SHELL LNG OUTLOOK 2019
OLGA BORODINA, VICE PRESIDENT SHELL SAKHALIN
Royal Dutch Shell S H ELL LN G O U TLO O K 2 0 1 9 Cautionary Note
The compa nies in which Roya l Dutch Shell plc directly a nd indirectly owns investments a re sepa ra te lega l entities. In this presenta tion “Shell”, “Shell group” a nd “Roya l Dutch Shell” a re sometimes used for convenience where references a re ma de to Roya l Dutch Shell plc a nd its subsidia ries in genera l. Likewise, the words “we”, “us” a nd “our” are a lso used to refer to Roya l Dutch Shell plc a nd its subsidia ries in genera l or to those who work for them. These terms a re a lso used where no useful purpose is served by identifying the pa rticula r entity or entities. ‘‘Subsidia ries’’, “Shell subsidia ries” a nd “Shell compa nies” a s used in this presenta tion refer to entities over which Roya l Dutch Shell plc either directly or indirectly ha s control. Entities a nd unincorpora ted a rra ngements over which Shell ha s joint control a re genera lly referred to a s “joint ventures” a nd “joint opera tions”, respectively. Entities over which Shell ha s significa nt influence but neither control nor joint control a re referred to a s “a ssocia tes”. The term “Shell interest” is used for convenience to indica te the direct a nd/ or indirect ownership interest held by Shell in a n entity or unincorpora ted joint a rra ngement, a fter exclusion of a ll third-pa rty interest.
This presenta tion conta ins forwa rd-looking sta tements (within the mea ning of the U.S. Priva te Securities Litiga tion Reform Act of 1995) concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All sta tements other tha n sta tements of historica l fa ct a re, or ma y be deemed to be, forwa rd-looking sta tements. Forwa rd-looking sta tements a re sta tements of future expecta tions tha t a re ba sed on ma na gement’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performa nce or events to differ ma teria lly from those expressed or implied in these sta tements. Forward-looking sta tements include, a mong other things, sta tements concerning the potentia l exposure of Roya l Dutch Shell to ma rket risks a nd sta tements expressing ma na gement’s expecta tions, beliefs, estima tes, forecasts, projections and assumptions. These forward-looking sta tements a re identified by their use of terms a nd phra ses such a s “a im”, “a mb itio n’, ‘‘a nticip a te ’’, ‘‘b e lie ve ’’, ‘‘co uld ’’, ‘‘e stima te ’’, ‘‘e xp e ct’’, ‘‘g o a ls’’, ‘‘inte nd ’’, ‘‘ma y’’, ‘‘o b je ctive s’’, ‘‘o utlo o k’’, ‘‘p la n’’, ‘‘p ro b a b ly’’, ‘‘p ro je ct’’, ‘‘risks’’, “sche d ule ”, ‘‘se e k’’, ‘‘sho uld’’, ‘‘ta rget’’, ‘‘will’’ a nd simila r terms a nd phra ses. There a re a number of fa ctors tha t could a ffect the future opera tions of Roya l Dutch Shell a nd could ca use those results to differ ma teria lly from those expressed in the forwa rd-looking sta tements included in this presenta tion, including (without limita tion): (a ) price fluctua tions in crude oil and natural gas; (b) changes in demand for Shell’s products; (c) currency fluctuations; (d) drilling and productionresults; (e) reserves estima tes; (f) loss of ma rket sha re a nd industry competition; (g) environmenta l a nd physica l risks; (h) risks a ssocia ted with the identifica tion of suita ble potentia l a cquisition properties a nd ta rgets, a nd successful negotia tion a nd completion of such tra nsa ctions; (i) the risk of doing business in developing countries a nd countries subject to interna tiona l sa nctions; (j) legisla tive, fisca l a nd regula tory developments including regula tory mea sures a ddressing clima te cha nge; (k) economic a nd fina ncia l ma rket conditions in va rious countries a nd regions; (l) politica l risks, including