Shell plc (SHEL) Earnings Call Transcript

So ladies and gentlemen, good afternoon. My name is Tjerk Huysinga, I'm the EVP, Investor Relations in Shell. I'm very happy to see you here all at the London Stock Exchange. Welcome. We're also delighted we have around 75 people attending the room virtually. So let me welcome both of you here at our Annual ESG event. So thank you for attending, and thank you for your interest in our company. So before we start, let me briefly outline there are today no fire alarms. And if there is an alarm, we will therefore need to evacuate the building. The way to do so is through the emergency exits located outside of the conference room. And now I'm going to be a bit of a stewardess. So you either go to the right here, and then to the end and there is a green light or you go to the left at the end of the meeting rooms and you'll see these bright green lights. I also like to remind you, take care of each other. So be careful with bags and some people don't stumble over the bags in between here everywhere. It's good practice. You do that here, but you also do it at home, don't leave bags hanging around. So let's now start. We've got a very interesting program for you today. We'll begin with a short presentation by Laszlo Varro. He will talk about the key conclusions from the Shell Energy security scenarios, which we published yesterday. Before his current job, Laszlo has among other things studied at Cambridge. And his last role, he was the Chief Economist of the IEA. He was also part of the core team developing the IEA Net-Zero road map. Secondly, we have Ed Daniels, our Strategy, Sustainability and Corporate Relations Director. He will present the energy transition progress report, covering the progress we as a company have made since 2022. Ed's career in Shell spends roles in the Upstream, Integrated Gas and Downstream, as well as in project technology and he actually brings 30 years of industry knowledge, expertise and executive leadership with the company. After each session, you'll be able to ask questions in the room or type a question if you're participating virtually. Please note that we ask you to indicate your name and the company. And we also kindly remind you to stay on the subject of the session, and that's also relevant for some of our presenters. We may not be able to address all the questions, but my Investor Relations team will aim actually to come back to you and follow up any unanswered questions, either here, we can take it after the event or we will take them, and then we'll call you afterwards. So after these 2 sessions -- that's right. After the 2 sessions, we'll say thank you to the virtual room and we'll introduce a small break for all the attendees here in the room and then we also publish all the materials, which we actually have shown here today on the website. After the break, we'll then have an ESG dialogue between our new CEO, Wael Sawan, and Kamal Ahmed. Kamal is a British journalist. He's currently the Editor-in-Chief of The News Movement. And prior to that, he was the Editorial Director of the BBC News. We will end the program with some refreshments, allowing everyone to provide some feedback, as well as continue the dialogue. One last remark from me here, finding solutions to the challenges of our energy system today requires a lot of collaboration, ongoing dialogue between different stakeholders. Events like today provide us with an opportunity to do just that. We value the direct engagement with our investors, and we recognize that some of you may have different views when it comes to our energy transition strategy and the progress we're making on this front. I hope, however, today gives you a lot of opportunity to ask questions and share your thoughts, as well as listen to our insights. And with that introduction, let me now hand over to Laszlo, he will actually talk about the scenarios. So Laszlo, go ahead.

