site.

We also see a pathway towards, for example, blending of bio-LNG with existing LNG supplies, so that you have a much lower carbon intensity overall offering to our customers. You have offsets, as an example, and so on and so forth. So the ultimate price is taking existing infrastructure, with drop-in fuels that are much lower carbon intensity, to be able to meet the growing demands of our customers.

Dr. Majkut: I mean, you know, is it – I sometimes think – sit back and think, you know, the U.S. is so well positioned in the LNG space. We just have this resource, right? And we’ve built and are continuing to a build pretty significant export capacity in terms of volume. Like, you know, is it fanciful to think you’re going to keep – this is going to be an important energy source for decades to come? We can use carbon capture on the demand side to help reduce emissions. Those are technologies we’re innovating here under the IRA. Or is it necessary to meet the climate goals that we’ve – that the world has given itself? And I can – I’ll admit, I alternate between the two. How – do you have a sense of kind of necessity versus unbridled optimism in that case?

Mr. Sawan: Look, I think I’ll start with the demand dictate in this context. If I go back to what I mentioned, the demand is going to be there. If the U.S. does not supply it, I believe others will supply it. So there is enough gas to be able to then go out and invest in projects and get that supply through to the customers who need it. What a shame not to be able to create that opportunity in the U.S., not to mention the ability from a broader energy security perspective for many of the U.S. allies to be able to receive U.S. LNG. It needs to be reliable. And that hasn’t always been the case, by the way, in the U.S. There’s been sort of some starts and stops with supply of certain LNG.

But beyond that – and, look, I don’t get into day-to-day politics of the decisions made. But something like the current pause, the reality is it doesn’t impact today’s supply of LNG or potentially next year’s supply of LNG. It’s just – it continues to undermine confidence in U.S. LNG, at a time when U.S. allies around the world want dependable and reliable supplies so that they can actually anchor that as part of their overall energy system. If they do not get that comfort, they’ll have to go for other sources of energy which potentially are higher emissions, or they’ll have to go for other suppliers of LNG, which disadvantages the U.S.

Dr. Majkut: I mean, we’ve heard from foreign colleagues, like we’re – you know, we have to look back to Russia if there’s going to be supply issues or consternation on the U.S. side. I’m not going to put words in your mouth, but my view is that the U.S. is still growing into its role as a large exporter and energy security player globally. Washington’s not quite ready to deal with both the advantages that can come from that or the responsibilities.

But one of the things that we have tried to communicate from our shop here at CSIS is the U.S. plays a very unique role in the – in the global gas system by having free onboard cargoes, destination flexibility. Now even we’re seeing a lot of traders, including Shell, be off takers, ready to enter, like, a much more commoditized market than even we had eight to 10 years ago. And that is the energy security story of Europe over the last couple of years, right? It was prices and market flexibility that really allowed Europe to weather that storm. Is that well calibrated, in your –

Mr. Sawan: I agree with that fully. I think people underestimate how important LNG was in keeping the lights on and keeping industry going in Europe between 2022 and today.

Dr. Majkut: Right. And particularly the market structure.

Mr. Sawan: Absolutely.

Dr. Majkut: And the way the U.S. plays, I think, is, like, quite unique.

Mr. Sawan: It is very unique, because traditionally the majority of that LNG was indexed against Brent on term contract basis, on long-term contracts. The fact that you could actually get flexible cargoes that are indexed against Henry Hub, and that are easily accessible to Europe across the pond, was a massive lifesaver. Now, there were other things that helped. The context of the Chinese economy and the fact that China did not – was not pulling on more LNG cargoes in the energy system helped. The fact that Europe was – experienced a much warmer winter than typically was the case also meant that the demand wasn’t as high as it could have been.

And that’s one of the things I keep trying to remind many of the capitals in Europe. This assumption that we’re out of the crisis is a dangerous one. We shouldn’t become complacent. We need to be able to have energy policies that are looking, not at the next three years or five years. You need to be looking at 20-30 years. The investments in the energy system cannot be looked at in short-term sort of government cycles. You need to look across multiple administrations to be able to achieve that security and confidence.

