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Major Cost Cutting Initiative Launched By Shell To Transition Into Renewable Energy Business: Reuters

Major Cost Cutting Initiative Launched By Shell To Transition Into Renewable Energy Business: Reuters
In a major push to conserve cash so that a complete overhaul of the business is possible and greater focus is to be laid on renewable energy and power markets, up to 40 per cent off the cost of producing oil and gas is being targeted to be slashed by Royal Dutch Shell, claimed a report from the news agency Reuters quoting sources.
Project Reshape is the name that Shell given to its new cost-cutting review to be mentioned internally. It is expected to be completed by this year and will impact three main divisions of the company. The savings generated from this plan will be over and above the $4 billion target that the company had set to save because of the novel coronavirus pandemic crisis.
For the company to completely shift into the power sector and renewable energy sector, cost reduction is critical for Shell because of the relatively low profit margins in the two new sectors. And with economies around the world are going green, it is also likely that competition will be tough as companies in the utility sector as well as Shell’s rivals from the oil industry such as BP and Total are also shifting focus to get a share of the green energy market.
“We had a great model but is it right for the future? There will be differences, this is not just about structure but culture and about the type of company we want to be,” a senior Shell source to Reuters who declined to be named.
The capital spending of the company last year was $24 billion and its operating profit in the same period was at $38 billion.
According to sources, spending on oil and gas production, of which the largest division is its upstream business division, is being planned to be reduced by Shell for which it is sorting out new ways. The company is trying to cut costs of between 30 per cent and 40 per cent in operating costs and capital spending on new projects.
The sources said that the company now wants to focus only on a few crucial hubs of its oil and gas production business – which will include the Gulf of Mexico, Nigeria and the North Sea.
Deep cost cuts are also being planned for the Shell’s liquefied natural gas (LNG) operations as well as some gas production, which is the integrated gas division of the company.
Reducing costs from Shell’s network of 45,000 service stations – which is the largest in the world, is also under review of the company for its downstream business. This business is seen as one of the “most high-value activities” of the company. The company expects this division to play a crucial role in the transition, said the Reuters report.
“We are undergoing a strategic review of the organisation, which intends to ensure we are set up to thrive throughout the energy transition and be a simpler organization, which is also cost competitive. We are looking at a range of options and scenarios at this time, which are being carefully evaluated,” a spokeswoman for Shell said in a statement to Reuters.

Christopher J. Mitchell

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