Shell shifts HQ to the UK

This is an audio transcript of the FT News Briefing podcast episode: Shell shifts HQ to the UK

Marc Filippino
Good morning from the Financial Times. Today is Tuesday, November 16th, and this is your FT News Briefing.

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The COP26 climate conference might be over, but energy developments are still changing the business world. First, the use of new plastic has peaked as global brands shift to recycled packaging, and the price of US coal well, that hit a 12-year high yesterday. Plus, Royal Dutch Shell says that it’s going to make the UK its sole headquarters. The move could help the oil giant reach its climate goals.

Helen Thomas
The pressure on these guys to change is getting more and more intense.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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The world’s biggest brands are using more recycled plastics, especially for packaging. And the use of virgin plastics, that’s new, non-recycled plastic has hit a peak and is set to decline. That’s according to a study from the Ellen MacArthur Foundation. The UK non-profit collected data from 65 companies, including Nestlé, PepsiCo and Unilever. It concludes that by 2025 businesses will have cut the use of non-recycled plastics by almost a fifth compared to 2018. The foundation is calling for a global agreement on plastic pollution to push forward regulation and investment. Several of the companies they studied are also on board with the move.

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There’s a lot of talk over ending the use of coal. But reality shows how complex the transition to cleaner energy is going to be. Right now, power producers are using more coal, and US coal prices have jumped to their highest level in more than 12 years. Our US energy correspondent Myles McCormick has more.

Myles McCormick
There is a confluence of different factors. So on the demand side, you’ve got electricity demand surging back up after the Covid related shutdowns, and you’ve got an increase in exports. But most importantly, you have as a result of higher natural gas prices, a lot of US power generators switching away from gas-fired units to coal-fired units. So demand for coal as a result of all of those factors is surging. And then on the flip side of the equation — the supply side — because there’s been this shift away from coal in recent years, with facilities being shut down and companies investing less in mining, the industry isn’t able to ramp up quick enough. So it’s become quite supply inelastic. So as a result, you’ve got a lot more demand, supply unable to keep up and therefore prices are surging.

Marc Filippino
Myles, do you see the use of coal continuing to rise?

Myles McCormick
Potentially. So it really comes down to how cold the winter ends up being. If we do have a particularly cold winter, then demand for coal will will keep going up. And it’s just going to add to the already kind of inflated energy prices that we have at the moment.

Marc Filippino
What does this mean for the long-term efforts to move away from coal? Isn’t it a trend for companies to do that?

Myles McCormick
Well, yeah, it absolutely is. And the reason for that is that coal is effectively the dirtiest fossil fuel. It is significantly more carbon dioxide than natural gas stoves, for example, and in the production of electricity. So in the short term, it means more coal is going to be burned. Emissions from the power sector are probably going to go up in the US this year as a result. But it doesn’t change the overall narrative, which is a general shift away from coal. We’ve had a load of retirements over recent years. And in the long run, natural gas is what a lot of producers are switching to. So after a resurgence this year in coal-fired production, we’re probably going to revert to the mean next year and see a continued decline in coal-fired power in the US.

Marc Filippino
Myles McCormick is the FT’s US energy correspondent.

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Royal Dutch Shell yesterday announced it’s moving its tax base from the Netherlands to the UK. Britain was delighted. Its business minister called the move a vote of confidence in the UK economy, but it was an unpleasant shock to the Netherlands, and Dutch officials launched a last-ditch effort to keep the global oil giant at home. To find out why Shell decided to move in the first place, I reached out to our business columnist Helen Thomas.

Helen Thomas
The reason Shell gave for the move was really that this is a simplified structure that gives them more options. That means they can move quicker and be more agile, and there is a lot in that. It makes it, you know, marginally easier and you can argue over how much to do things like M&A or to do restructurings. It makes it easier for them to buy back shares, which is a big reason for holding these oil and gas companies at the moment. It probably gives them some slightly more flexibility around dividends. It will be a lot easier to manage internally as well. But there is this backdrop that Shell about six months ago suffered this real shock defeat in a Dutch court over its plans to cut emissions, and a Dutch court instructed Shell, you know, basically set the company strategy for it and said you need to cut emissions by 45 per cent by 2030. Now, given that backdrop, there will be questions about whether that has accelerated the timing of this. I should say the company is very clear that that hasn’t played a role in the motivation and logic with this move. But there is that backdrop to it, which sort of is leading people to ask questions.

Marc Filippino
Yeah, and we should mention that while all of that was going on recently Shell has been under pressure from an activist investor called Third Point to simplify its structure, and Third Point argues that simplifying will make it easier for the company to pivot towards a greener future. Do you think that’s actually the case?

Helen Thomas
Look, these are companies that are going to have to do an awful lot of change in a ever decreasing amount of time. The pressure on these guys to change both from a legal perspective, in the Shell case, you know, they’ve got these targets to cut their emissions, but also from investors is getting more and more intense. And I think the Third Point proposal that the company be split is one indication of something they might want to consider at some point that this restructuring will make easier. So for Shell, it’s probably all about having different options as they move through this process. And I think this move, if anything, is an acknowledgment that they’re going to have to do a lot more in the next few years around this.

Marc Filippino
Will the move make any difference to the speed at which Shell has to cut emissions?

Helen Thomas
I doubt the move will make a significant difference to what the company said around cutting emissions now. What I think it does do is Shell, and actually other big energy companies, have this balancing act. They’re trying to keep investors onside with cash flows from fossil fuel assets while they desperately try and build a new business that at the moment is pretty small. It absorbs cash rather than generates cash and is pretty unproven in terms of its returns and what they can do with it. Investors in current oil and gas companies aren’t prepared to take that new stuff on faith yet. So these companies are trying to balance the two, and arguably this restructuring gives them a few more options in how they try to manage that process.

Marc Filippino
Let’s talk geography for a second because the UK finally wins one from the Netherlands. They’ve been losing a lot of financial institutions from the city to Amsterdam recently because of Brexit complications. And Britain’s business secretary actually welcome the move as a vote of confidence in the British economy. Is it?

Helen Thomas
I mean, yes, at the margin. But you know, I mean, I think it’s interesting because there is definitely a political question coming up around this sector in that, you know, the UK wants to be a leader in terms of tackling energy transition and getting to net zero. An oilfield called Cambo, which is off the coast of Scotland, is coming up for approval. You know, that is going to be very controversial. Shell has a stake in that field so there are going to be questions that the government is going to have to address around development of new oil and gas that isn’t getting any easier. So there’s a lot of complicated issues coming down the pipe.

Marc Filippino
Helen Thomas is the FT’s business columnist. Thanks, Helen.

Helen Thomas
Thank you.

[CLIP OF OATLY’S 2021 SUPER BOWL AD]

Marc Filippino
And before we go. Do you remember Oatly, the Swedish oat milk company whose CEO starred in this Super Bowl ad?

[CLIP OF OATLY’S 2021 SUPER BOWL AD]

Marc Filippino
Well, investors have soured on the company’s shares, at least for now, sorry for the pun. Oatly’s share price tumbled more than 20 per cent yesterday after the company warned that full-year revenues will be higher than last year, but they’ll still come in short of analysts’ estimates. Oatly is now trading at around $9 a share. That’s about half of what they were when they first hit the stock market back in May.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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