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Shell Hits Its Own Peak Oil, Plans to Reduce Output

Shell Hits Its Own Peak Oil, Plans to Reduce Output

LONDON— Royal Dutch Shell PLC said it would start reducing oil production, calling an end to a decades-old strategy centered on pumping more hydrocarb

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LONDON— Royal Dutch Shell PLC said it would start reducing oil production, calling an end to a decades-old strategy centered on pumping more hydrocarbons as it and other energy giants seek to capitalize on a shift to low-carbon power.

Shell said Thursday its oil production had already peaked and it expects output to decline 1-2% a year, including from asset sales, reducing its exposure to commodity prices over the longer term. At the same time, the company said it would double the amount of electricity it sells and roll out thousands of new electric-vehicle charging points.

The strategy follows similar plans from rivals BP PLC and Total SE to reduce their dependence on fossil fuels while expanding in renewable power such as wind and solar, partly in response to growth in regulatory and investor pressure.

BP plans to reduce its oil-and-gas output by 40% in the coming decade. Over the same period, Total wants to reduce its sales of oil products such as gasoline and diesel by 30%, while increasing sales of natural gas, electricity and biofuels.

However, the pivot is seen by analysts as challenging because it requires investments in areas where major oil companies don’t necessarily have a competitive advantage and that have lower returns. Renewables projects typically generate returns of around 10%, compared with the traditional 15% targeted on oil-and-gas projects.

This post first appeared on wsj.com

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