London — Royal Dutch Shell is placing a bet on petrol stations and convenience stores in China, India and Mexico as it looks to boost profits in the electric car revolution.
By 2025, the company plans to grow its global network of roadside stations by nearly a quarter to 55,000, targeting 40-million daily customers, Shell said on Wednesday. It will add another 5,000 convenience stores, with growth focused on emerging markets.
Shell, as well as rivals such as BP, sees retail as a way to secure demand for the fuels it refines, as consumption could peak as early as the end of the next decade due to the growth in electric vehicles.
"We plan to be leading through the energy transition," Shell head of downstream John Abbott said.
Already one of the world’s biggest retailers with a well-known brand, Shell expects earnings from its marketing and commercial businesses to grow annually by 7% into 2025, when it will deliver $4bn in earnings.
The company is also rolling out a number of experimental initiatives to introduce electric battery chargers and hydrogen chargers to its traditional petrol stations, hoping to capture some of the growth in the noncombustion engine market.
The fuel marketing sector nevertheless faces a risk of overcrowding as many companies see growth potential there, RBC Capital Markets analyst Biraj Borkhataria said.
"We are more sceptical on Shell’s plans in retail, as the market is fiercely competitive and the threat of EVs [electric vehicles] could put some of that earnings stream at risk."
The company said its downstream business, which includes refining, trading, marketing and chemicals, will generate $6bn-$7bn organic free cash flow per year by 2020 based on a Brent crude oil price of $60 a barrel.
Free cash generation for the group is expected to reach $25bn-$30bn in the same period. Shell delivered $15bn in organic free cash flow in 2017.
By 2025, cash flow from downstream is expected to grow to $9bn-$12bn.
Downstream proved its importance during the oil industry’s downturn since 2014, providing the bulk of Shell’s profits as the price of crude collapsed. The firm has in recent years transformed its downstream business by selling some plants and upgrading others, helping it ride out oil price fluctuations and shifts in demand.
The company is also bracing for a world of "lower for longer" oil prices due to rising oil supplies, particularly from the US.
Shell and others cut tens of thousands of jobs, lowered spending and brought in new technology to simplify field designs and operations. Shell also said it planned to invest $7bn-$9bn a year across the business and deliver a return on average capital employed of more than 15%.