the risks of expropria tion a nd renegotia tion of the terms of contra cts with governmenta l entities, dela ys or a dva ncements in the a pprova l of projects a nd dela ys in the reimbursement for sha red costs; a nd (m) cha nges in tra ding conditions. No a ssura nce is provided tha t future dividend pa yments will ma tch or exceed previous dividend pa yments. All forwa rd-looking sta tements conta ined in this presenta tion a re expressly qua lified in their entirety by the ca utiona ry sta tements conta ined or referred to in this section. Readers should not place undue reliance on forward-looking sta tements. Additiona l risk fa ctors tha t ma y a ffect future results a re conta ined in Roya l Dutch Shell’s Form 20-F for the year ended December 31, 2018 (available at www.shell.com/ investor and www.sec.gov). These risk factors also expressly qua lify a ll forwa rd-looking sta tements conta ined in this presenta tion a nd should be considered by the rea der. Each forward-looking sta tement spea ks only a s of the da te of this presenta tion, May 20, 2019. Neither Roya l Dutch Shell plc nor a ny of its subsidia ries underta ke a ny obliga tion to publicly upda te or revise a ny forwa rd-looking sta tement a s a result of new informa tion, future events or other informa tion. In light of these risks, results could differ ma teria lly from those sta ted, implied or inferred from the forwa rd-looking sta tements conta ined in this presenta tion. We ma y ha ve used certa in terms, such a s resources, in this presenta tion tha t the United Sta tes Securities a nd Excha nge Commission (SEC) strictly prohibits us from including in our filings with the SEC . U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File N o 1- 32575, available on the SEC website www.sec.gov.
Royal Dutch Shell 2 S H ELL LN G O U TLO O K 2 0 1 9 Content
Growing recognition of the role Asian LNG imports exceed Near term supply growth of gas and LNG as the world expectations again in 2018 expected to be absorbed by tackles poor air quality and absorbing continued Europe and Asia– continued climate change supply growth need for investment in supply to meet long-term demand growth
Royal Dutch Shell 3 SHELLS H ELL LN LNG G O OUTLOOK U TLO O K 2 0 2019 1 9 The energy challenge
Growing Rising Need for Mitigating Improving population demand energy solutions climate change air quality According to United Nations By 2070 the world is likely to According to the International The world currently emits 33 billion Updated World Health estimates, the current world be using at least 50% more Energy Agency (IEA), renewable tonnesof energy-related CO2 each Organization (WHO) estimates population of 7.6 billion is energy than it does today as generation is expected to underpin year. To limit the rise in global reveal an alarming death toll of expected to reach 8.6 billion in population grows and people the growth of electricity from 18% temperature to 2°C, the IEA has 7 million people every year 2030, 9.7 billion in 2050 and seek to improve their quality of to 50% of energy supply by 2050. calculated that energy related caused by outdoor and household
11.2 billion in 2100. Nearly a life. The remaining energy demand CO2 emissions need to fall to air pollution. According to WHO, billion people still live without that is difficult to electrify will around 18 billion tonnesa year global air pollution is linked to electricity while another billion still require cleaner solutions. by 2040. The challenge is not inefficient energy use in every struggle with unreliable supplies just to reduce emissions, but to sector of human activity including of electricity. do this while providing more coal-fired power plants, industry, reliable energy supplies. agriculture and transport.
