Royal Dutch Shell, the Anglo-Dutch energy giant, said on Wednesday it would lay off up to 9,000 people, as the company faces economic headwinds from the COVID-19 pandemic and as it begins restructuring to hit its goal of net zero emissions by 2050.
“We are doing this because we have to, because it is the right thing to do for the future of the company,” CEO Ben van Beurden said in an interview posted on the company’s website this morning.
The cuts are expected to be finished by 2022, and include 1,500 employees who have already taken volunteer redundancy this year, he said. They do not include jobs that will be lost through asset divestments. The layoffs were expected to contribute to $2.5 billion in cost savings to the company, van Beurden said.
Shell shares were up 0.4% on Tuesday morning, but are down about 56% since the start of the year.
The announcement comes after BP, the British energy major, said this summer it would lay off 10,000 employees, also as part of its own net zero goals. The goal of net zero by 2050 is broadly accepted as the target the world must hit in order to limit rising temperatures under the Paris Agreement.
The two companies chalk up the job cuts as a necessary cost of their larger 2050 net zero ambitions, but investors aren’t fully buying this line of reasoning as the layoffs come amid a deeply punishing year for the oil and gas industry.
Global lockdowns followed by an economic crisis have produced unprecedented drops in energy demand, affecting everything from coal to renewables. When it comes to oil, the International Energy Agency estimates demand will be down 8.4 million barrels compared with last year, a historic drop.
On Tuesday, the Brent crude price was down 1.60% at $40.37 per barrel. While the price has recovered from April’s negative price plunge, per-barrel it is still down about 38% from the start of the year.
On Tuesday, van Beurden also said that the company’s traditional upstream oil and gas business would become more “focused,” and would be run in order to support the bottom line—in other words, to fund the work of transitioning the company away from fossil fuels.
The company also warned of further losses in an update on the third quarter, saying that trading and refining results were both expected to be “significantly lower” than in the second quarter of this year, when Shell’s results were cushioned by higher trading profits. The company also said it expected impairment charges between $1 billion to $1.5 billion in the third quarter, after announcing a $22 billion write-down in June.
The challenges of a new strategy and sinking demand are in fact shared not just by BP and Shell, but by Europe’s largest oil and gas giants. Norway’s Equinor, France’s Total, and Spain’s Repsol have all made similar commitments to hit net zero by 2050, and all over the past year. Shell announced its own target in April, in the midst of global lockdowns.
However, the shift remains largely European, with the U.S.’s largest oil and gas companies, particularly Exxon Mobil, doubling down on oil and gas.
More must-read energy sector coverage from Fortune:
- Europe’s leaders want to create a “new Bauhaus” as part of its Green Deal. But what does that even mean?
- Can emissions cuts and economic growth coexist? Europe is certain they can
- Uncharted Power’s Jessica O. Matthews has a plan to revive America’s crumbling infrastructure
- After the boom: Canada’s oil capital faces an uncertain future
- There’s an ulterior motive to China’s carbon neutral pledge: Cornering the green tech market
