- Shell pulls back from Shanghai-registered trading subsidiary
- Firm says it had to “make difficult choices” as it seeks to deliver value on its portfolio
Shell says it will step back from China-based businesses involving emissions trading and compliance, marketing, and power generation but will continue with core upstream, integrated gas and new energy business lines in the country.
The move marks a departure from a market in which Shell says it pioneered – on its website for the Shanghai-registered trading subsidiary, Shell Energy (China) Limited, Shell notes it was the “first wholly owned foreign entity to participate in the Chinese emissions market".
The entity — registered to trade on the Chinese Emissions Exchange Guangzhou and the Shanghai Environment and Energy Exchanges — aimed to offer China-based customers “a competitive and diversified portfolio of LNG, CO2 emissions management and strategy options in China”.
Among the compliance-related options, Shell Energy (China) Limited offered products to provide spot market access, OTC structures for fixed or floating prices, timespreads, product swaps, and index and average based pricing.
On Wednesday, a day ahead of publishing its Q1 results, the major said in a statement it has ceased its trading, marketing and power generation business in China citing the need to “make difficult choices” as it seeks to deliver value on its portfolio.
The company is “selectively investing in power, focusing on delivering value from our power portfolio”, Shell said.
China outlook
The company said the move away from the trading, marketing and power business lines, however, would not affect its EV business in China.
“Shell’s commitment on operationalising our Powering Progress strategy in China remains unchanged. We will work with our partners and customers to contribute to China’s energy transition," Shell said.
In its February outlook Shell’s former head of LNG Steve Hill predicted China would likely dominate LNG demand growth this decade as its industry seeks to cut carbon emissions by switching from coal to gas.
“With China’s coal-based steel sector accounting for more emissions than the total emissions of the UK, Germany and Turkey combined, gas has an essential role to play in tackling one of the world’s biggest sources of carbon emissions and local air pollution,” Hill said at the time.
Shell on 5 April signalled a weaker trading result from its LNG business for the first quarter of 2024 compared with the previous quarter.
The major said in an update that trading and optimisation results for its integrated gas business “are expected to be strong, but significantly lower than an exceptional Q4 ‘23.”
Strategic moves on power
The pullback from the specific market segment, which industry sources noted as “small”, is the latest in a series of moves which underline Shell’s strategy, and shift to being more selective in how it is involved in power businesses.
Last month, Shell flagged a broader strategy consideration when it confirmed it would “explore other options” beyond 2025, including switching its listing to New York from London, in a bid to ensure the right valuation is achieved for its shareholders.
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It showed a diminished appetite for power in March when it said it had watered down energy intensity targets, partly on reflection of expected lower sales of power in absolute terms, Shell said at the time. The company expects to sell more power to commercial customers, including renewable power, and less to retail customers.
In December, the company also completed the sale of its home energy businesses in the UK and Germany to Octopus Energy.
"I don’t think it is a big surprise as we’ve seen Shell pull back from several retail power markets over the last year. It is struggling with profitability in those businesses and it appears that there’s less integration value and a very different business model to Shell’s traditional oil retail business," Akap Energy's Anish Kapadia told Gas Matters Today. "In general Shell under the new CEO is pulling back from activities with lower returns refocusing investment back into the core business." - HQ, PS
Photo: Courtesy of Shell
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