Royal Dutch Shell 4 S H ELL LN G O U TLO O K 2 0 1 9 Gas and renewables to play a critical role in meeting the energy challenge
Global energy demand growth by fuel type Gas growth in the energy mix 2018-2035
BCM 20.000 4 % 4 % 30% 15% 6 % India 41% 16.000 China 12.000
8.000 Europe
4.000 North America
0 Global
0% 10% 20% 30% 40% Energy demand 1% CAGR 2018 2035 Gas share % in the energy mix
Source: Shell interpretation of Wood Mackenzie Q4 2018 data CAGR - Compound annual growth rate
Royal Dutch Shell 5 S H ELL LN G O U TLO O K 2 0 1 9 Government policies being implemented encouraging a cleaner energy mix
South Korean taxes to Chinese Government EU carbon pricing supported favour gas over coal policies target by policy changes Gas share Tax $ / MMBtu BCM €/ CO 2 tn 2 400 12% 10% 30
25 1,5 300 7% 9% 20
1 200 6% 15 4% 10 0,5 100 3% 5
0 0 0% 0 2013 2014 2015 2016 2017 2018 2019 2010 2018 2020 Ja n-1 7 Jun-17 Nov-17 Apr-18 Sep-1 8 (Ta r g e t )
Coal Gas Gas demand Gas share €/ CO 2 tn
Source: Shell interpretation of IHS Markit and ICE Q4 2018 data and announced public policy
Royal Dutch Shell 6 S H ELL LN G O U TLO O K 2 0 1 9 Gas demand growth not reliant on the power sector
Global gas demand growth by sector 2016- 2018 Global gas demand growth by sector
BCM BCM 3.600 5.000 25% 5 % 29% 41% 4.000
3.500 3.000
2.000 3.400
1.000
3.300 0 2016 Power Non 2017 Power Non 2018 2018 Power Industry Re s & Transport 2035 power power comm Gas demand 2% CAGR
Source: Shell interpretation of Wood Mackenzie Q4 2018 data Re s & Comm – Residential and Commercial
Royal Dutch Shell 7 S H ELL LN G O U TLO O K 2 0 1 9 LNG continues to be the fastest -growing gas supply source
Global gas supply by source LNG imports by region LNG imports in Asia
BCM BCM BCM 5.000 34% 1.000 600 41% 62% 4 % 9 % 10% 4.000 800 22% 480 35% 59% 32% -8 % 3.000 600 360
2.000 400 240
1.000 200 120
0 0 0 2018 Domestic Pipeline LN G 2035 2018 Asia Europe Ame rica s Mid - Ea s t 2035 2018 China J KT South South 2035 production imports imports & Africa Asia East Asia
Gas demand 2 % CAG R LNG demand 4 % CAG R Asia LNG demand 3 % CAG R
Source: Shell interpretation of Wood Mackenzie Q4 2018 data
Royal Dutch Shell 8 S H ELL LN G O U TLO O K 2 0 1 9 New countries choosing LNG for various benefits
BANGLADESH PANAMA GIBRALTAR
Natural gas meets over half Repla cing oil-fired power generation Repla cing oil-fired power generation of total energy demand Complement renewable power generation Innovative small-scale LNG solution Declining domestic ga s production Strategic location of Panama Canal Increases diversity of supply LNG meeting existing a nd new ga s dema nd offers opportunities for LNG bunkering
Source: Shell interpretation of Woodmac Q4 2018 Data
Royal Dutch Shell 9 S H ELL LN G O U TLO O K 2 0 1 9 Economic and environmental benefits increasing the use of LNG in road transport
China LNG fuelled heavy-duty transport Europe moving to LNG fuelled heavy-duty transport
Number of LNG trucks and buses in 1000 Number of LNG trucks 400 6000 5.500 LNG HD tr ucks 4000 LNG buses 4000 200 2000 1532
0 0 2012 2013 2014 2015 2016 2017 2018 2016 2017 2018
Source : Shell analysis of Woodmac, SCI, and NGVA data
280,000 LNG trucks 6.7 MT of LNG expected by 2030 consumed in China for road transport in 2018 155 LNG fuel stations in 2018
2,552 LNG fuel Co-financed by EU, Bi o LN G sta tions in 2018 Euro N e t is building 39 LNG sta tions, 2000 LNG trucks a nd a Bi o LN G production plant Royal Dutch Shell 10 S H ELL LN G O U TLO O K 2 0 1 9 Marine LNG poised for growth