Dr. Majkut: And in an age of expected volatility, and uncertainty, and a lot of heterogeneity, my guess is that governments are going to have to be willing to pay a little bit of a risk premium, right, just to be ready to deal with that – with volatility or further interruption, right? It’s very – it’s very easy to look in, like, OK, here’s the balance I expect. We have enough export capacity here. We have enough import capacity or supply. But then we don’t know what the next crisis is going to be.

Mr. Sawan: I think that’s exactly right. And it’s – others have done this for a long, long time. The Japanese have, in essence, anchored their demand on the basis of long-term supply contracts.

And they’ve diversified the sources of supply, so that they can at least have some optionality in case one of those sources turns off. But, indeed, you look at where we are in Europe today, take the Norwegian maintenance which has sort of impacted gas prices by close to 10 to 12 percent just in the last couple of days. Why is that? That’s because 30 percent of the imports of gas into Europe are coming from Norway at the moment.

So the more you create single points of failure, the more you are going to have these markets become unstable. And therefore, the more diverse a policy is around energy – the energy system, the more different technologies you are willing to absorb, whether you’re talking green hydrogen, whether you’re talking renewable generation, whether you’re looking at the role of bio, and so on and so forth. You need all of these energy forms to be able to make sure that you have flexibility to create value for the economy at the right points in time, and to ensure energy security for your citizens.

Dr. Majkut: Yes. OK, I’ve got one more question, but so as I do that, colleagues, please think about what you may want to ask Wael.

You started saying the message was, Washington, please, consistency. We’ve got a national election coming up. We need to think – we’re thinking about what, like, the policy implications of that could be. Help us understand, you know, given the investments that are coming out of the Infrastructure Investment and Jobs Act, or the bipartisan infrastructure law, also the IRA – political leadership in our country is thinking about making adjustments or doubling down. You know, help us understand the commercial side of this as you’re looking at making investments across everything that we’ve been talking about – security, production, decarbonization. You know, what are the stakes? What are the things that, from a commercial perspective, you would be most concerned to see? Or what do you want to see maintained?

Mr. Sawan: Firstly, you start by acknowledging that these were bipartisan acts, that at least sort of what we see at the moment seem to be working in terms of attracting a significant amount of capital. In different states with – whether it’s red or blue state – you see a lot of that sort of playing out. And there’s something to be said about the forces of gravity here, when, irrespective of political affiliation, people are embracing the opportunity to be able to invest in renewables, or to invest in green hydrogen, or to invest in blue hydrogen, CCS. I think that’s good, because you’re creating jobs, you’re actually starting to anchor new industries. And over time, what you will do is you will create supply chains locally that are able to satisfy the demands of many of these industries. So that’s all – that’s all good.

When we look at these investments, as I said earlier, we have to look at it as a minimum on a 15- to 20-year basis. Which means whatever the next administration ends up being, or the administration after that, we cannot be myopic and just look at what’s the – what’s the political narrative. We have to look at the forces of gravity and say, OK, if we were to invest in green hydrogen here, or in blue hydrogen, how competitive can we be against the alternative? If some of the incentives are taken away, are we able to continue to survive or not? And therefore, how do we actually pace the level of investment that we have to create the right options at the right points in time?

There are some areas, for example in renewable generation, where we see value pools are healthy. So we have around 40 gigawatts pipeline at the moment in our key sort of solar and battery storage company called Savion in the U.S., which continues to invest through the cycle. On areas like green hydrogen or blue hydrogen, we’re still waiting for the appropriate signals to get the confidence that is required. But we want to lean into that space. And we have some plans that we are looking to develop. CCS we’re also looking at. And clearly we will need to see where the narrative moves in the next 12 to 16 months. But we are ready to go on some of these. And in some other areas, we’ve chosen to go and irrespective. Those are the choices we make.

