Shell to reduce workforce around 10% but aims to expand chemicals

LONDON (ICIS)–Shell is to reduce its workforce by up to 9,000 by 2022 to save up to $2.5bn, the Anglo-Dutch energy and petrochemicals major said on Wednesday.

The company’s global workforce stands at 86,000 in more than 70 countries.

In a third-quarter trading update on Wednesday, the energy major said the pandemic-induced economic shock had prompted it to speed up its move toward a greener portofolio.

Crude oil refining is set to gradually decrease in importance within the major’s portfolio, said its CEO, which in turn would reduce labour-intensive activities.

“Refining is another business that we will refocus. It will be smaller but smarter. We will keep only what is strategically essential to us and integrate those refineries with our chemicals business, which we plan to grow,” said CEO Ben van Beurden.

For the third quarter, the company expects chemicals sales volumes to have stood at 3.7m-4.0m tonnes, which would be practically the same than in the same quarter of 2019 at 3.85m tonnes.

On average, utilisation rates at Shell’s chemicals plants around the world is expected to have been during the July-September quarter at 79-83%.

Compared with the second quarter 2020, adjusted earnings for the chemicals division are expected to be $100m lower than in the second quarter due to “increased activity, provisions and phasing of maintenance” activities, it said.

Chemicals earnings in the second quarter stood at $164m.

Utilisation rates for the April-June period stood at 78%.

“We will end up [at the end of the restructuring process] with fewer than 10 refineries, compared to 55 around 15 years ago, but they will be set up to serve the changing needs of society,” added Shell’s CEO.

STRATEGIC, INTEGRATED REFINING
The planned refineries would be, according to Shell, located in strategic locations and “with flexibility to adapt and further integrate with the growing Chemicals” and trading divisions, said Shell.

It is in the “reduced organisational complexity” where the company expects most of the savings to take place in the coming next two years.

By 2022, between 7,000 and 9,000 employees are expected to be made redundant except 1,500 who have already volunteered to take redundancy in 2020, it said.

The first global pandemic of the hydrocarbons age may also mark the demise of the commodity that has fuelled the economy over the last 100 years, according to both Shell and UK-headquartered energy and petrochemicals peer BP.

In its energy outlook released earlier in September, BP said that in all the scenarios it forecasts for the world’s energy supply, crude oil demand was likely to peak in the 2020s as transport electrifications gathers pace.

However, it also said hydrocarbons would continue playing a key role for decades to come as relentless petrochemicals production is set to continue as emerging countries urbanise.

On Wednesday, Shell’s CEO said: “We have been on this road to a lower-carbon future for some time. We have come a long way in this direction, and now we have set ourselves the aim of being a net-zero emissions energy business by 2050.

“If we want to get there, if we want to succeed as an integral part of a society heading towards net-zero emissions, now is the time to accelerate. That is what we are doing,” concluded van Beurden.

The EU’s Green Deal, recently approved and propped up by the expected investments under the EU Recovery Fund, aims for the 27-country bloc to be fully decarbonise by 2050.

Energy-intensive industries like chemicals production, however, have said they are concerned that a speedy transition towards zero-emissions could cause ‘carbon leakage’ – when companies decide de delocalise to jurisdictions with less strict environmental regulations, namely China or the US.

In an interview with ICIS earlier in September, the head of EU chemicals trade group Cefic Marco Mensink said the EU’s Green Deal was “hugely challenging” for chemicals and asked for a “careful balance” to be struck between the willingness to decarbonise and the need to keep up an industrial base in Europe.

Front page picture: Shell’s petrochemicals facilities in the Netherlands
Source: Shell 

Update: Includes more CEO comment, background on decarbonisation