2018 Q UARTER 1 Q UARTER 4 LNG fuelled vessels Mitsui OSK order LNG bunker barge Crowley takes delivery Tugs to serve Total-CMA-CGM dea l of second LNG-powered Ro-Ro cargo ships container/ roll on-roll off (ConRo) ship Ro Pa x In operation World's first LNG-fuelled bulk Other vessels* On order carrier charter delivered Bunkering of the first Oil/ Chemical ta nkers LNG fuelled Aframax Offshore supply ships Carnival orders 9th tanker by Shell Cardissa General cargo ships LNG fuelled Cruise ship Multi - gas tankers H-Line Shipping Cr uise sh ip s Q UARTER 2 ordered two LNG Crude oil tankers fuelled bulk carriers Container ships Shell agrees to charter two Car passenger ferries LNG powered World’s first LNG powered Car carriers tankers from AET cruise ship sets sail Bulk ca rriers Kairos, the 7,500 m³ bunker 0 10 20 30 40 50 MPA awards grants for two LNG bunker barges vessel started operations for Singapore MTPA Projections for LNG in Marine Adnoc and Inpex sign 40 agreement to explore LNG 30 Q UARTER 3 bunkering opportunities 20 in UAE 10 First Japanese LNG 0 bunker vessel ordered 2020 2025 2030 2035 Public Gas Corp of Greece signed a grant agreement Hapag Lloyd announces with EU for construction of it will convert a container Source: Shell interpretation of DNV-G L & Woodmac *Other vessels includes fishing vessels, dredgers, etc. the first LNG bunkering vessel vessel to operate on LNG
Royal Dutch Shell 11 S H ELL LN G O U TLO O K 2 0 1 9 More than 70% of the current wave of LNG capacity additions online
LNG trade volume LNG liquefaction capacity additions
MTPA (DES ) MT (DES ) Share online 400 50 100% 319 40 80% 300
30 60% 200 20 40%
100 10 20%
0 0 0% 2005 2007 2009 2011 2013 2015 2017 2019 2015 2016 2017 2018 2019 2020 2021 Capacity additions (2018 forecast) Capacity additions (actual/ 2019 forecast) Share online (nameplate capacity)
Source: Shell interpretation of IHS Markit Q4 2018 data
Royal Dutch Shell 12 S H ELL LN G O U TLO O K 2 0 1 9 Asian LNG demand continues to exceed expectations
Net exports YoY Net imports YoY
MT (DES ) MT (DES ) 30 30 Previous forecast (consensus) Previous forecast (consensus) Actua ls Actua ls 20 20
10 10
0 0 To t a l To t a l Austra lia USA Russia Re st o f To t a l To t a l North Asia NW S Europe Re st o f world Europe world -10 -10 2017 2018 2017 2018
Source: Shell interpretation of IHS Markit, Wood Mackenzie and Poten & Partners 2017 and Q4 2018 data Yo Y: Ye a r o n Ye a r
Royal Dutch Shell 13 S H ELL LN G O U TLO O K 2 0 1 9 LNG imports increased by 27 MT in 2018
Net imports: 2018 YoY
MT (DES ) Previous forecast (consensus) Actua ls 16
12
8
4
0
-4 UK UAE Ita ly USA Chile India Isr a e l Eg yp t Spa in Br a zil Ma lta China Japa n Fr a n ce Turkey Jordan Pola nd Greece Ku w a it Mexico Taiwan Finla nd Canada Sweden Belgium Norway Jamaica Panama Portugal Pa kista n Tha ila nd Do m Re p Lithua nia Ma la ysia Colombia Indonesia Argentina Singapore Puerto Rico Bangladesh Netherlands South Korea
Source: Shell interpretation of IHS Markit, Wood Mackenzie and Poten & Partners 2017 and Q4 2018 data
Royal Dutch Shell 14 S H ELL LN G O U TLO O K 2 0 1 9 Spot market gains momentum with volume growth
Spot LNG Supply Spot LNG deliveries ICE JKM LNG (Platts) futures
Cargoes Share spot Cargoes Share spot Cargoes 1000 Lots 1600 30% 1600 30% 600 180
500 150 1200 1200 20% 20% 400 120
800 800 300 90
10% 10% 200 60 400 400 100 30
0 0% 0 0% 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 JKT China South Asia Australia USA Qatar Mid dle Ea st Europe America s Other Re-exports % spot % spot