For us, the question is not just what technology do you invest in the U.S. It’s a question of, do you invest in the U.S. or somewhere else? And so when we look at our capital deployment, we’re trying to see what is the best location? Where is there the most stability for that dollar of capital that’s being invested to be able to show us that we can get a return that we can bank for our shareholders. The U.S. ranks highly in that – in that regard, on the back of multiple different elements, including the support of IIJA as well as the Inflation Reduction Act. And I do hope any government that takes over continues to see that value in place, and continues to encourage companies like ours to continue to invest in what I think can be a huge advantage for the U.S. looking into the next 10-15 years.

Dr. Majkut: That’s a really interesting perspective, because I remember – it makes me recall this bumper sticker I used to see frequently which read, “Think Globally. Act Locally.” And if you’re thinking that demand for all this energy, demand for these new resources, for these new technologies is a global thing, then creating a way that the investment is happening in the U.S., you’re seeing the innovation happening in the U.S., is a sort of – you can see that from a nationalistic lens. Which is not what the bumper sticker meant to say, at all. (Laughter.)

Mr. Sawan: You’re right. You’re right. (Laughs.)

Dr. Majkut: But things are different today. The other note I always think about in terms of policy stability is if you have a sort of – you know, net zero by 2050. There’s six presidential elections between now and then, which kind of makes it a daunting thing to think about. So much back and forth.

Mr. Sawan: Yeah.

Dr. Majkut: Let’s invite a few questions from our esteemed guests here in the room. We’ll start with Jen, and then Kevin you’re next. Colleagues here, please remember a question starts with a brief propositional statement and goes up at the end. (Laughter.)

Q: Going to tip that right now. Jennifer Dlouhy with Bloomberg News. Thank you for taking my question.

You’re here, as we’ve been discussing, in D.C. making this plea for stability and predictability. Yet in January, we could see a pretty significant 180-degree pivot in energy and environmental policy. And, you know, Donald Trump has obviously promised to roll back a lot of regs. The methane regulations at the EPA are a top target. I wonder how you would react to an easing or a rollback of those methane regs, and how they would affect your LNG export business, especially given the looming EU methane regs?

Mr. Sawan: Yeah. Thank you for the question. Look, once again, what I said earlier applies. In my mind, I recognize that this is election season, and therefore a lot is being said. We continue to look for the concrete actions that are going to be taken over the coming months, in particular post-November, to be able to then determine what moves we will make. I won’t speculate, but what I would say is the following.

When we drive, for example, our methane emissions in any country, we hold ourselves to a very high bar. If the bar in the country is lower than the bar that we hold, then we will meet our own bar, right? We fundamentally believe that every single molecule of methane should be captured and should be used constructively, and not just allowed to go into the environment. So elements like that, I think, I’m not convinced that good stewards of capital and good businesspeople are going to simply let the methane emissions happen. one.

From an LNG perspective, I think the train has left the station in terms of the momentum of the U.S. LNG, and the incredibly important role it plays today in the world. I mean, you look past 2025, the two largest suppliers that make up 85 percent of the new supply that’s coming into the global market are Qatar and the U.S. These are terrific opportunities, of course, for value creation for the U.S., but beyond that the strength of energy security this affords U.S. allies is critical. Irrespective of what administration is in place.

So we approach this in a temperate way, waiting to see what actually happens, and then being able to sort of pivot as we need to. But with very, very clear fundamentals, that we will not lower our own standards. And at the same time, we will continue to drive what we think is a uniquely positioned U.S. LNG market for offtake to the rest of the world, a rest of the world that is massively dependent on what the U.S. can do and what the U.S. has done over the past few years, and I hope continues to do in the coming years as well.

Dr. Majkut: And then we’ve got a question over here.

Q: Thank you. Kevin Brook, Clearview Energy Partners, and also an advisor here at CSIS. Thanks for doing this.