Thank you very much, Tjerk. Ladies and gentlemen, my name is Laszlo Varro, Shell's VP for Global Business Environment. And I'm going to talk to you about our energy security scenarios. Now I'm not going to read this, but I would like to reflect on what a scenario is and what a scenario is not. So scenarios are not predictions and they should not be used as predictions. In fact, if you are interested in the future, the only thing I can guarantee to you that is going to be different. But scenarios still have value because our scenarios describe possible and plausible future trends, and they can help people making better decisions. This means they can inform and test the robustness of Shell's strategy, but they are very distinct from Shell's business plans. So in short, scenarios are not Shell's strategy. Now we know that what scenarios are not. So let's look at what they are. The 2 energy security scenarios have been heavily influenced by recent world events. The recovery from the COVID-19 pandemic, the Russian invasion of Ukraine, rising energy prices and increasing concerns about energy security and also in the broader context, the impact of Chinese-American relations on the future of globalization. The fact that security is an overarching team. And we identified 2 very different futures, 2 very different words, which have different interpretations of what security actually means. In archipelagos, the interpretation of security is conservative. Countries aim to achieve national securities through self-interest. This is a word that security means sticking to the well-known conventional energy infrastructure producing hydrocarbons domestically and encouraging imports from geopolitical friends. For example, China, rapidly increasing its domestic oil production last year is a signal that points in the direction of such a scenario. Now our second scenario, Sky, takes a different approach. The meaning of security is different. In Sky, society regards the current fossil fuel dominated energy system itself as a security risk, and this is a scenario in which society leans forward and aims to achieve energy security through an accelerated transition of the energy system. And there are signals that point in this direction as well. For example, many countries, very much including China as well, have recently increased their clean energy investment ambitions almost irrespective of the political orientation of the government. So the archipelago scenario extrapolates today's reality and sees what happens. It is an exploratory scenario. Sky starts with the climate targets and it is reversed engineers on how to achieve those targets from where we are in 2022, 2023. And the 2 targets that were incorporated into the Sky scenario are net zero emissions by 2050 and the temperature stabilization at lower than 1.5 degrees above preindustrial levels. So the Sky 2050 scenario aligns with the objectives of the Paris Agreement. But very importantly, it achieves them by leaving room for economic development and prosperity. Now before we look at the similarities between the 2 otherwise different scenarios, I would like to mention one very important aspect of global inequality. Can we move the slide? The energy use currently is not even close to evenly distributed around the world. Today, on the map of Central and West Africa, it's possible to draw a circle which has roughly the same population as the United States, and it consumes as much electricity as the circulation pumps of the American swimming pools. So this is the extent of energy inequality in the global economy today. Discussions about the future of the energy system, very often focused on Europe, the United States and China. And of course, those are crucially important regions which play a major role in shaping the future of the energy system. But the developing world is often overlooked. Even though this will have the biggest impact on energy demand in the future, mainly because the establishment of the modern energy infrastructure in this part of the world. And we already see this unfolding in both scenarios. As of today, the speed of urbanization in Africa is a city of London in every 4 months, which is steel, cement, aluminum, energy-intensive commodities. India has connected all villages to the power grid, but there are 800 million citizens in those villages who are yet to buy their first refrigerator. These countries have the ability to leapfrog, so they can skip of fossil fuel-dominated development pathway altogether, and immediately jump to clean energy solutions. To some extent, this is already happening. So right now, there are around 10 million people every year who get their first electricity without being connected to a conventional power grid from village solar microgrid solutions, fantastic. However, in the same village, the first modern cooking solution is an LPG canister. And what delivers the bottles of LPG to the village is a diesel truck. So in other very important aspects, leapfrogging is not yet happening. So in this sense, the story of our energy scenarios to a large extent is the story of how the continuous growth of the energy system in the developing world is reducing global inequality. Because in both scenarios, nearly half of the total global energy consumption by mid-century comes from developing Asia and Africa. These countries see the fastest growth of energy demand, with rising living standards and also this is the part of the world that global population is projected by -- to increase by around 2.5 billion people. So it is essential that divert find days to enable the development of these countries in a way that keeps emissions down. Now that brings me back to what are the similarities between the scenarios. One, is the rise of electricity, especially the electricity produced by wind and solar. For decades, we have seen the increasing importance of electricity in the energy system. For almost half a century that was quite predictably electricity growing a 2% market share in the energy system every decade. So 20 years ago, electricity was 17% of total energy consumption. 10 years ago, it was 19%, today 21%. Now in every scenario, electricity rose much faster than that, but the speed is different. In the archipelago scenario, the use of electricity advances by 5 percentage points every decade. So it gained 5% market share per decade whereas in Sky, this number is 10 percentage points. In both scenarios, solar becomes the #1 dominant private energy source, but Sky that's there 20 years earlier, around 2045, instead of 2065. The rise of clean electricity and the increase in electricity consumption gets its initial momentum primarily from the electrification of cars. In the Sky scenario by 2050, we have an almost complete transition to better electric vehicles, in all countries by the early 2050s. In archipelagos, this is 20 years delayed, primarily because the developing world continues to use internal combustion engine vehicles longer. But electrification goes beyond passenger vehicles. We also see electrification of trucks in road transport. We also see electrification of home heating by heat pumps and even high-temperature industrial processes. Recently, a pilot project in Finland came to operation, which is using