Royal Dutch Shell, with major operations in the Gulf of Mexico, says it will trim its oil output by up to 2% annually as part of a long-term plan that already is resulting in the closure of its 700-job refinery in Convent.
Shell, one of the multinationals that has defined the oil industry, is slowly turning away from the fossil fuel that made its fortune over the decades, but also has contributed to an urgency facing governments and companies to reduce climate-warming emissions.
Shell said Thursday that its production of oil peaked before the coronavirus pandemic and will fall steadily as it attempts an ambitious pivot toward less-polluting forms of energy. Shell unveiled new plans for reaching its goal of being carbon neutral by 2050 that include a 1% to 2% drop annually in oil output, which local experts said Thursday could have a gradual impact on operations in the Gulf and the state's efforts to adapt to new forms of energy.
"Those big floating facilities will continue to be out there, but as production from existing (facilities) decline, you could see a significant drop off by 2050, especially if there are no new leases and nobody is looking for new oil fields," said Eric Smith, associate director of Tulane University's Energy Institute.
Shell said in a statement its gradual reduction in oil output will include divestments and natural decline. "Still, our priority is to extend the life of our most competitive assets in our heartland basins — including in the Gulf of Mexico where our assets generate the cash to support our dividend and fund Shell's transformation," the company said. "The goal for our upstream business is to make it more focused, more resilient and more competitive to sustain material cash delivery into the 2030s."
After failing to find a buyer for its refinery in Convent, Shell is shutting down the plant, which employs 700 company workers and 400 contrac…
In the long term, Louisiana is "well positioned" for a transition toward greener fuel production and carbon sequestration efforts using its existing energy infrastructure, Smith said. Existing refineries, such as the Convent facility, could be converted to produce cleaner fuel sources in the coming decades.
Shell is eliminating seven of its 13 refineries internationally and aims to cut production of gasoline and diesel fuel by 55% over the next decade. The company's Louisiana subsidiary already is in the process of closing its Convent oil refinery, which employs 700 company workers and 400 contractor jobs, after failing to sell the facility.
Shell has said it is consolidating its assets into six energy and chemical parks. The survivors include the Norco refinery near New Orleans, in conjunction with Shell's chemical complex in Geismar. The goal is for the refineries to be more integrated with the chemical complexes and produce more biofuels, hydrogen and synthetic fuels. Shell also plans to increase production of liquefied natural gas.
"Our plan is to retain a meaningful presence in Louisiana by way of our integrated refining and chemicals sites at Norco and Geismar, our midstream infrastructure assets, branded retail presence, Gulf of Mexico operations and our offices in New Orleans," Shell said in its statement.
WHAT HAPPENED?: After failing to find a buyer for its refinery in Convent, Shell is shutting down the plant. The shutdown process is expected …
Shell's website says it operates nine deep water production hubs, numerous subsea production systems and one of the largest contracted drilling rig fleets in the Gulf of Mexico. It also is part-owner of one producing project in the Gulf.
In 2018, Shell made a final investment decision for Vito, its most recent deep water oil platform that could reach 100,000 barrels of oil per day and produce up to 300 million barrels of oil throughout its life.
Shell employs 1,600 workers for its Gulf of Mexico operations, which produces 150 million barrels of oil each year — about half of Shell's total oil and gas output.
It would take significant capital to shut down production from its offshore portfolio, so what's more likely is that the company may not continue to invest, especially if there is a long-term moratorium on new leases for drilling in federal waters, experts said.
Even so, Louisiana is likely to still have refineries in the coming decades, especially for jet fuel and diesel products which are not projected to transition to all-electric engines as quickly as consumer vehicles.
"The refinery industry is going to have to adjust," said Greg Upton, associate professor-research at LSU's Center for Energy Studies. "In a world where you achieve decarbonization, there is still definitely room for (the oil and gas) industry but it may look different than it does today."
That would likely mean fewer jobs, and many individuals who retire not being replaced with new workers. Overall employment in oil and gas has been on the decline for decades as production has become more efficient through advanced technology.
Shell's long-term plan is part of a wider push, particularly among European oil companies, to overhaul their operations to reduce carbon emissions blamed for global warming while still making money. BP said last year that it wants to eliminate or offset all carbon emissions from its operations and the oil and gas it sells to customers by 2050.
The Louisiana Economic Development department is tasked to retain and recruit more businesses to continue investing in Louisiana despite the market contraction in oil and gas.
The state is focused on the transition of the energy industry, with the governor creating a Climate Initiatives Task Force to tackle its future. LED has a "strong relationship" with Shell, according to the state agency.
“LED will continue to support existing oil, gas and petrochemical facilities and work to enhance their competitiveness," said Don Pierson, secretary of LED. "Those efforts continue in a way that leverages Louisiana’s assets, including existing sites and workforce, and seizes opportunities for projects that make sense as a bridge to a lower carbon future."
Shell plans to begin layoffs for nearly 700 workers in March at its Convent oil refinery, which it expects to fully shut down in August.
Local environmental groups noted decadeslong impact by the oil and gas industry across the state but noted that it's a step toward a more sustainable future.
"The oil industry has carved up our protective wetlands with its pipelines and canals, exacerbated storms with its greenhouse gases, destroyed people's property values by moving in next door and polluting relentlessly and increased the cancer risk in our state," said Anne Rolfes, director of the Louisiana Bucket Brigade, an environmental group. "Addressing these harms has to start somewhere, so maybe these are the first steps."