Joseph mentioned, I think, a tension between deglobalization and decarbonization. And the fragmenting world – it’s sort of weird. We have gone from sort of an economics-based value chains to values-based sourcing, as the fragmentation is happening. It’s inflationary. And it’s potentially problematic for people making big investments. So two parts to the question. The first is, how much are inflationary concerns – whether they come from deglobalization or decarbonization, a big risk to transition for you? And second, to what extent do the impediments of fragmentation affect your business? Thanks.

Mr. Sawan: Thank you. Let me start with the second one. The fragmentation that we see, and that we expect to continue, at least for some time, almost is confirming the wisdom of the business model that my predecessors had chosen, which is you need to be able to diversify supply, you need to be able to diversify demand points, and then you need to be able to diversify supply chains. Because as you start to see that fragmentation materialize, and as you start to see different coalitions forming from a geopolitical perspective, trade flows will start to move in different directions than maybe they have historically done.

And we’ve seen that, of course, over recent years. Whether it’s trade flows across the Red Sea, whether it was trade flows on the back of Russia, and you see now most of that gas ending up in different parts of the world. Still satisfying the demand of the overall energy system, but fundamentally different flows.

We have established ourselves as the leading energy trader in the world. That is the conviction that we have in our trading and optimization model. Your ability to be able to have infrastructure, including storage and pipelines, along with multiple longs and multiple shorts, will allow you to navigate what is going to be an increasingly complex energy system is my conviction.

When it comes to the first part of your question and what we see around that fragmentation in terms of supply chains and the like, what I would say is I don’t believe the energy transition is going to be linear. I think you are going to have starts and stops, which is why we believe in a multi-energy model. And what do I mean by that?

A few years ago, it was all about offshore wind. Offshore wind is going to be the answer for everything. Now it’s all doom and gloom around offshore wind. I don’t think either is right. Supply chains will correct. There is a point in time right now because of the inflationary pressure and the supply chain challenges we see with offshore wind, meaning it’s going to slow down compared to what some would have hoped. But I don’t see that slowdown in an area like solar, though at some point you might see similar supply chain pressures in solar.

Our ability to be able to be relatively agnostic to what the technology that delivers the energy is, and actually focus on what is in the money at that specific point in time, and how you reroute supply chains, and demand patterns and such. That is where the opportunity is, which goes back to my earlier comment: volatility will be inherent in the energy system of the future, and the players who are able to manage through that volatility and who can continue to satisfy their customer demands through multiple different sources will be the ones that win. And that’s how we are positioning ourselves as company – multi-energy vectors with a very strong trading and optimization capability, with a world-leading customer interface, we believe allows us to play irrespective of where we are in any discontinuity that might emerge.

Dr. Majkut: Leveraging one of the questions that we’ve received online, I’d love to have you talk about that point a little further. I mean, there’s a sense in which the world is dividing, right? I’ll roughly say G-7+, a stronger alignment between China and Russia, and then depending on the issue you are talking about the BRICS countries, and then you’ve got the developing world.

The role of energy traders – you know, are we in – like has something changed such that a lot of the intuitions, particularly in a town like Washington, as governments are really in the driver’s seat, but then I hear from you that the role of traders and the sort of – the intermediaries, the connecting tissue in between those countries actually can smooth out a lot of political confrontation.

Do you know – how do you – how do you see that evolving over the next decade or two decades as the nature of the energy system changes a lot?

Mr. Sawan: Look, I would say –

Dr. Majkut: I hope I didn’t butcher that for our friend online.

Mr. Sawan: I would –

Dr. Majkut: Is the energy world going to get like less geopolitical – maybe is the key question.

Mr. Sawan: No. No, I don’t think so. I mean, I think firstly we are takers, not shapers in that sense, right?

Dr. Majkut: Right.

Mr. Sawan: So the shapers, I think, are government policy, customers, and we, as traders of energy, need to be able to adapt to those realities.

