Selling its European electricity retail businesses seriously hurts Shell’s long-term strategic options

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After a strategic review that began in January 2023, Shell announced last week that it plans to exit its energy retail businesses in the U.K., Germany, and the Netherlands due to “tough market conditions” and “poor returns.” In the past, we have seen multiple oil and gas majors show their decarbonization commitments by making small changes, like changing their names (e.g., Statoil to EquinorTotal to TotalEnergies) or with big strategic changes, like transforming into a chemicals, carbon-removal, or utility company. So far, Shell was actively pursuing the latter, aiming to establish itself as a major player in the utility sector.

The move comes as a surprise considering how much Shell invested in the past few years to get into the space in the first place. Back in 2018, Shell finalized the acquisition of British electricity and gas supplier First Utility, which went through a rebrand and customer service portfolio upgrades that resulted in the launch of Shell Energy as an electricity retailer in the U.K. in 2019. The acquisition also gave Shell the opportunity to launch its residential electricity retail business in Germany, where First Utility had a subsidiary. First Utility in Germany became Shell PrivatEnergie in 2019 and later in 2020 the retailer became Shell Energy. Also in 2019, Shell was looking to acquire Dutch utility Eneco but lost the bid against Mitsubishi Corporation. However, this didn’t discourage the oil and gas giant, which became an electricity and gas supplier for the residential market in the Netherlands after receiving regulatory approval.

In addition to building a retail business in Europe, Shell has looked at other geographies as well. In the U.S., Shell acquired MP2 Energy, a Texas-based residential and commercial electricity retailer and energy management service provider, and later, it went on to acquire Inspire Energy, a renewable electricity retailer with around 235,000 residential customers in various states. Furthermore, in Australia, Shell acquired ERM Power, a provider of gas-powered electricity generation, trading, retailing, and energy management solutions for commercial and industrial customers, and, most recently, it acquired Powershop, an online electricity retailer, which became part of Shell Energy Australia.

The above helps paint the picture of how Shell was putting all the pieces together to become a one-stop shop for residential energy services, by offering 100% renewable electricity, smart home solutions, residential energy storage, and mobility services (including electric vehicle [EV] charging solutions). While Shell’s decision to exit the residential retail market applies only to its businesses in Europe and not in Australia or the U.S., we can’t help but conclude that Shell is taking a step back on and rethinking its strategy to become a broader energy company, which so far included expanding beyond its traditional oil and gas business into renewable power generation and providing services to electricity consumers.

This move will also harm Shell’s ability to capture a big portion of the growing electric mobility market. Traditionally, oil and gas companies have been responsible for fueling mobility, but with electrification of the sector, electric utilities will play a major role. While oil and gas majors build fast-charging stations to support the transition and keep servicing the sector, this infrastructure won’t see the same utilization as traditional fueling stations. Unlike internal combustion engine vehicles, EVs can be “fueled” in various locations, and a large portion of these EV charging events will happen at home or at commercial buildings. By leaving the European electricity retail market, Shell is also giving up the opportunity to keep a significant market share in mobility.

In terms of the Lux Research Net-Zero Strategy Framework for oil and gas companies, Shell’s move presents a pivot away from a utility strategy and a much-increased emphasis on status quo and sequestration strategies. While more profitable now, that is a very narrow path in the long run.

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