electricity for cement production. The cement industry has been traditionally regarded as the ultimate hard to bid industry, the preserve of coal and gas and even in electricity -- even in the cement industry, electric solutions are emerging. However, electricity is not the answer to all questions. And that brings me to the second similarity. Can we move this side? And that is the rise of low carbon fuels. Some parts of the economy cannot easy [indiscernible] electricity. It would be difficult to see a rocket blasting up to space powered by a battery. But we can also think about aviation, shipping, the production of steel and chemicals. These applications, we continue to need a form of energy that is highly storable, higher energy density and provides a feedstock for chemical processes. In other words, they need hydrocarbons, but without the carbon emissions. Now biofuels achieve that by biological carbon. They will continue to play an important role, but we think that the growth will be faster for hydrogen which we have become a part of a significant proportion of the energy system during the 2030s. Both scenarios have a growth of low carbon fuels, but the speed and the application is somewhat different. In Archipelagos, the growth is biggest in the industry sector, whereas in Sky 2050, in addition to industry, we also see a progressive replacement of oil by low carbon fuels in aviation and shipping. So electricity and low carbon fuels both grew significantly in both scenarios. They replace large quantities of oil and gas, but not all of it. And that brings me to the third similarity between the scenarios. Now the amount of oil and gas investment that is needed during the energy transition is subject to a lively debate. Now the first thing to keep in mind is that oil and gas investment has already been cut down sharply. So the current investment level is around 1/3 below where it was before the Paris agreement. And global oil and gas demand is actually higher than when the Paris agreement was signed. Various independent studies show that the current investment level in oil and gas is broadly in line with the residual demand during the energy transition. And that takes the growth of low carbon solutions into consideration. So in other words, if the industry simply cuts down oil and gas investment, the only thing that we will achieve is even tighter oil and gas markets. Now the 2 scenarios have different parties for oil and gas. Archipelagos sees still a bit of growth in oil demand. Gas demand globally flattens even in the archipelago scenario, but with the need to replace Russian gas and repays domestic depletion, the LNG market continues to grow into the 2030s. And in the Archipelago scenario, once demand starts to fall, the decline is relatively slow and gradual. Given the depletion of the current production, the demand trajectory of the Archipelago scenario would require at a global level and increase from the current upstream investment. Now Sky, which is an energy transition scenario has a much more pronounced demand decline. In Sky from the early 2030s in every single year, global oil demand declined by more than the demand decline that we observed during the 2009 financial crisis. However, even having a 2009 every single year is actually less than the geological depletion of existing production, if we just simply stop investing. So even in this fast falling demand, investment in oil and gas would still be necessary to keep the world economy running. In the Sky scenario, we took radical projections on wind, solar, and electric cars. There is no dispute about it. However, compared to some other pathways, the Sky scenario is more cautious about voluntary consumer behavioral change. So people stopping using their cars, and also more cautious on biofuels and some of the highly capital-intensive technologies like hydropower. So 2 more things to keep in mind about the decline of fossil fuels. So the first that the remaining oil and gas demand mid-century is not necessarily supplied evenly from countries which have oil and gas reserves. Political conditions, policy decisions have a major impact on supply and consequently also the investment did elsewhere. Some countries are more attractive for oil and gas investment than others. The resources, which can be produced at a low cost with a low carbon intensity, and with a consistent policy support, we have the advantage. Brazil, other countries, the reserves could very well stay on their ground forever. And that is the second point to make that investments in new oil and gas reserves in our scenarios will continue to be needed. So demand for oil and gas is not going to stay stagnant. But even in this sky scenario, which sees a significant and fast drop in worldwide oil and gas demand, with a much higher investment level in clean energy than what we observe today. There is a need to maintain investment in oil and gas fields to maintain the reliable and affordable energy supply as the world negotiates the energy transition. Now the overall headline from these 2 scenarios is rather positive. The world is heading towards net zero emissions, but there's a big question of the speed that we get there. Sky 2050 is get there mid-century because this is how we mathematically design the scenario. And Archipelagos gets there after the end of the century. Now -- but believe that headline, there are some huge challenges, but also some reassuring signs. So start with the reassuring signs first. The climate science deviate up until recently was considering 3, 4 degrees genuine disaster scenarios, divert no longer appears to be on that course even under the conservative assumptions of the Archipelago scenario. However, given the exceptional tightness of the global carbon budget, even in the Sky 2050 scenario, the temperature increase for temporarily overshoots the 1.5-degree target. So consequently Sky is a scenario which spends some time above 1.5 mid-century. And then -- and then moves back to below 1.5 through carbon remover. So this means that the world will need to remove carbon dioxide from the atmosphere. And that can be done by storing carbon dioxide in the land. So these are the nature-based solutions, stopping deforestation, [Indiscernible] forest, and protecting nature and modernizing agriculture. Moreover, in the Sky scenario, the direct air capture technology, which is right now moving from the laboratory to venture capital is emerging as a multibillion-dollar new industry. Now that was a lot of information for you to take in, and I'm sure that we will have a lovely discussion. But let me just reiterate with 3 important takeaways. One, is that in both scenarios, the various parts of the globe have different regional responses to the energy system. Countries try to find their own way. But overall, the path towards unbalanced energy transition lies open. Second, both scenarios see rising importance of electricity and also a significant growth of hydrogen and low carbon fuels. And third, even though oil and gas eventually declines in both scenarios, they remain crucial for the world economy and investments in field development continue to be necessary. And now let me move to the Q&A, and I'm happy to pass the floor for you. Thank you.