The demands of a market like Indonesia are fundamentally different than the demands of a market like Europe, and so on and so forth. So we need to be able to adapt to – if the government in – if the governments in Europe, let’s say the EU commission decides, I’m not going to allow this sort of biofeedstock into Europe –

Dr. Majkut: Right.

Mr. Sawan: – that fundamentally change where that biofeedstock that we have sourced is going to go, and we will adapt to those realities. What we will do is we will lubricate the energy system to be able to make sure that, as those discontinuities take place, we will be able to adapt and change. But it’s not just, by the way, discontinuities from a geopolitical perspective. There is arbitrage in policies. Governments set policies that incentivize certain elements at the detriment of other elements. We are constantly having to study this evolution of government policy, customer uptake, global patterns, and having to be able to then shape our own businesses to be able to meet those emerging demands.

Dr. Majkut: Excellent. Thank you very much.

We’ve got – oh, we’ve got some hands up. We’ll go over here just for proximity, the gentleman in the front, and then, Aaron, we’ll come to you.

Q: Hi. Corbin Hiar, E&E News.

I have a question about one of your competitors. So Exxon is currently engaged in some litigation against some of its shareholders over climate goals, and I’m curious as to what you think about sort of the role of shareholder resolutions and the courts in sort of adjudicating those relationships and climate goals, as well.

Mr. Sawan: A question much better directed to Darren, I suspect, than myself. (Laughter.)

What I would say from a Shell perspective, we have our fair share of resolutions, we have our fair share of litigation. Let me start with the resolutions.

We had a Follow This-led resolution which was submitted to our AGM. It was the eighth year in a row that it has been submitted. We welcome shareholders’ voice. And by the way, resolutions aren’t the only way to bring that voice across. We are engaging with our shareholders regularly, and we are listening to what they expect of us, and we are trying – with the limited wisdom that we have – to be able to navigate through those difficult demands. Our shareholders, of course, are indeed wanting more value, more – whether from a share price perspective or how we think about share buybacks or the like – and they’re also looking for less emissions, which very much aligns with how we have set up the company. But management, and particularly the board, need to be able to have the latitude to be able to achieve that without these blunt instruments that are set with singular, unique requirements that don’t necessarily see the complexity of the energy system and the multiple elements that a board like ours is trying to grapple with.

When it comes to litigation, of course we will – as any company – defend our rights. We continue to believe – putting both of those elements aside, we have said explicitly we want to be the investment case through the energy transition. We are driving what we think many actually want, and I recognize that there is sometimes frustration at the pace of change, but to sort of put the obligation and the liability on one individual company rather than recognizing this is an entire system that has governments, that has customers, and that has producers like ours, and trying to move that collective towards the outcomes that we want, I think is a much healthier way to go.

Yet, unfortunately, sometimes it becomes almost a zero-sum game rather than what we’re trying to do as a company, which is to be part of the solution. And our hope is, with time, both shareholders and those that are battling in the courts recognize that a company like Shell is truly wanting to be part of the solution, despite the narrative that sometimes people read about.

Dr. Majkut: Aaron, and then, Tim, you’ll have the last question, and then we’ll wrap up.

Q: Thank you. Aaron Padilla with the American Petroleum Institute, API. Thank you for the investment of your time to come to Washington –

Mr. Sawan: Of course.

Q: – and, of course, as a member of API.

The vision that Shell articulates on LNG would seem to be compelling for any head of state or any energy minister. When you have conversations with these policymakers, and they disagree with Shell, what paradigm of thinking do they have, and what have you found to be persuasive in those conversations to seek more alignment between Shell’s view of the advantages of LNG – whether energy or climate – and the interests of the decision makers who sit at the top of the governments that you work so closely with?

Mr. Sawan: Brilliant question. Look, I think sometimes the disagreement stems from the fact that it is a fossil fuel, therefore it cannot be good. There is an almost absolutist perspective that some have on this including, by the way, some capitals in Europe. And while I respect that view, the reality is it is an energy transition, and we need to be able to transition to lower-carbon solutions such as, for example, at some point bio-LNG, and then potentially, eventually into green hydrogen. But the costs are prohibitive right now to be able to have seriously competing economies and industries.

