By Ron Bousso
LONDON (Reuters) - A Dutch court ruling ordering Royal Dutch Shell (LON:RDSa) to speed up its plans to cut greenhouse gas emissions could lead to a 12% decline in the company's energy output, including a sharp drop in oil and gas sales, analysts said on Thursday.
Shell said it was disappointed with the landmark ruling by a district court in The Hague on Wednesday which it plans to appeal.
Shell and several of its rivals including BP (LON:BP) and Total have set out plans to sharply reduce emissions by 2050, but have faced growing pressure from investors to do more to meet U.N.-backed targets to limit global warming.
The Anglo-Dutch company earlier this year outlined plans to become a net zero carbon emissions company by 2050, setting short and medium-term targets to reduce the carbon intensity of its operations to get there.
Intensity-based targets measure the amount of greenhouse gas emissions per unit of energy produced. That means that absolute emissions can rise as long as low-carbon production grows together with other offsetting measure.
The court ordered Shell to reduce its absolute emissions by 45% between 2019 and 2030, a significantly larger commitment that Shell's plans to reduce the intensity of its products by 20% between 2016 and 2030.
Graphic - Shell's emissions: https://graphics.reuters.com/SHELL-EMISSIONS/dgkvloraqpb/chart.png
Shell had previously rejected calls for it to set absolute emissions reduction targets.
"Reducing absolute emissions at this point in time is predominantly possible by shrinking the business," CEO Ben van Beurden said at the annual general meeting this month.
A 45% reduction in absolute emissions would imply a 45% drop in oil sales, a decline in natural gas sales and a much larger increase in carbon offsets such as forestation and carbon capture and storage technologies, according to a Credit Suisse (SIX:CSGN) analysis.
Such a scenario would shrink the size of Shell's business to around 18.8 exajoules (ej) of energy output, down from 21.3 ej today, roughly a 12% decline. Under Shell's current plan, its energy output would grow to 25.8 ej by 2030, according to Credit Suisse.
Shell's current plan will see its oil output decline by 1% to 2% per year after peaking in 2019. The company said it plans to continue exploring for new oil and gas resources until 2025.
Graphic - Shrinking business: https://graphics.reuters.com/SHELL-BUSINESS/yzdpxzljwpx/chart.png
Analysts at Royal Bank of Canada estimated that a 45% cut in absolute emissions would lead to a 30% drop in oil products sales compared with 2020 and a 3% drop in oil and gas production.