So we're going to start with Q&A. We're going to start here, and then we're going to try to go online, and we have about 10 minutes. So let's start with Martijn.

Right. I will ask 2 questions. Okay. It's Martijn Rats from Morgan Stanley. I wanted to ask 2 questions. The one builds on the comment on direct air capture that you just mentioned. As in -- I read your scenarios this morning, and I noticed that in 1 of the 2 scenarios, direct air capture becomes the third largest energy consuming sector, more than buildings, more than transport, it becomes enormous in its own energy consumption in its own right. And I was wondering if you could say a few more things about that? The other one, and I find it relatively encouraging to see a slide on synthetic fuels, which I know that some of your colleagues have been very involved in, but I've often felt that it never quite got the attention in the Shell presentation that it perhaps deserves. In the past, often, there was a number of about $800 a barrel associated with synthetic fuels. And I was wondering if that number had come down and whether for synthetic fuels, there is a trajectory towards price per barrel that is more in the realm of the prices that were used to?

Sure. So the 2 questions are nicely connected. So first on direct air capture. So the scientific base of the technology is well understood. And in fact, direct air capture has been applied for decades in nuclear submarines, but it is used to keep the air breathable in the submarine. So even the basic engineering is applied. Now of course, in a military submarine, the cost, the energy efficiency of the process is not a primary consideration for the Navy. So that technology has to improve in energy efficiency, and it also as to the capital costs have to come down. And this is something which -- on which innovation is ongoing. It is also true that when you try to capture that 400 parts per million carbon in the air, the laws of thermodynamics tells you that, that will always be an energy-intensive process even after all the innovation. So consequently, there is a very significant energy input to director capture, but a very promising innovation area is low temperature direct air capture processes, which can use waste heat. Because all across the energy system, there is a lot of waste heat in energy facilities and industrial opacities. And very often, the problem is how to get rid of them. Now on synthetic fuels, we don't see a meaningful role for synthetic fuel in road transport. So cars go electric, full stop. Trucks, 2 set electric, 1 set hydrogen with biofuels playing a [Indiscernible] role. Synthetic fuel, the great advantage is that they provide the material, which can be used in existing aircraft and existing ships without any modification. So this is where probably they have a future. And there, the energy intensity of the process is very significant because you start with electricity to produce green hydrogen. So the rule of thumb is that 1 barrels per day synthetic fuel capacity is 4 football fields of solar panels. So essentially to reduce the cost, you need massive amounts of dirt-cheap renewable electricity. So we are talking about Namibia, Oman, Western Australia. The places where there is land, there is sunshine, there is wind. And also, if you can utilize already existing assets that also massively improves the cost efficiency.

All right. Let's go to Amy, and then we can go -- go ahead.

It's Amy Wong from Credit Suisse. I'd like to pick up on your comments about leapfrogging and to some degree, dispatchable energy is what you're referring to. And while you say it's probably more for emerging markets, I would argue, I make the observation that even for some developed markets, the amount of investment you have to put in transmission and distribution to upgrade them, you may as well also use some dispatchable energy. So in that scenario, what is the role of big energy, big generation as the world is going towards dispatchable energy.