So we have these open discussions. I think, by and large I would say, particular after the tragic events in Ukraine, most capitals have sort of moved to either a firm and healthy acceptance of LNG or a grudging acceptance of LNG – but an acceptance of LNG.

What have I learned – what have we learned as a company? I think the biggest concern that some have is that, by investing in the assets that allow you to import LNG, you are creating a dependency that can no longer be let go of – people talk about stranded assets and the like. You see it in a place like Germany, where there is a thinking model of let’s have an LNG terminal that one day we can convert into a green hydrogen import terminal.

That’s good. I mean, I think that’s healthy. That does require much more up-front capital investment. The risk with it is will you actually be able to attract the LNG because typically the LNG is going to go for whoever is willing to pay the highest and whoever is willing to have the longest-term contract. So are you at risk of having what is a perfect strategy that is not actually executable?

But what we try to do and what we have learned is our customers continue to want lower carbon solutions for LNG, and so what has that driven us towards? We’ve invested in the largest biogas company in Europe, called Nature Energy, to be able to have a pathway towards bio-LNG that allows us to blend some of that bio-LNG with the LNG that our customers are demanding. We are looking at how we can help our customers reduce the methane emissions on their own side – that’s one area that we are investing in – and we are looking more and more at synthetic LNG, which is going to be more expensive, of course, but how can we use existing LNG facilities to be able to produce synthetic LNG, which is a combination of green hydrogen with CO2 that allows us to be able to produce that.

So we are now thinking 15, 20 years ahead to start to see the solutions that might help our – that will help our customers be able to transition over time.

Dr. Majkut: And if I can jump in, is there any room for discussion, from your view, with the governments or those who have concerns about stranded assets or emissions, about making interventions to make sure that LNG is going to places where it can really displace coal, or it’s being used sort at the highest combined value – like highest value, least emissions, right?

Mr. Sawan: Yes.

Dr. Majkut: And that’s a matter of public policy, both for exporting countries as well as importers.

Mr. Sawan: I think that would be the ideal situation. That’s not what we see at the moment. Even with something – if I take the theme that you are bringing and maybe use it in the context of green hydrogen, who gets that first green hydrogen molecule? Is it the passenger vehicle? Is it the truck? Is it the facility that today is using gray hydrogen? Is it a new industrial complex that should be shifting towards green hydrogen? I think the market will determine that, and it could be very, very difficult to be able to almost say, you know, this is going to go here, except if you want to incentivize it accordingly.

My own conviction, if I use the green hydrogen example, is your best bet is to displace the 70 million tons of gray hydrogen that are currently being consumed in industry today by putting green hydrogen there. They are already geared for hydrogen. You don’t need to make massive investments, but that’s what you should incentivize before you go to the next sectors.

Actually, some way of being able to push the momentum through who is most likely to be the consumer of that molecule of energy I think is a good way of doing it, but there again, you need government policy, and you need those customers to actually want to pay that incremental amount for their green molecules.

Dr. Majkut: Right, yeah, yeah, yeah. I mean, like I’m just not concerned about how Europe uses LNG. They’ve got the ETS, so it – like it all seems like it will roughly be fine.

But I think that’s a place that our government probably is under-exploring the option space.

Mr. Sawan: Possibly, yeah.

Dr. Majkut: Tim, why don’t we go ahead and give you the mic?

Q: Oh, you’re right there. Thank you. Hi. I’m Tim Puko, one of the energy and climate reporters here.

On LNG, you’ve talked a lot about government policy and geopolitics, and how big a force that has been for that industry’s growth. But it’s still – you know, on the corporate side, a relatively new industry can be volatile just from some of the emerging players, from frictions around that in the market. I think of the conflict that Shell has had with Venture Global is maybe the best example of that.

