Shell AGM: significant minority of investors raise concern about LNG push

More than 20.5% of shareholders have backed a resolution questioning the firm's planned expansion of LNG production at this year's Shell AGM, indicating growing investor concerns about the company's long-term strategy. 

Under UK listing rules, companies which receive a shareholder opposition of more than 20% are forced to explain how they will tackle shareholder concerns. The firm said it is planning to consult shareholders on the result. 

Commenting on the result, Sandra Stewart, chief executive of the Greater Manchester Pension Fund, one of the funds filing the resolution said: “Shell is making investments in LNG today that will be operating in 25-plus years. It is crucial that it provides information which allows investors to evaluate whether the Company’s LNG strategy will deliver long-term value in the energy transition without undermining its climate commitments.

“This resolution has brought much needed attention to the overoptimistic forecasts for LNG demand across the sector. Other oil and gas companies should now be on notice for the increased need for greater rigor in the assumptions that underpin their LNG strategies" she added.

Nick Mazan, company strategy, UK Lead for the ACCR, which co-filed the resolution added: “Shareholders have sent a strong signal to Shell that the quality of its disclosures is out of step with the size of the bet it is taking on LNG.

“This is a clear call from investors for better disclosure from Shell, so they can properly appraise the material risks of its LNG strategy. This includes the risk that the company won’t be able to meet its climate commitments, and the risk of value destruction if the LNG prices or demand are weaker than Shell is expecting."

Investor participation

Shell's AGM was the first event in years which did not see interruptions from climate campaigners due to being held in Heathrow, a protest exclusion zone where protestors face prison sentences of several years. Yet, the firm's leadership was instead met with an unusually high level of critical question from major institutional investors. 

Shell predicts that global demand for LNG is on track to rise by 60% through to 2040 and put LNG production at the heart of its expansion strategy. The oil firm plans to grow LNG sales by 4-5% annually until 2030, and grow top-line production in its integrated gas business by 1% annually.

This comes amid a significant drop in global oil prices, with the price of Brent Crude falling to $60 per barrel, putting pressure on the profit margins of the world’s largest oil producers. “We expect that supplying LNG will be the biggest contribution Shell will make to the energy transition” said CEO Wael Sawan in his opening speech.

However, a resolution put forward by UK LGPS investors Brunel Pension Partnership, Greater Manchester Pension Fund and Merseyside Pension Fund and co-filed by the Australasian Centre for Corporate Responsibility (ACCR) questions these assumptions, warning that Shell has more uncontracted LNG than any other oil and gas majors, leaving it highly exposed to losses if prices were to drop.

The International Energy Agency (IEA) predicts that global LNG demand will peak by 2030, due to increased availability of renewable energy sources.

Investors also question the ability of LNG to act as a transition fuel. “Does each member of the board concur with the statement in the Notice of Annual Meeting that LNG, methane is a low-carbon fuel” questioned Doug McMurdo, chair of the Local Authority Pension Fund Forum and a member of the Bedfordshire Pension Fund.

Speaking from the floor, Vaishnavi Ravishankar, head of Stewardship at Brunel Pension Partnership expressed concern about the disconnect between the companies planned LNG expansion and its stated ambition to become Paris-aligned, questioning the ability of carbon capture and storage to bridge the disconnect. 

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Countering these challenges, CEO Wael Sawan expressed his conviction in being able to support the growth of LNG and “over time decarbonise that energy” by investing in carbon capture and sequestration as well as the development of liquid synthetic gas which would ultimately become carbon neutral” he claimed.

Sawan and Shell’s chair Sir Andrew Mackenzie urged shareholders not to back the LNG resolution. “In the absence of LNG the world will burn more coal renewables will be deployed more slowly” warned Mackenzie. He also said that Shell had a “moral imperative to look after the pensions of those that invest in Shell.”

Yet investors stressed the need for further transparency with Xander Urbach of MN enquiring about the company’s 2035 decarbonisation targets, and Silvia van Weveren, engagement specialist at Robeco sharing that the manager had backed the resolution.

“How do you explain that your emissions are still rising while you have a duty to cut emissions” challenged Sjoukje van Oosterhout, senior team lead climate at Dutch campaign group Milieudefensie, which announced last week that it intends to take the oil giant to court again over its alleged failure to decarbonise.

In 2021, a Dutch district court ordered Shell to reduce its global emissions by 45% by 2030, a decision that was later overturned by the Court of Appeal. Milieudefensie now wants to take up the battle again, urging the courts to impose a ban against new oil and gas production.

A key elephant in the room for many investors was the scope for potential consolidation in the oil and gas sector, amid mounting speculation that Shell could take over its struggling competitor BP. When asked directly by a shareholder about these rumours, chair Mackenzie neither confirmed or denied, referring instead to earlier statements that Shell's priority was on returning dividends to shareholders.