Sure. So we definitely see a very important decentralization of consumer relationships, contractual structures and the provision of flexibility. So our energy system where flexibility is provided by 10 gas turbines, it's very different from an energy system where flexibility is provided by million parking electric cars. So advanced digitization unlocks these new flexibility sources. However, for the production of primary energy, we see a massive role of large-scale facilities because of the shared quantities that will be needed. So take the European example, Europe has roughly 100 million family homes, which are suitable for a solar panel. By all means, let's put a solar panel on top of each and every one of them. That will be around 600 terawatt hours. And the various transition models estimate that Europe will need around 5,000 to 6,000 terawatt hours in a 0 carbon electrified energy system, which means that after you get 600 from the rooftops, you still need massive scale deployment of offshore wind and also deployment of nuclear in countries that is an acceptable option.

All right. I think I have a question now online, and then I'll go back into the room. So Alex Cosan from Kendrion is asking the following question, Laszlo. Can you explain to what extent your Sky scenario aligns or difference from the IEA net zero scenario as the IEA scenario is based on both economic and technologies considerations to have the most relevant decarbonization trajectory. Can you explain if your Sky scenario is different and to what extent you're different, including technologies and/or economic factors in your modeling, a long question with no stops. So yes, so apologies for me, but you know the drill.

I spent half of my life working on the IEA net zero road map, and it's a brilliant piece of work, and I'm very proud of that. Now one thing to keep in mind is that any 1.5 climate stabilization scenario has to be challenging, because it's a daunting task. It's a daunting task and any 1.5 scenario has to rely on assumptions which are outside of comfort zone. Now Sky and the IEA net zero have nearly identical assumptions on the role of on the role of electrification, so in terms of electric cars, wind, solar. There in this sky scenario, we were more cautious about voluntary consumer behavioral change, basically, shall serving around 50 million consumers every day, and the used pipe advance data analytics of analyzing how consumer behave in real life. And also compared to the IEA energy road map, we allowed more cautious assumptions on the ramp-up of hydropower and the ramp-up of biofuels because in both technologies, we see obstacles. Now at the same time, the Sky scenarios, assumptions on carbon removal are more challenging than the IEA net zero roadmap. So I would be very hesitant to say that one of them is right and one of them is wrong. It is or basically somewhat different ways of looking at the world, but the core solution space, energy efficiency being solar electrification is identical.

Correct. We're going to do one more here in the room, and then we're going to go -- Maurizio.

Thank you very much. It's Maurizio Carulli from Carbon Tracker. Two questions, if I may. The first one is on biofuels. Can you give us a sense of the difference of combusting of the emissions once the biofuels combusted with respect to the normal fuel? So for example, how less CO2 would be emitted combusting sustainable aviation fuel versus the traditional kerosene, for example? Or biodiesel versus normal diesel? So this is the first question. The second question is a bit more technical one, but I hope you can help a bit. On the capture or removal of CO2, i.e., the CCS and the DAC, there is broad -- I would say, scientific converging about the fact that not emitting or capturing CO2 emissions has a positive effect on the climate. I mean, reducing the progressive global warming. But at least, I'm not a scientist, but for the little that I've read, there isn't so much widespread information of conclusion of such scientific level about the effect that removing emissions that are already there in the atmosphere for example via DAC has actually a positive effect on to the global warming. Since Shell has a number of scientists, can you share with us a bit to their point of view on the subject?

Long question, short answer. So first, biofuel -- legally speaking, the greenhouse gas protocol regards biofuel as zero carbon because theoretically, the carbon is removed by the plants through photosynthesis, which is then burnt. In real life, there are very legitimate concerns about the sustainability of bioenergy use. And that basically -- that basically gives you 2 insights for a bioenergy strategy. One that a bioenergy strategy has to very strongly focus on innovation and using advanced technologies, which enables to use sustainable waste based feedstocks. And the second is that the limited bioenergy resource should be concentrated in applications, but it is generally mission critical. This is like shipping and aviation. For the second question, it is right there is a scientific uncertainty over -- whether over what happen -- what happens exactly when you remove carbon after an over shoot unavoidably because nobody has tried it before. Now it is perfectly right that the best thing is not to emit the carbon dioxide at all. So the innovation and investment work on carbon removal is not a substitute for Air Force to deploy clean energy and reduce emissions, it's a complement. Because the already existing capital stock in the global economy is already 1.6. Consequently, if we don't do anything else, carbon removal will have to be applied to deal with the existing capital stock.