So I would love to hear you, if you could, just explain a little bit about how you see that type of friction, just within the industry – how it compares to some of those other factors in terms of Shell’s own potential for growth in LNG and beyond, and maybe more importantly, just for like the stable growth of LNG and LNG supply around the world.

Mr. Sawan: Thank you for that. I think the danger is we hone in too deeply on the present. Let me just go back to the 1960s where, you know, the LNG industry started to form. And actually, for a good four or five decades, while of course you have ups and downs, and you have the typical cycles of any energy commodity, the trajectory was very, very clear. And the rules of the game have been very, very clear, you know? Credit to the Japanese vision of how they started to import LNG and actually created the bedrock which then formed the LNG industry – followed by the Koreans, followed by the Taiwanese, and more recently, the Chinese.

So it has evolved in a good way. Are there frictions? Like any other industry, there is friction, of course, and if we zoom into the – into the present, I wouldn’t take the legal dispute between us and VG as being defining of the LNG industry. What I would say is, like any other industry, sanctity of contract is first and foremost in my mind, and it goes back to the predictable and stable outlooks that we expect, and we see, and that underpin the rule of law that we all agree on. And that creates opportunities for liberal democracies to be able to continue to function in the way that they function.

So I think that’s – elements like that, the danger is not just in the bilaterals and what happens there; it’s in the noise it creates for the overall industry, which I think is what you are implying in that context. And I can tell you, in Europe, this is a big topic of discussion around confidence in U.S. LNG for the future. I can tell you in Asia there’s questions around is there a new game in the LNG space, not just because of the VG issue, but more realistically, is LNG going to become an instrument of political difference. Those are the questions that are – that I think arise.

What can we do? I think, sadly, from a U.S. perspective it does mean that people will look at other sources of more reliable LNG. We are developing a major project in Canada that is very nicely situated on the west coast of British Columbia that allows us to be able to supply Asia. Companies continue to grow their LNG supplies, and other countries. We’re working with Trinidad, for example, to continue to grow its LNG supply, and more.

And so what it will lead to, I think, is a premium on trust – a premium on trust. That’s one thing we’ve always held ourselves up to for a long, long time, we hold ourselves to a very high bar on.

With everything that happens around the world – Fukushima, the tragedies in Japan at that point – at that point in time; with some of the challenges we see in the Red Sea – we feel we have an obligation to continue to be meeting the demands of our customers, and we figure out how to do it even if sometimes it means we take a loss by doing it.

The reliability of supply and the trust in suppliers to ensure that they do what they have said – what they said they were going to do is critical. That is, I think, what is going to underpin the health of the LNG industry.

The final point I would make is countries have choices, as well. One of the challenges we see in Europe at the moment is while there has been a few recent term contracts there, traditionally Europe depended around 80 percent on spot LNG imports and less than 20 percent on term.

If you go to Asia, it’s the exact opposite. Over 80 percent typically is term contracts. So in 2022, at the worst of the gas prices realities post the Russian invasion of Ukraine, the Chinese paid, we think, around 12 to $13 per million BTU for that year. The Europeans paid around 40 to $50 per million BTU. Why? Because Europeans chose to be at the mercy of the spot market whereas the Chinese had a combination of domestic production, certain pipeline imports, and their LNG was predominantly on term contracts so they could actually expect a stability of price, and that’s what they got.

Dr. Majkut: Excellent. You’ve been so generous with your time. We’ve ran up against the window, and I think we have to get you to the Hill. Thank you so much, Wael. It’s a pleasure to speak with you today. You have offered a candid, insightful vision of your strategy and how the world is navigating the transition. So I want to thank you for that.

Mr. Sawan: Thank you very much for having me.

Dr. Majkut: And colleagues who joined us both online and in the room, if you wouldn’t mind a warm appreciation. (Applause.)

Thank you so much for joining us. This is Joseph Majkut signing off for CSIS. We’ll see you next time.