Shell: Focused On Cutting Operating Costs To Pivot To Renewable Energy -- September 21, 2020

Updates

Less than two minutes after posting the original post: this, over on twitter:

Original Post 

A lot of folks are going to be very, very disappointed with the meager returns generated by renewable energy and the absolute need for government support to survive. One can easily infer from the articles being written that legacy companies and upstarts focused on renewable energy will show huge returns by 1Q21 when, in fact, after getting past the headlines and actually reading the articles, one sees this will be a long, difficult slog. 

We won't see returns on investment for years, maybe decades, and when we do, they will be meager.

GM is a great example. In an article linked yesterday, GM said it will take "years" to show a profit in their EV divisions. My hunch: when GM finally shows any profitability in their EV division it will be through creative accounting.

Now, we see Shell suggesting the same. It may all work out, but it certainly has the look of "groupthink." I first heard of "groupthink" maybe thirty years ago while in the USAF. I was taking a strategic planning course, or whatever it was called. At the time "groupthink" was all in vogue; since then, I haven't seen much written about it but it's certainly pervasive. We saw a great video that has stuck with me ever since. See wiki.

Groupthink is a psychological phenomenon that occurs within a group of people in which the desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome. 

Cohesiveness, or the desire for cohesiveness, in a group may produce a tendency among its members to agree at all costs. 

This causes the group to minimize conflict and reach a consensus decision without critical evaluation. 

Groupthink requires individuals to avoid raising controversial issues or alternative solutions, and there is loss of individual creativity, uniqueness and independent thinking. 

The dysfunctional group dynamics of the "ingroup" produces an "illusion of invulnerability" (an inflated certainty that the right decision has been made). Thus the "ingroup" significantly overrates its own abilities in decision-making and significantly underrates the abilities of its opponents (the "outgroup"). 

Furthermore, groupthink can produce dehumanizing actions against the "outgroup". 

Members of a group can often feel peer pressure to "go along with the crowd" in fear of rocking the boat or of what them speaking up will do to the overall to how their teammates perceive them. Group interactions tend to favor, clear and harmonious agreements and it can be a cause for concern when little to no new innovations or arguments for better policies, outcomes and structures are called to question. (McLeod). Groupthink can often be referred to as a group of “yes men” because group activities and group projects in general make it extremely easy to pass on not offering constructive opinions. 

 "Members of a group can often feel peer pressure to "go along with the crowd" in fear of rocking the boat or of what them speaking up will do to the overall to how their teammates perceive them." Worse than that, "rocking the boat" will likely lead one to be fired from the company.

Shell, at the linked article:

Royal Dutch Shell is looking to slash up to 40% off the cost of producing oil and gas in a major drive to save cash so it can overhaul its business and focus more on renewable energy and power markets.

Shell’s new cost-cutting review, known internally as Project Reshape and expected to be completed this year, will affect its three main divisions and any savings will come on top of a $4 billion target set in the wake of the COVID-19 crisis.

Reducing costs is vital for Shell’s plans to move into the power sector and renewables where margins are relatively low. Competition is also likely to intensify with utilities and rival oil firms including BP and Total all battling for market share as economies around the world go green.

Reading the article closely, the only way Shell cuts 40% off the cost of producing oil and gas is by cutting CAPEX.