All right. We're going to stop it here. So thank you very much. I know it's all a bit fast, but we have a very fast schedule here, and we will have lots of moments to ask questions later. So Laszlo, thanks a lot. We now go to the second section, and we move our focus on the energy transition progress report. Thank you. And Ed will talk to us about the progress we've made in 2022, all our targets to become a net zero energy business by 2050. So welcome. You're already on the stage.

Thank you, Tjerk. Well, here I am, indeed. It's great to see a number of you online, indeed, and welcome to you. And of course, really great to see people in 3D for a change here in the room. This is the second year that we've published the energy transition progress report. It measures the progress we've made in 2022 against our target of becoming a net zero emissions energy business by 2050, and we set that target back in 2021 as part of our energy transition strategy. And the results for 2022 are good. The advisory vote at the '23 Annual General Meeting will be about this progress. Before I go any further, I want to say one thing about strategy. Many people have asked us if we're going to change it? Let me be really clear with all of you here and today, there is no change to our target of becoming a net zero emissions energy business by 2050, and we also continue to believe that our targets are Paris aligned. So with that, let me tell you a little bit more about the progress that we've made in 2022. We reduced our Scope 1 and 2 emissions, the emissions that we emit from our own operations by 30% at the end of 2022 compared with 2016 on a net basis and that's more than halfway to the target that we've set ourselves of 50% by 2030. And then also, at the end of '22, the net carbon intensity of the energy products we sold had fallen by 3.8% compared to 2016, which is well within the 3% to 4% target that we set ourselves and is consistent with the goals of the Paris Agreement. Our analysis using data from the IEA, the International Energy Agency shows that the net carbon intensity of the global energy system fell about 2% around the same time. I'll talk more about carbon intensity, but in a moment, but overall, we've met our emissions target for a second year running. So building on '21, we've added another year of strong progress in '22, but there's a bit more to it than just the numbers. In our last report, which we looked at our progress from '21, investors you told us in detail what they thought of it. And the vast majority of you supported it. 80% of shareholders have voted welcomed the progress we have made, but others indeed had concerns. So we listened to those, and we found basically 3 big questions addressed to us. Number 1, should Shell invest more in renewables? Number 2, is Shell's strategy in line with the Paris Climate Agreement? And number 3, why doesn't Shell strategy include an absolute Scope 3 target? So today, I'd like to take those questions head on and reinforce why we believe we have the right strategy. To answer the first question on capital allocation. I think it's important to look at the events of the past year, and Laszlo touched on many of these in his remarks. 2022 showed us just how finely balanced the energy system is between supply and demand. The war in Ukraine disrupted the world energy system, and we saw what can happen when that balance is upset. In the 8 months following the Ukraine invasion by Russia, Russia cut gas exports to Europe by around 80%. Gas became harder to get hold of and gas prices went up. So what's the result? Some countries in Southeast Asia and in Europe, in fact, turn to coal as the energy source and coal consumption hit a record high in 2022. On average, as I'm sure you all know, coal emits about 50% more carbon emissions than gas when producing electricity and about 1/3 more when producing heat. So more coal instead of gas means more carbon emissions. It's also important to realize that global available gas dropped by about 2.5% since the Russia-Ukraine war. So just imagine replacing not just that 2.5%, but almost all of the world's current supplier of energy. And you get a sense of how hard it will be to get to a world of net zero emissions, the world that we've described to you in some of our scenarios. Indeed, the world increasingly needs low carbon energy to tackle climate change and air pollution. And people also need a secure supply of energy and an affordable supply of energy and the many social and economic benefits that come from that. Enabling the supply of this energy requires huge investments, both in oil and gas and in low carbon energy. And last year, we invested in both which brings me back to capital allocation. We're one of the biggest investors in the world in low-carbon energy solutions. In 2022, we invested $8.2 billion in low-carbon energy and non-energy products, around 1/3 of our total cash capital expenditure of $25 billion. Of that, we invested about $4.3 billion in low-carbon energy solutions. And this includes significant investments in solar, in wind, in biofuels, in hydrogen and charging for electric vehicles, EVs. Our single biggest investment was the $1.6 billion acquisition of Spring Energy in India, a solar and wind platform. It added about 2.3 gigawatts of renewable generation capacity with the potential to add 7.5% more in the future. And not included in '22 because we only just completed the transaction was the $2 billion purchase of Nature Energy which makes us the largest producer of renewable natural gas in Europe. The remaining $3.9 billion was invested in nonenergy products such as chemicals, lubricants and convenience retailing. And the remaining 2/3 of our capital in '22 was spent on sustaining and maintaining supplies of oil and gas that the world needs today for a safe, secure energy system. These investments are necessary. And like Laszlo pointed out in discussing our energy security scenario, continued investments in oil and gas are needed because of natural production decline up to 15% in some cases and the continued demand the world has for quite a long time to come, as you saw from the scenario. That brings me to the second question that investors pose to us about our progress. Are we aligned with the Paris Agreement? We believe that we are. I have to point out that there is no established and agreed standard measure as to whether carbon reduction targets or supply of energy are aligned with the temperature limit goals of the Paris Climate Agreement. In absence of such a broadly accepted standard, and we wish there was one, we have developed our own approach at Shell for demonstrating Paris alignment by setting