New Shell CEO Faces Big Dilemma: Should the Company Pump More Oil?

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Wael Sawan knows he is about to make some people very unhappy.

The new chief executive of Shell is in the midst of crafting his business plan for the London-based energy giant, including whether to increase oil production. Doing so would please many investors looking to build on last year’s oil-and-gas bonanza, which produced record annual earnings for Shell.

But it almost certainly would generate howls of protest from environmentalists and other critics, including investors who want Shell to tackle climate-related goals more aggressively. Those investors argue a continued focus on fossil fuels endangers Shell’s long-term prospects in a changing world.

Mr. Sawan says he is committed to lowering the company’s emissions and helping develop a new generation of clean-energy sources. But that is not where the bulk of profits are right now.

“I fundamentally believe in the role of oil and gas for a long, long time to come,” he said in a recent interview with The Wall Street Journal.

What’s more, he said, he doesn’t believe renewable- and low-carbon energy projects should be subsidized by Shell’s fossil-fuel profits, but should deliver returns that merit continued investment on their own. “We’re definitely taking a hard look at the portfolio,” Mr. Sawan said.

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Finding the balance between fossil fuels and lower-carbon alternatives is a big challenge facing the CEOs of the biggest energy companies.

The task is particularly acute for Mr. Sawan and Shell, Europe’s biggest energy company, which moved to the U.K. after a Dutch court ruled in 2021 that it was partially responsible for climate change and must reduce its carbon emissions. Shell is appealing the ruling, arguing that it is being unreasonably singled out.

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Less than a year ago, Shell’s annual shareholder meeting in London was delayed by almost three hours by climate activists attending as shareholders, who glued themselves to chairs and chanted against the company’s continued spending on fossil fuels.

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Shell said two years ago it plans to end all new frontier exploration by the end of 2025, giving the company a finite window to search for virgin reservoirs of oil and gas where it isn’t already operating.

Dwindling options for limiting global warming call for a massive and rapid shift away from fossil fuels, the United Nations Intergovernmental Panel on Climate Change said in a report last week.

At the same time, oil demand is continuing to rise, and investors in global oil giants have rewarded companies—including U.S. giants Exxon Mobil Corp. and Chevron Corp.—for sticking with traditional fossil-fuel production.

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