Shell’s decision to withdraw its investments from Pakistan was a bombshell for many Pakistanis. Since Shell began operations in the subcontinent in 1903, hardly any other petroleum company has had a greater impact on the region’s economy by establishing a market for fossil fuels. During the 1950s, when advertising was limited to radio and the company was known as Burmah Shell, the company popularized the use of kerosene oil by employing revered vocalists like Mohammed Rafi. Its pioneering role was seen to diminish, however, as it failed to seize opportunities to aid the host nation’s transition to renewable energy or net zero emissions.
At least three broad, intertwined motivations can be discerned:
a) operating in Pakistan’s difficult operating environment,
b) internal corporate dynamics to address historical baggage by initiating disinvestments from various business lines and countries,
c) global pressure to reinvent by diversifying its portfolio.
Let’s examine these interconnected issues one by one.
A Challenging Business
Shell’s primary activity in Pakistan has primarily been downstream, including retail marketing, lubricants, and aviation. The company is selling its 77 percent stake in Pak-Arab Pipeline Co. along with its 26 percent ownership stake. It is believed to have planned its departure from Pakistan for years. However, the timing of this announcement raises concerns about the economic stability of the nation. It is also a reflection of Pakistan’s economic crisis and the unannounced prohibition on profit repatriation due to a severe lack of foreign exchange reserves. The exit could have reverberating effects on the economy, including the loss of jobs and foreign investment.
Let’s not solely blame market distortions in Pakistan for the multinational’s exit. Despite a $40 billion windfall from the Ukrainian conflict, the company is currently divesting from a number of other countries, including Russia, Nigeria, and its downstream operations in Australia and Brazil.
Shell’s departure could have repercussions on Pakistan’s economy.
Historical Weight
Shell was possibly the first major oil corporation in the world to begin researching climate change in the 1970s, but its findings should have been readily available to stakeholders and the general public, according to observations. A 1986 internal report on the Greenhouse Effect warned of climate impacts “greater than any in the past 12,000 years.” In 1988, Shell predicted that carbon dioxide could double by 2030. The internal report acknowledged that the carbon dioxide concentration was primarily due to the burning of fossil fuels and deforestation, a conclusion that the Intergovernmental Panel on Climate Change arrived in its third assessment report published in 2001, more than a decade later.
According to a US congressional investigation, it appears that the fossil fuel industry, including major oil and gas companies such as Shell, was unwilling to share what it knew about climate change while promoting the use of fossil fuels. In addition, the industry was accused of deceiving the public by supporting climate-denialist organizations such as the American Legislative Exchange Council and the American Petroleum Institute. According to a media report, the fossil fuel industry “perpetrated a multi-decade disinformation, propaganda, and lobbying campaign to delay climate action by confusing the public and policymakers about the climate crisis and its solutions”. The global climate agenda became divisive and collective global action lost several years.
Internal Forces
A Dutch court declared in 2021 that Shell must reduce its carbon emissions by 45 percent by 2030. It was a significant case because it was “the first decision requiring a company to reduce its emissions in accordance with the Paris Agreement.” Friends of the Earth and other plaintiffs argued that the company’s carbon reduction goal was insufficiently ambitious, posing a danger to the environment. Even though the business has filed an appeal against the verdict, it has acknowledged its responsibility to reduce emissions.
In 2001, it avoided court proceedings in Pakistan by withdrawing from a proposed joint venture for oil and gas exploration in Kirthar National Park.
It is under pressure to invest more in renewable energy due to the amount of carbon dioxide emitted by its operations; in fact, it is in the midst of its largest overhaul to date. Rapid adoption of electric vehicles, long-lasting batteries, and other technological advancements threaten downstream and retail businesses. It is now preparing to expand its businesses with minimal or no carbon emissions. As in Pakistan, disinvestments are likely part of the plan.
Moving Ahead
Shell’s strategy for reducing its carbon footprint involves expanding its low-carbon enterprises, including solar and wind energy, biofuels, hydrogen, carbon capture and storage, and nature-based offsets. They all reduce Shell’s reliance on fossil fuels, the foundation of its business. In accordance with its Nationally Determined Contributions (NDC) and national energy policies, Pakistan is actively pursuing investment in precisely these sectors. However, as two sides of the same coin, Pakistan was unable to convince Shell to invest here, and Shell has not deemed Pakistan’s market to be mature or large enough to warrant investments in these sectors. Shell must have analyzed investment opportunities in sectors of relevance to the company, including aviation, shipping, road freight, and industry. Clearly, it has not taken Pakistan’s investment requirements for climate-smart development seriously.
Its recent investments in renewable energy include expansion to create substantially large-scale low-carbon enterprises. In 2022, for instance, it invested $1.6 billion in the Sprng Energy platform, a renewable energy developer in India. The transaction will triple its present renewable energy capacity. In contrast, Pakistan’s ambitions were limited to a demonstration project with Reon Energy to solarize a handful of gas stations in Karachi. Does Pakistan have an NDC investment plan that offers long-term upstream investment opportunities for downstream energy players? Or will we release them one at a time?