Source: Shell interpretation of IHS Markit Q4 2018, S&P Global Platts and the ICE data
Royal Dutch Shell 15 S H ELL LN G O U TLO O K 2 0 1 9 New supply expected to be absorbed by Asia as well as Europe in 2019
LNG supply growth range by country LNG demand growth range by region
MTPA MTPA 35 35
30 30
25 25
20 20
15 15
10 10
5 5
0 0
-5 -5 Austra lia USA Russia Rest of world As ia Europe Amer ica s Middle East & Africa
Source: Shell interpretation of IHS Markit, Wood Mackenzie, Poten & Partners Q4 2018 data
Royal Dutch Shell 16 S H ELL LN G O U TLO O K 2 0 1 9 Europe needs more imports to offset declining domestic gas production
Europe gas supply outlook Gas supply by source in 2019
BCMA BCMA 600 600
500 550 400
300 500
200 450 100
0 400 2010 2015 2020 2025 2030 2035 2018 Domestic Alg e ria Other Russia n LN G 2019 production pip e line pip e line pip e line Domestic production Norway pipeline Algeria pipeline Other pipeline Russia n pipeline LN G
Source: Shell interpretation of IHS Markit Q4 2018 data
Royal Dutch Shell 17 S H ELL LN G O U TLO O K 2 0 1 9 Asia has significant potential to take more LNG volumes
2018 Regasification capacity 2018 Gas-fired power generation 2018 Coal-fired power generation and utilisation capacity and utilisation capacity and utilisation MT 177 101 71 27 19 10 9 8 7 3 GW 87 36 81 26 16 33 15 20 13 12 GW 43 42 996 235 20 5 2 29 11 0.2 100% 100% 100%
80% 80% 80%
60% 60% 60%
40% 40% 40%
20% 20% 20%
0% 0% 0%
Unitilised Capacity Utilised Capacity Unutilised Capacity Unutilised Capacity Highest utilisation (past 10yrs) Utilised Capacity Utilised Capacity
Source: Shell interpretation of IHS Markit and Wood Mackenzie Q4 2018 data
Royal Dutch Shell 18 S H ELL LN G O U TLO O K 2 0 1 9 Supply investment still needed to meet continued LNG demand growth
Emerging LNG supply-demand gap Investment in liquefaction capacity
MTPA MT * Assumption- 5 years FID to be onstream 700 40
600 2018 30 500 outlook range 400 20 300
200 10 100
0 0 2000 2005 2010 2015 2020 2025 2030 2035 2010 2012 2014 2016 2018 2020* 2022* Yea r of investment decision
LNG supply in operation LNG supply under construction Demand forecast range FIDs needed for high demand FIDs needed for low demand
Source: Shell interpretation of IHS Markit, Wood Mackenzie, FGE and Poten & Partners Q4 2018 data
Royal Dutch Shell 19 SHELLS H ELL LN LNG G O OUTLOOK U TLO O K 2 0 2019 1 9 Growing recognition of the role of gas and LNG as Summary the world tackles poor air quality and climate change Gas to supply the largest share of energy demand growth, supplying over 40% of additional demand by 2035 Coa l-to-ga s switching led to 78% improvement in Beijing winter a ir qua lity over the la st five yea rs
Asian LNG imports exceed expectations again in 2018 absorbing continued supply growth China beca me the world’s la rgest ga s importer, with LNG imports doubling over two years JKM futures trading volume increased ten-fold since 2016
Near term supply growth expected to be absorbed by Europe and Asia – continued need for investment in supply to meet long-term demand growth 35 MT additional supply expected in 2019 2018 saw final investment decisions on 21 MT of new capacity compared to a total of 7 MT in the last two years combined
Royal Dutch Shell 20 IMPLICATIONS FOR RUSSIA
RoyalCopyright Dutch of Shell Exploration and Production Services (RF) BV FIRST RUSSIAN LNG PROJECT 25 th ANNIVERSARY
RoyalCopyright Dutch of Shell Exploration and Production Services (RF) BV Royal Dutch Shell