a carbon intensity target within a pathway derived from the 1.5-degree scenario from the Intergovernmental Panel on Climate Change, the IPCC. Our target is to reduce the net carbon intensity of energy products we sell by 20% by 2030 and by 45% by 2035 and by 100% by 2050, covering scope 1, 2 and 3 emissions. And as I've already said, Shell has reduced the net carbon intensity of the energy products it sells by 3.8% since 2016. So yes, we believe that this target is aligned with the Paris Agreement and that brings me to the last question. Why don't we include absolute Scope 3 targets? Our Scope 3 emissions are dependent on customers and how they use the energy products we sell. So it's depending on demand as well as supply. We don't control customer emissions. With these emissions, which we report as Scope 3 emissions, can go down in 2 ways. First, we stopped selling products to our customers, which is not strategy, but corporate self-harming or corporate self-destruction. Secondly, if our customers increasingly buy energy products with lower emissions, that's probably the right way of going about that. That is what is a central part of our strategy, to sell more energy products with low carbon emissions to help both Shell and our customers meet their climate targets. Think of things like biofuels and EV charging, both of which are 2 important growth areas for us. I already told you about our net carbon intensity. We've reduced the net carbon intensity of our energy products faster than compared with the global energy system. And these net intensity targets fit alongside our overall target of becoming a net zero emissions energy business by 2050. Achieving net zero emissions by 2050 is the same as achieving 100% reduction in net carbon intensity. This is why we focus so much on working with our customers, and this is where we can make a real difference to Scope 3 emissions, while remaining financially strong. We believe our net carbon intensity target is the best way to measure and transform how we are changing the product mix to help our customers decarbonize sector by sector. So what does this all tell us? This report shows and then let me underline this, that our plans are in the interest of the planet of our customers and of our shareholders. We're determined to achieve our target to be a net zero emissions business by 2050, and we're equally determined to do this in a profitable way. We believe we've got the right strategy to do that. And that brings me to the follow this resolution because I'm afraid their resolution will slow our progress and not support it. We believe it to be bad for the energy transition and bad for our shareholders. Let me start with -- follow this resolution in this way. They call for an absolute Scope 3 emission target for 2030. This does not help the climate. In fact, it threatens the energy balance. As I pointed out, the world's energy systems become so reliant on fossil fuels, it can't untangle itself overnight. If we're forced to cut our supply to meet the follow this resolution without a reduction in demand, such fundamental change in demand or readily available affordable alternatives for oil and gas, our customers will simply buy their energy from other suppliers and total worldwide emissions would not go down. The world needs a combination of solar, wind, biofuels and hydrogen, for example, to gradually replace oil and gas and of course, the capital stock that can use and consume those forms of energy. We want to continue to provide the energy the world needs today while working with customers and governments to change the way energy is consumed tomorrow. We support a balanced change. Our strategy is evenly paced, so it helps the transition to happen in a balanced way. Moving at the wrong pace could add more shocks to a finally balanced system, which will be bad for the energy transition as we saw in the gas supply/demand balance in 2022, where an affordable energy resource was removed too suddenly, prompting a switch back to coal in some parts of the world. Secondly, to follow this resolution does not allow us to help our customers because it doesn't have a way to deal with the sectors that can't move as quickly as others. Take air travel as the example. Planes that have been built now will still be in use for decades yet to come. Technology and fuel supplies will take time to catch up. As many of you know already, in the Netherlands, Shell is building one of Europe's biggest biofuels facilities. When we built it, the facility will be among the largest in Europe to produce renewable diesel and sustainable aviation fuel. But many more biofuels facilities at this size will be needed and building them will just take time. Our experience in working with industries like aviation, means that we understand the challenges, the obstacles they face and are best placed to overcome with meaningful solutions to overcome. In this resolution, Follow This does not factor in the specific complications that we see sector by sector across the world. Beyond not helping the climate and not helping our customers, Follow This resolution is also against good governance. Because despite its aims, it is unclear, it is generic and will result in confusion in our company. And the resolution is unhelpful in another important way. It does not help our shareholders. To be successful, we must provide the energy the world needs now and in the future, purposefully and profitably. And our success has to have a real and positive impact on the energy transition. Our strategy aims just to do that. So to sum up, to Follow This resolution is unhelpful for the climate. It's unhelpful for our customers, it's unhelpful in the stage of good governance, and it is against the interest of our shareholders. At Shell, we're more than 2 years into a strategy that we consider to be comprehensive, flexible, which now has been tested through some of the toughest years many of the industry have lived through. Follow This hasn't got a viable alternative for us to follow. Shell has set ambitious targets that we believe are in line with the 1.5 degree goal of the Paris Agreement. Our strategy supports a balanced energy transition while accelerating the shift to low and zero carbon energy. So during the AGM, we ask you to support us in the progress that we've made in the last 12 months and not to vote for changing our strategy and pursuing misguided unrealistic targets for our company, which Follow This has suggested. I very much hope we can count on your support as we go forward. Thank you very much indeed for your attention in my formal remarks. I think we now step into a time when we can jump into some Q&A.

So we're going to go to Q&A right now, and then we're going to take it from -- why don't you start? Yes?

Andres van der Linden, PGGM Investments. My congratulations on reaching 30% already for Scope 1 and 2. I guess my question is a simple one. Why not hit your target earlier? What stands in the way of achieving the Scope 1 and 2 target? Before...

I mean it's not trivial. I mean there are sort of real investments that we've got to make to electrify some of activities. There's contracts you need to renegotiate to buy clean electricity. There's assets that we need to physically build in order to do that. So it's not that we're sort of sitting on our laurels waiting for 2030 to come around and then suddenly drawing a big switch. This is a long-term plan -- has been a 10-year plan in the making. I think we've got all of the milestones in place. We're very excited that we can actually show you a plan for 2030 of 50%, but I think acceleration would be -- I think, would be counterproductive.

So a quick follow-up. How much does your Scope 1 and 2 target rely on divestments going forward?

I mean going forward, relatively limited. I mean, I think there are divestments in what we've got to thus far. But I think going forward, it does have some, but it has much to do with genuine investments and genuine choices that we make in decarbonizing our activities.

All right. Let's go here to Lydia and then we go back into the room there. Maybe you can -- first pass here to Lydia and then we go there.

Lydia at the front. You can't miss out Lydia.

It's Lydia Rainforth from Barclays. And so can I just ask you about the concept of Scope 4 emissions or avoided emissions and what you think about that? And as you have a lot more questions, but I'll leave it at that one.

Yes. So I mean, I think a number of companies have got at this. And so I kind of alluded to it in the remarks of saying, well, look, if you invest in LNG and you supply it and then you displace coal, that Scope 4, I think the struggles with a number of external commentators and even coping with some of our Scope 3 methodology is so hard, I think it is very difficult. But I do genuinely believe we need to talk more loudly about the avoided emissions that we're providing because I think it's very real. It's very, very real that we are supplying LNG to the world that is displacing coal, which is making the world a better place. Even if we don't get it into the greenhouse gas sort of protocols or into the science based targets initiatives, I'd really like to see that a much more loud conversation in the world.